CapitalGrowth's  Instablog

Send Message
Senior Executive, Professional Engineer, Research based, common sense investor.
  • MannKind Fair Share Price $50 Or $150? 11 comments
    Mar 23, 2014 12:25 PM | about stocks: MNKD

    In the flurry of punches and counterpunches that have preceded the MannKind (NASDAQ:MNKD) AdCom mtg on April 1st, the question of fair share value versus market cap continues to spark debate and concern. In this article, I will share some simple, common sense analysis of this issue. I like data and numbers so I went to the Forbes website and pulled up their list of the Top 10 U.S. Pharma companies by market cap in 2013. Interestingly, the listing also shows their sales figures. Of course, the big 3 are there (Pfizer, Bristol-Myers Squibb, Merck), but the group quickly drops down to smaller, much lesser known companies. Here's what caught my attention. Among these 10 companies, the average ratio of market cap to sales was 3 to 1. That's right, on average market cap was 3 times the size of the sales figures. I'm sure there are many folks who will have 1001 theories about this ratio. To them I say, "Tilt on!" The ratio is what it is, and I won't attribute it to anything other than current "market/economic forces".

    Global sales of insulin are on a one-way slope going up. Projections vary widely for 2014 between $20B and $40B. That's a big range, but in the interest of skipping the debate about which figure is correct, I'll use the low number for my remaining analysis.

    If approved, Afrezza will dominate this market. How long will it take? There are currently too many unknowns in that equation to solve it. I'll defer to those who like to speculate. At some point, though, Afrezza sales will approach $15B (75% of the $20B market, remember I'm using the low number). Any doubters out there, please talk to anyone who currently injects insulin. I have two family members - they're my data source.

    Now apply the previously mentioned 3 to 1 ratio (market cap to sales), and you come up with a $45B future market cap for MannKind. Again, look at the Forbes numbers if that figure scares you. Today, MannKind's market cap is $2B. $45B is 22.5 times greater. So, to calculate the accompanying fair future share value, you'd apply the 22.5 figure to the current share price (since it's linked with the $2B market cap), and you get a future share value of somewhere between $115 and $130 (considering the share price fluctuations over the past few weeks).

    Conclusion, don't be scared of MannKind's current $2B market cap. Look at the data to see what the market is currently supporting in terms of sales vs. market cap for the Pharma sector, and you'll see that MannKind has about as much headroom as I do when I walk under the St. Louis Gateway Arch!

    Disclosure: I am long Mannkind and truly hope this drug is given the opportunity to improve the lives of those who suffer from diabetes around the globe.

    Reminder: Be smart with your money. Do your own research, don't rely on someone else, then make prudent investment decisions based on your financial situation.

    Disclosure: I am long MNKD.

    Stocks: MNKD
Back To CapitalGrowth's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (11)
Track new comments
  • pilot fish
    , contributor
    Comments (147) | Send Message
    I'm a long and hold a lot of shares. That being said, don't crucify me for this next comment. It's easy to loose sight that this is a company that hasn't generated any revenue yet. The play here is on future earnings as the author pointed out. I'm very optimistic and hope your right!
    23 Mar 2014, 02:12 PM Reply Like
  • CapitalGrowth
    , contributor
    Comments (22) | Send Message
    Author’s reply » Thanks for your comment. I agree with your point about revenue. My intent with this article was to give folks some objective information to help them stand firm in their allegiance to MNKD in spite of the negative posts by MNKD skeptics regarding market cap vs. fair share value.
    24 Mar 2014, 02:10 AM Reply Like
  • Planbee
    , contributor
    Comments (17) | Send Message
    "If approved, Afrezza will dominate this market."


    Wow! 75% of the insulin market? That, my friend, is baseless crass speculation.


    It would be an interesting feat, since 50% of the insulin market is for basal insulin, which Afrezza does not replace.


    So, I guess Afrezza will have to take 150% of the prandial market.
    23 Mar 2014, 04:54 PM Reply Like
  • CapitalGrowth
    , contributor
    Comments (22) | Send Message
    Author’s reply » Interesting points in your comment - please keep in mind though that the message I was trying to send was for folks not to fear the MNKD market cap scare tactics that are floating around. Regarding "baseless crass speculation", I was honest when I said that my 2 family members are my data source. There are so many studies out there confirming the overwhelming desire from diabetics to have an alternative to injection. You sound like you know a lot about this subject, so I won't bombard you with web links. Regarding the basal (long acting) versus prandial (meal-associated) insulin, I've looked but never found data that allocates percentages of the global insulin market between these two.
    24 Mar 2014, 02:12 AM Reply Like
  • Planbee
    , contributor
    Comments (17) | Send Message
    You sound like a decent guy. Thanks for the polite reply to my less-than-polite (if realistic) comment.


    I was mostly trying to poke at the $50 - $150 valuation. It really is an unlikely price target, given the state of MNKD's balance sheet.


