Shorting MannKind May Be Far More Dangerous Than Some Might Suggest

| About: MannKind Corporation (MNKD)


The small biotech's financials certainly paint a scary picture.

Most investors should probably stay away.

Retail investors should definitely also avoid the temptation to short this stock, however.

In an article published yesterday by Seeking Alpha, a fellow contributor made a case for shorting MannKind (NASDAQ: MNKD) shares. To his credit, Mr. Amit Ghate's argument was mostly fact-based, built around historical events and drawing heavily on warnings outlined in the small biotechnology concern's latest filing with the Securities & Exchange Commission. Unfortunately, however, deliberately or otherwise, the picture painted by the short seller, per his own disclosure, represents less than the full story. An investment-oriented article doesn't necessarily have to be comprehensive, although that's always preferable. Indeed, if the author were, for example, simply recommending investors avoid a particular equity, he or she need not outline both a bull and bear case. In fact, it might be sufficient to simply detail the horrendous balance sheet, as Mr. Ghate did in the article entitled MannKind: An Enticing Short. On the other hand, if the investment adviser is recommending the shorting of a $2 stock, he is doing a huge disservice if he doesn't also present the other side of the story - or potential risk on the upside. Why? Because the person(s) following Mr. Ghate's recommendation is assuming the risk of potentially unlimited losses to make a maximum of $2.

So what potentially important details has the short seller omitted?

1. It costs somewhere around 100% for investors to borrow MNKD shares for shorting purposes.

2. In MannKind's most recent conference call, the company's chief executive displayed no concern about its cash position.

3. The small biotech recently hired a Chief Commercial Officer, who moved over from biopharmaceutical powerhouse Amgen (NASDAQ:AMGN).

4. MannKind signed a collaboration deal with an outfit named Receptor Life Science earlier that could generate milestone and royalty payments.

5. The company's CEO has indicated that the company was contacted by foreign interests almost immediately after Sanofi (NYSE:SNY) gave notice about terminating the marketing agreement for Afrezza.

6. There is a possibility that Sanofi will pay MannKind some money to quietly conclude their relationship.

All of these "potentially important details" may prove less than significant with the passage of time. On the other hand, 4, 5, and/or 6 could prove critically important. After all, wouldn't the investment thesis on MNKD shares change dramatically if any of the above produced some cash for the company and gave it more time to sell Afrezza both here and in international markets!

This relatively short article doesn't constitute a recommendation that investors leap into MNKD stock. It's simply a suggestion that Seeking Alpha subscribers do a little more reading before following Mr. Ghate's advice.

Disclosure: I am/we are long MNKD, SNY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.