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Summary

  • MannKind and Sanofi have put together a deal that we like.
  • We expect MannKind stock to pull back to $6.50 before moving back into double digits in the next 4-6 quarters.
  • Short term, we rate MannKind as RIPE (HOLD), but long-term focused (2-3 years), we like the company's prospects.

By Parke Shall

We think that MannKind (NASDAQ:MNKD) is eventually going to be a long term winner for those holding the stock. Though we rarely get involved with the biotech sector, we've been following the MannKind case for the arduous years leading up to the final FDA approval that came weeks ago, and we've been following how the stock is trading of recent.

This year, the stock got a bit ahead of itself in moving back up to the double digits, significantly increasing the market cap of the stock well past $3 billion. Once the euphoria of FDA approval was behind the stockholders, a bit of reality set in as people asked themselves how MannKind was going to be able to generate the revenue necessary to support the valuation of the stock.

(image source)

Afrezza, MannKind

Lo and behold, weeks later, MannKind announced their current deal with Sanofi, which netted them $125 million up front with milestone payments up to an additional $800 million. It gives Sanofi the right and license to sell Afrezza, with a reasonable 65/35 split for Sanofi and MannKind respectively. Sanofi is leveraging MannKind's potentially groundbreaking product and MannKind is leveraging Sanofi's expertise in the pharmaceutical and drug startup business. It looks like a win/win situation to me, despite what some of the bears have commented on this site and on other financial sites.

For the most part, I believe it to be a fair deal; time will be the teller of the ultimate tale, however.

MNKD Chart

MNKD data by YCharts

What does this chart show us?

It shows us that the $6.50 area seems to be the next area of support and the area where we will likely consider the idea of a position in the stock. I am convinced that while the valuation may seem stretched now, that this will be a long term success.

As we try to do in some of our pieces, let's review the arguments that we like from both sides of the trade:

We think the bulls are right:

  • when they think that MannKind is going to be a long-term game changer (the diabetes market is supposed to reach $55b by 2017)
  • when they comment that the deal with Sanofi was good, despite the chatter on the blogs about it being less than stellar; a chance for $1 billion up front takes care of 1/3 of MannKind's market cap by itself and the resultant sales of Afrezza will more than make up for the rest
  • when they suggest this could be a $20 stock by 2016-2017; with proper execution of Afrezza roll out and ideal market conditions, it very well could be
  • when they suggest that MannKind has done everything they could have done to this point and so far are executing according to plan; yes, we believe it's going to take time for this story to develop, but that doesn't mean MannKind isn't doing things correctly thus far

We think the bears are right:

  • when they suggest the short term dip in the price may not be over; aside from being at the behest of the macroeconomic climate, investors may not be done bailing out before those ready to dig in long term take the bid
  • when they suggest that MannKind still has plenty of work that needs to be done
  • when the suggest that the company needs to manage itself, but also manage the stock price; meaning communicating with the market a bit more guidance-wise for the first couple of quarters
  • when they say that the Sanofi deal could have been better; technically correct, realistically a little nutty - a good read on those details can be found here

The Peel's Feel:

Ultimately, I'm bullish on the company. For the time being, that makes OPI bullish on it until I have to pitch my case to the boss.

Again, we're rating the equity RIPE (NYSEARCA:HOLD) here and expecting a better entry point to possibly ride this stock for a couple of years to come. I personally have a short term price target of $6.50 within the next quarter, at which point I will look at the fundamentals again to confirm my long-term prediction that this stock could be worth as much as $20. The better things progress with Sanofi, the more likely we would be to add to a position in the company.

I truly believe that inhaled insulin is going to be one of the next "big things" in the diabetes world and that it's going to change the process of daily life for many people who are forced to go through arduous and physically traumatic and exhausting ways to treat themselves/monitor their insulin levels.

There's a saying that hangs on the wall at one of the delis near my place on the upper east side. Above the cashier it reads, "you need patience the most right when you're about to lose it."

I think bulls have this one right, and I encourage them to abide by that statement.

Source: MannKind Is Ripe: Let's Do Big Things, But Fundamentals First