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Summary

  • MannKind announces a newly formed licensing arrangement with Sanofi early Monday.
  • On this note, I reiterate my bull thesis on MannKind, given that it has successfully acquired an international partner to market Afrezza.
  • I anticipated a partnership would take place shortly after approval. The news release corroborates this position.

Back in June, I took a lot of heat from long investors for writing a bull article on MannKind (NASDAQ:MNKD) with a thesis stating that FDA approval of Afrezza was already priced into the stock. At the time of release, MannKind shares traded around $10.30. After approval was announced, shares only climbed 10%, followed by a sharp drop to the low $8s. Thus, the options strategies I initially constructed proved superior to the standard buy-and-hold strategy. What I proposed -- the upward cap at $15/share and a downward cap at $7/share -- was a prudent way to approach an unpredictable event, which was evidently over-hyped, as indicated by the tremendous increase in share price over the several months leading up to it. However, today is a new day: MannKind has broke the news that it has managed to license Afrezza to Sanofi (NYSE:SNY), an agreement that could send shares higher on anticipation of commercial launch in the US in Q1 2015. After all, shares are trading up 20% on the news. As a result, I reiterate my bull thesis on MannKind, given the value of the licensing deal, along with the great market opportunity that now lies ahead for both firms.

But first, here are some of the highlights of the licensing agreement between MannKind and Sanofi:

  • Afrezza's US launch is scheduled for Q1 2015.

  • MannKind receives $150 million upfront, as well as the opportunity to unlock up to $775 million in milestone payments.

  • Both firms agree to share profits and losses internationally, with Sanofi retaining 65 percent and MannKind retaining 35 percent.

  • Sanofi will advance collaboration expenses of up to a limit of $175 million to MannKind.

So, the million-dollar question is whether or not a giant leap for MannKind is made possible through this licensing deal. With backing from Sanofi, MannKind now has the means to penetrate an ever-growing market in diabetes. As it stands, it's estimated that the global insulin market is $32 billion, leading me to believe there is no question that MannKind has a significant market opportunity. And with commercial expenses largely being fronted by Sanofi, MannKind has the much needed leeway to develop its other pipeline assets. However, being the conservative investor that I am, I think it's prudent to reiterate that FDA approval and a lucrative partnership doesn't always translate to success. Granted, shareholders could benefit enormously, since Afrezza now has a clear path to market -- with the guidance and financial backing from a proven winner in Sanofi -- but it's important, nonetheless, to be aware of the potential obstacles that lay ahead. In particular, both firms must raise awareness of Afrezza among patients and doctors, optimize sales efforts and meet sales expectations. Needless to say, proper execution is key, but with much needed support from Sanofi, I'm confident in how MannKind is situated, and thus, I reaffirm my bull thesis in anticipation of the US launch of Afrezza expected in Q1 2015.

Source: Update: MannKind Enters Licensing Agreement - Is The Giant Leap Now Made Possible?