Pending FDA Approval Means Mannkind Is Down, But It's Not Out

Mar. 3.11 | About: MannKind Corporation (MNKD)

It's been a few weeks now since Mannkind's (NASDAQ:MNKD) quarterly report (see conference call transcript here) and mass company layoffs sent shares plunging and had investors wondering whether or not it was worth buying into the drastic dip in price.

The high-volumed downturn in price, of course, was initially fueled by the FDA's second approval denial for Afrezza, Mannkind's inhaled insulin spray that looks like will need another Phase III trial before once again being brought before the agency for approval.

Now that the panic has left the scene and the volume has returned to normal, cooler heads can prevail and take an objective look at what the short and long term prospects for Mannkind will bring.

During that fourth quarter earnings call, even company founder and CEO Alfred Mann, who has roughly a billion dollars of his own money invested in Mannkind right now, seemed to waver somewhat on his commitment and confidence in the eventual approval of Afrezza.

Since that time, however, his statements have been clarified, if not retracted, and it look like it's full bore ahead with bringing Mannkind's flagship product to market.

What has changed since the latest Afrezza setback? The possibility of Mannkind landing a partner has recently presented itself. Recent statements by the company have indicated that once the situation and road path for Afrezza approval is clarified with the FDA, then partnership talks will be ignited, although it's possible that there's talks going on behind the scenes right now.

Any agreement with big pharma to bring Afrezza to market won't necessarily have the company splitting the risk, since Mr. Mann and Mannkind have already front loaded a fortune into the product already, but it would certainly alleviate the need for Mann to put any more of his own money to work for the upcoming trial.

The FDA's concern was that another trial needed to be conducted testing Afrezza with the next generation inhaler that Mannkind intends to employ.

Fair enough, but what's to stop the agency from conditionally approving the product with the first generation inhaler that was used during the trial, and have the product on the market while the new trial is being conducted?

Seems like that would satisfy both parties, and if it really is all about the inhaler, then that has to be considered as a remote possibility.

If Vanda Pharmaceuticals (NASDAQ:VNDA) taught us anything a couple of years ago, it's that, once in a while, the FDA can turn on a dime.

Regardless, although the short term prospects for Mannkind may look bleak - partnership potential aside - the path for Afrezza approval looks clear; it's going to take another trial.

That will add more time to the developmental stage of the product, and also give Generex (OTCPK:GNBT) and Oral-lyn a chance to play catch-up (assuming Oral-lyn is progressing in Phase III as planned), but it certainly doesn't count Mannkind or Afrezza as down and out.

This product could still be considered a potential blockbuster.

Where it gets tricky, is if Afrezza and Generex's Oral-lyn do hit the market at the same time (assuming both make it that far), then how much will the delivery system come into play?

Afrezza delivers insulin by lung inhalation and Oral-lyn uses the inner lining of the cheek (see here).

A large reason that a similar product from Pfizer (NYSE:PFE), Exubera, was deemed a flop was because of the long term safety concerns of insulin inhalation through the lungs, according to published reports, and that could end up coming back to haunt Afrezza as well.

If both products make it to market, however, there should be room for both.

At this time it looks like Mannkind can get the job done first, even with the setback, since there's been no updates from Generex on the Oral-lyn front for months.

The dust is settled, and Mannkind is still trading for under four bucks. Those January 2013 call options have already made for a nice trade since mid-February and have fallen back down to buy territory, in my opinion.

Whether it's options or shares, MNKD is looking like a pretty good 'just in case' play; if anything even remotely positive occurs on the Afrezza approval front, then it's highly likely that this stock is going to shoot back up towards the ten dollar mark.

The news can't get much than it already has, so why not?

Let's just keep it in the back of our minds that we might not have heard the last from Mr. John Arditi and his allegations of fraud; more bad press is one thing that Mannkind cannot afford right now.

Disclosure: I am long OTCPK:GNBT, MNKD.