Published on 360 Biotech: Friday, 08 August 2014 20:03 Written by Doctor Hung V. Tran, MD, MS
As MannKind Corporation (NASDAQ: MNKD) prepares to release its earnings report on Monday, August 11, both investors and short sellers wait in suspense. The company recently signed an agreement to secure its supply for synthesizing the "Super Rapid Acting Insulin" Afrezza from a French biopharmaceutical firm, Amphastar Pharmaceuticals (NASDAQ: AMPH). Afrezza offers unparalleled convenience over the traditional drugs used for injection of mealtime insulin, Novolog and Humalog. The "Super Rapid Acting Insulin Afrezza" exhibits the kinetics similar to a healthy pancreas and is delivered through a small whistle-like device called the Dreamboat, offering patients convenience and improving compliance, thereby reducing dreaded diabetic complications annually costing $245 billion.
Under the agreement, Amphastar would supply MannKind a minimum of €120.1 of recombinant insulin over a four-year span of 2015 to 2019. MannKind also has the option to purchase more than the minimum amount of insulin. While the Amphastar supply agreement was great news, the market seemed to fixate on endless "what ifs."
The misguided negativity had resulted in MannKind trading significantly below its true value. MannKind is currently trading at a 17% discount versus its price a month prior. The market further discounted around 1% today with MannKind traded in a deep discount range of $8.01 to $8.22. As of 2:26 pm ET, 6.3 million shares traded over its 10.6 million average daily volume.
Source: Yahoo Finance
In contrast to MannKind, its recombinant insulin supplier, Amphastar, has been trading higher and becoming less and less of a bargain.
Source: Google Finance
The Valencia-based company is looking for a potential partner, as CFO Pfeffer has previously stated that MannKind would not commercialize Afrezza without a partner. As the long weekend hit, shareholders as well as short sellers are anxiously awaiting any news regarding partnerships or buyout.
Data from Nasdaq showed that there are currently 71.7 million shares being shorted, representing roughly $600 million. Short sellers borrow shares – from their brokers such as Scottrade, E-trade or Charles Swab – and immediately sell their shares to the public, waiting to buy back at lower prices and to profit from the difference. With as much as eight days to cover at the current average daily volume, short sellers might face an epic short squeeze as a biopharmaceutical company with a potential game-changing drug can gap up several-fold.
Conversely, seasoned investors believe that MannKind shareholders could face significant losses if the company fails to procure a partner or disclose news regarding a buyout by Monday.
It is anyone's guess what will happen during the upcoming earnings release. However, investors should not place as much weight on Monday but rather focus on what truly matters: the long run.
Although it would nice if MannKind discloses positive news of a partnership or buyout, it is not a requisite for MannKind to disclose a partner at this point for the company to be a good investment. Sometimes lengthy negotiation is necessary in order to procure the best deal. No one knows what's being discussed behind closed doors. What is certain is that Doctor Alfred E. Mann, CEO and founder, invested more than $1 billion (half of his fortune) into MannKind, and he has yet to sell a single share.
Source: Open Insider
The other fact is that MannKind has now contracted for a supply of recombinant human insulin from an expert manufacturing partner, Amphastar Pharmaceuticals. By having an independent insulin supply, MannKind will not be relying exclusively on a direct competitor like Novo or Lilly for raw material or insulin supply. Furthermore, Afrezza is the company's "cup of tea" so to speak. Hence, there is no better company to manufacture Afrezza other than MannKind. Nonetheless, the biggest challenge for MannKind is in the areas of sales and marketing.
Simply put, MannKind does not have the infrastructure (at least not yet) to successfully commercialize Afrezza without a robust sales and marketing team – characteristics of big pharmaceuticals. It would take tremendous resources and time for a small firm without commercialization experience to build an effective marketing and sales team. These reps would have to form relationships with hospitals, private practices and clinics.
Given Dr. Mann's wisdom, success and capital commitment, it would be unlikely that the CEO and founder would choose to launch the Afrezza internationally without a partner. Both bulls and bears should perform due diligence and be patient. Readers can use 360 Biotech's research to reaffirm or reject their thesis. Though it would be nice for MannKind to have a partner already and to remove the dark clouds for loyal shareholders, the intelligentinvestor who waited for many years should be able to give MannKind the time it needs. While I cannot speak for all, "in Al Mann I trust."
"Integrity, Ingenuity, Essence, and Essentially All Else Follow"