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The Long Case For MannKind Corporation

|Includes: MannKind Corporation (MNKD)

Elevator Pitch

Mannkind is expecting FDA approval by mid July 2014 for Afrezza, an inhalable insulin product. Here is an attempt to add some financial analysis to the opportunity.

Thesis & Catalyst For MannKind Corporation (NASDAQ:MNKD)

Mannkind is addressing one of the largest disease states around the world. As with many biotechs and pharmas, there is a lot of speculation by both longs and shorts on the ultimate value. This post is not directed at short term traders, but rather longs who want to see the value played out. It is my belief that the company is undervalued even after the big run.


Focusing on just the number of diabetics in the USA for now. There are currently about 22 million patients growing by 500,000 annually. Of these, 7 million take insulin. This information is contained in a company presentation.

Using this information and assumptions about penetration and average monthly cost, here is one scenario:

Patients using insulin 7,000,000 x Annual cost $1,200 (guesstimate) x 20% Afrezza penetration rate (after ramp) = Revenues of $1,680,000,000

Assume an EBITDA margin of 35%, EBITDA = $588,000,000

Assuming a valuation multiple of 20x, value = $11,760,000,000

This is 3x the current value.

Of course, penetration rate could be higher as many people do not treat diabetes for fear of needles. But remember the ramp period.

The rest of the world has 10x more diabetics as the USA. Conservatively assuming the rest of the world has a 2% penetration rate for Afrezza, the revenues and EBITDA from ROW would be equal to the USA numbers, thus doubling the USA calculation.

The numbers get very big. There is a ramp period which means the above won't materialize in year one, but could within several years. Unfortunately the growth outlook for diabetes is favorable to MNKD and should ensure many years of growth.

A limiter to the valuation is the company being acquired well before it has an opportunity to mature. At Mr. Mann's age, I should think that is likely, but assume Mr. Mann will expect a very rich price to sell his company.

Please do your own homework and I welcome any refinements to this analysis. Please do not comment with short term trading stuff. I am trying to start a serious valuation conversation.

Disclosure: I am long MNKD.