Fear, Greed, And Prudent Risks: A Clarion Call To The Keepers Of The MannKind Flame

| About: MannKind Corporation (MNKD)
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I quickly review why investors fear that MNKD will not thrive.

I explain why many MannKind believers allow their fear and temptations to override their best judgments.

I encourage believers to allow the results of their due diligence to override their fears.

As investors in MannKind (NASDAQ:MNKD) already know, this Friday (March 28), the FDA will release its briefing documents for the April 1 AdCom panel hearing on Afrezza (its inhaled insulin), which is supposed to be followed by an FDA decision on April 15. The concerns that provoke fear have been well-covered:

1. Either the panel will recommend against FDA approval or FDA will reject Afrezza because:

  • some arcane and previously disclosed FDA rule (possibly revealed to the panel or FDA at the last minute) requires rejection or a third Complete Response Letter;
  • the endpoints will be judged not to have been met; or
  • despite the lack of evidence, there is a concern that Afrezza may cause long-term damage to the lungs the cardiovascular system.

2. Even if the FDA approves Afrezza, it may require a restricted label that limits the number of potential patients on the basis of diabetes type, history of breathing issues, age, etc.

3. Even if the FDA approves Afrezza with a highly favorable label, MannKind may fail to secure a large-cap pharmaceutical partner with a world-class marketing infrastructure, or if it does so, it will not end up with agreement provisions that are attractive to MannKind investors.

4. Even if the FDA approves Afrezza with a highly favorable label and MannKind secures an enviable partner with favorable financial terms, then Afrezza still won't become a blockbuster because:

  • many physicians will refrain from prescribing it;
  • key insurers won't cover it (in part because the price may be perceived as not justifying the benefits); or
  • patients will refrain from using it (for some of the same reasons).

5. Even if large numbers of patients use it and it turns out to be a highly profitable product, MannKind's stock will not reflect its success because of fears that something is too good to be true, long-term health consequences will be discovered, or an equally good or better yet-to-be-approved product will capture a substantial portion of the market share.

I will neither elaborate on these fear not offer the familiar rebuttals here.

The case for MannKind being a multi-bagger has also been covered. Various projections have been offered using various time lines and a range of assumptions. I shall neither elaborate, repeat, nor justify them here.

Why have people who believe in Afrezza, MannKind, and Al Mann nevertheless sold their holdings? Or why are they trading, within a week of the panel meeting? Here are some observations about human behavior. Many investors . . .

1. are risk averse;

2. feel that once a drug has been turned down twice by the FDA its fate is already sealed;

3. follow what others do even when their analysis tells them that others are most likely wrong;

4. sell when they see a major improvement in a stock, especially when it has a volatile history because they expect it will go down again (where they can reinvest at a lower price) before it makes a final march upward; or

5. buy when the key uncertainties have been removed and the stock price has already had a glorious run (after all, momentum is now on their side).

If some of the fears enumerated become reality, those whose investment decisions were consistent with the first four observations will avoid losing their shirts. If Afrezza is commercially successful and MannKind stock does well, those who act consistently with the fifth observation may lose money or only make modest gains. Collectively, these are the reasons why most investors lose money or don't make very much.

However, in my opinion, those who (1) have done their due diligence, (2) have concluded that both Afrezza's and MannKind's prospects are excellent, (3) have invested because they believe the risk/benefit ratio is highly favorable, and (4) continue to maintain their investment over the next few months (despite the stock's likely continuing volatility) will be handsomely rewarded.

I invite you to "hang together" with me or, if you're not already one of us, join us.

Disclosure: I am 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.