    Here's a reasonable source for basal / prandial / premix market share:

  slide 27


    Baslal 47.8%
    Prandial 33.9%
    Pre-mix 18.3%


    Also, the anti-diabetic drug market is highly segmented. Mannkind would do well to crack 5%-10% of this market in the first several years since there's so much competition. A 5% market penetration would qualify Afrezza as a blockbuster.


    Best of luck to you and your family members.


    Disclosure: I'm long, hedged, excited for the next 2 weeks.
    24 Mar 2014, 07:21 AM Reply Like
  • gmanwicksy
    , contributor
    Comments (131) | Send Message
    Im looking at holding stock to the 20-25 range is my target a 4-5 bagger upon approval. 50-150 is blue sky pricing, maybe with short squeezing short term perhaps is the only way I see my shares having a chance to hit that, wouldn't mind if they did go that high of course, but 20 bucks is my current happy giddy price if it makes it there over time. 50 bucks plus I would fall out of my chair!
    23 Mar 2014, 07:42 PM Reply Like
  • CapitalGrowth
    , contributor
    Comments (22) | Send Message
    Author’s reply » If approval is followed shortly by a deal with a globally capable partner, then I think your target will be realized in the near term. The $50+ target is for a long term hold after all the uncertainties I alluded to in my article are resolved. To anyone who's reading through these comments from top to bottom, I'm probably starting to sound like a broken record.....but again I just want to emphasize that my purpose with this article was to try and dispel the fears/concerns about MNKD's current market cap that may be keeping some potential investors from hitting the "buy" button. To achieve this end, I tried to make my point in dramatic fashion. I probably should've made the article a little longer and provided more clarity about the time to achieve the sales, market cap, and share price yielded by my comparison to the Forbes averages. Good 'ole hindsight!
    26 Mar 2014, 06:35 AM Reply Like
  • The Behavioral Economist
    , contributor
    Comments (847) | Send Message
    I enjoy your writing, and quite frankly, I even embrace your comparative premise. That being said, I think the application of the premise is a bit short sighted. In a perfect world, where simplicity and transparency reigned supreme, and all biotech's "were created equal", your application would be near flawless. However, unfortunately for many, such a world is far from reality. Subjectivity, fairly or unfairly, often weighs supreme in market evaluation.


    That being said, the basis of perspective below your empiricism is dead on. I believe MNKD will procure approval here, and that an upward trend will continue. The market would never price the company to 75% of AM though unless multi-year sales actually proved such - forecasts and speculation would never take it that far, even at 7-10 years without ANY applicable discount.


    For whatever it is worth, I see 9-11 dollars with a landslide AdCom, and 11-14 dollars with FDA approval. I see a 5.0 - 5.25 billion market cap as best case scenario "pre-partnership" or "pre-buyout". I will admit, that in the event of noteworthy partnership, this could be evaluated higher, and in the event of anyone actually meeting Al's demands for a buyout (which one would assume are comically eccentric) it could be priced to a significant premium where a 10-12 billion dollar evaluation dictated pricing.


    If MannKind goes at it alone, without a buyout, and without a significant global partner, then maybe 50 dollars per share, down the line, in multiple years' time, would be possible, pending dilution.


    All that being said, I applaud your optimism, and hope to see more contributions from you. Also, if you're right, and this price explodes in the next couple years to between 50 - 150, I will happily concede to your foresight and admit I was wrong. Best of luck to you.
    25 Mar 2014, 12:47 PM Reply Like
  • CapitalGrowth
    , contributor
    Comments (22) | Send Message
    Author’s reply » I'm not a fan of chat forum love fests, but you have an impressive command of the English language and very impactful communication skills, so it was quite flattering to hear that you enjoy my writing. I don't believe I can take exception to any of your points. Please see my REPLY to the prior comment above for more elaboration on timeframes. I guess the main difference between our perspectives is the degree of "bullishness". I see MNKD reaching 20-25 near term, but that hinges on a well-received partnership arrangement (you also said your valuation would be higher with the right partner, so maybe we're not that far apart). Thanks for your kind words.
    26 Mar 2014, 06:45 AM Reply Like
  • Nathaniel Munson
    , contributor
    Comments (68) | Send Message
    I commented on your stock talk announcing this article. To be clear, I'm straddling the PDUFA date, but believe with about 80% certainty that Affreza will pass, I'm just hedging. I have a heavier wait to the long side. I definitely see those share prices you mention being possible in the long run, but I think they will be bought out before then for a lower valuation, probably in the upper $20's range. If rejected, I believe the share price will go below $1 though, hence my hedging. Thanks for the article
    26 Mar 2014, 09:37 AM Reply Like
  • gmanwicksy
    , contributor
    Comments (131) | Send Message
    Don't think people like or understand what they read in the briefing document today. Stock up nice in the morning and then down heavy for well over a 10 per cent swing. upper 4's?
    28 Mar 2014, 11:06 PM Reply Like
Full index of posts »
Latest Followers


More »

Latest Comments

Most Commented
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.