And, speaking of MannKind (MNKD)…

***excerpted from Issue #225 of Nate’s Notes (dated 10/11/13)***

Though I have done my best to help keep subscribers focused on the idea that the story at MannKind (or any development stage drug company, for that matter) must be considered “speculative” until the drug being developed has actually been approved by the FDA, it is clear from the emails I have received lately that a great many of you have devoted at least a small portion of your portfolio to the story… and are naturally wondering “what the heck is going on with the stock?!”

Unfortunately, having followed the sector for 25 years now, the best I can tell you is that based on where MannKind is now at in terms of the drug development cycle (essentially getting ready to file a New Drug Application (NDA) and then wait to see what the FDA has to say), the stock is likely to be extremely volatile until a verdict is actually rendered regarding the drug’s approvability… and given the ownership structure of MannKind’s stock, it is now caught squarely in the crosshairs of what will likely prove to be a very large (and ultimately very painful for the losing side) battle between bulls who are long the stock and bears who have gotten themselves in quite deeply on the short side over the past couple of years (and this, of course, is only going to exacerbate the volatility mentioned above!).

Accordingly, if you are going to be involved with the story, please make sure to only own as much stock as you can afford to lose all your money on (and perhaps just as importantly, do not own more than you comfortably sleep with at night – as mentioned in email replies a number of you regarding the situation, it is never worth losing sleep over an investment… and if you are, try to sell down to “the sleeping point” as soon as possible!).

That being said, I want to reiterate what I’ve said in the last couple of issues, namely that the fact that the recent clinical trials both met their primary endpoints removed a great deal of uncertainty, and under normal circumstances, this news almost certainly would have caused the stock to trade higher rather than lower; however, as mentioned above, there are an unusually large number of investors and “journalist/bloggers” who have a vested interest in trying to save face (and money!) by keeping the stock down after being wrong about the Phase III results, and they are doing everything they can to keep the stock from rising (and, of course, the long-term investors who want to own the stock are more than happy to keep lowering their bids as they accumulate the stock).

In addition, I want to remind you that if a “rookie” CEO were running the company, I’d be more concerned about where things might be headed; however, given Al Mann’s track record and the fact that he is still putting his own money (and encouraging other “friends” of his to be putting large chunks of their money) into the story at this stage of the game tells me that he really does believe there is still tremendous upside potential despite the disappointing stock performance lately.

And, finally, though the stock could just as easily trade back into the $2s or into the teens from here without any news from the company or the FDA (yep – that’s the kind of potential volatility I’m talking about!), the fundamentals are what will ultimately dictate the stock price as time goes by… and, as mentioned numerous times before, provided you are not becoming too overweighted in the stock, you are strongly encouraged to own at least a small position ahead of the FDA filing (and eventual ruling).  After all, as disappointing as the last few weeks have been, don’t forget that the right piece of positive news (a partnership, perhaps?) could send the stock back up just as quickly as it fell!