MannKind: Longs Celebrating And Shorts Closing Their Positions

| About: MannKind Corporation (MNKD)

Summary

Afrezza Rx double-digit gains 2 weeks in a row.

Short interest is trending steadily down.

Sample packs running out for new sales reps should spur additional growth.

MannKind Corporation (NASDAQ:MNKD) had one of its best Friday sales reports in a long, long time. Double-digit sales increases in new prescriptions haven't occurred for the company's drug Afrezza since week 5 and 6 of the drug's original launch in February/March of 2015. That's right, like a year-and-a-half ago. In addition to this good news, I'd like to take a brief look at the short interest in the stock, which has been trending downwards, as the risk-reward is shifting to the upside. Finally, after MannKind's brand new sales force hit the streets in late June and early July, sample packs should be running out for new users creating additional sales growth in new prescriptions.

Last week, I predicted that Afrezza Rx might be bottoming out (article), and last Friday's Symphony and IMS data further strengthen my thesis, as sales might have officially reached their bottom. Here is new prescription data from July in a nice easy table.

Sales Week

New Rx

% Change

7/1/2016

107

22% up

7/8/2016

84

21% down

7/15/2016

99

18% up

7/22/2016

115

16% up

Click to enlarge

Source : Trent Welsh

Symphony and IMS data via ProBoards

Now, this is not the end of MannKind's problems, and shorts still have lots of very legitimate concerns going forward, but I would argue that this is some of the best news MannKind has had since its initial launch in 2015. One more week of double-digit increases in new prescriptions (that will be a first for the company), and I will officially start using the T word (trend) to describe prescriptions. It might also be possible, with the start of a "trend," that MannKind's stock might begin a slow uphill appreciation in value. Of course, as with the calling of the bottom last week, time will tell if the market starts to shift to a more optimistic view of MannKind with significant (but still small) sales increases.

I have also been monitoring, very quietly, a very significant drop in short interest in the stock. I believe this is in response to the fact that downside risk is now coming more into balance with upside risk as sales bottom out and start an uptrend. The market, as is usually the case, is a forward thinking vehicle and has been actively covering its short position before MannKind fully took over active selling of Afrezza (short data for last year). Short interest in the stock has plummeted from a high of over 130 million shares on February 12, 2016, to just over 86 million shares on July 15, 2016 (almost 34% down).

I expect short interest in the stock to be significant moving forward, until MannKind starts being profitable with Afrezza and diversifies its product line with Technosphere products, but I think a drop of the short interest down another 20-30 million shares is not out of the question if sales continue to spike upward and sentiment starts to shift. I do not see a short squeeze coming by any means, as there are as many risks to MannKind as there are stars in the sky, but things are looking up and shorts appear to be getting concerned as their ranks thin out, and sales potentially outpace Sanofi's (NYSE:SNY) launch results.

In my last article, I outlined some August catalysts that might help spur future growth. Now, how about a catalyst that might impact sales now. MannKind's brand new and shiny sales force started selling at the end of June and the beginning of July as active marketing and commercialization of Afrezza began again after Sanofi dropped the drug at the beginning of 2016. However, a lot of these new sales were in the form of patients starting out on the company's sample packs. A lot of these old sample packs are being used up in the first 1-3 weeks of use (user dependent) until new sample packs come out late August. This could translate into increased sales at the end of July and August as all the new patients experiencing Afrezza for the first time come off of their sample packs and switch over to new prescriptions of the drug. This should be a one-time catalyst that would explain a slower start in new prescriptions in early July and then a surge to more normal prescription growth. This should help potentially fuel sales growth until August catalysts arrive to help spur growth such as new sample packs, a new spirometry solution, and a new patient reimbursement program called "MannKind Cares."

Everyone is always concerned about MannKind's cash position. Here is an article I did after its last conference call outlining its financial position then and the viability of the company through Q1 2017 (article) (MannKind projects cash to last through Q1 also). I will do an update on its cash and financing options after its next conference call in early August. I would expect to be able to justify then, as before, MannKind's viability with current cash and financing to make it through Q1 2017, and hopefully will be able to add in some sales projections also.

Conclusion

MannKind sales are starting to attract attention as Afrezza prescriptions bottom out. Short interest in the stock has been trending downhill since February as the risk-reward scenario is becoming more favorable for MannKind as sales start a potential uptrend. Finally, catalysts in July and August should help sales continue potential double-digit gains as MannKind's sales force of 60-70 salespeople work to outsell Sanofi's thousands. I believe in Afrezza and continue to be long MannKind.

Disclosure: I am/we are long MNKD.

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.