My latest thoughts on MannKind (MNKD – $4.83)

***The following is an excerpted and expanded upon selection from material published for subscribers of Nate’s Notes and The Wagmore Advisory Letter on 3/28/14***

After opening strong this morning following the release of the briefing documents associated with the upcoming FDA Advisory Committee meeting, I am afraid that MannKind’s stock spent the rest of the trading session sliding on very heavy volume (though it is worth noting that it did manage to close off the low on heavy volume in the last 15 minutes).

Unfortunately, while I personally did not find anything unexpected in the briefing documents (the panel appears to be set to discuss all the questions you would expect them to be asking as part of a thorough evaluation of Afrezza), I would be lying if I said I wasn’t concerned that the stock broke $5 in today’s trading session.

On the one hand, from the perspective of someone hoping to see a bullish chart pattern remain intact, the stock “should” have held at $5… and the fact that it did not implies that at least one of the patient buyers who was willing to soak up stock at that price in the past is no longer there to absorb the selling pressure this time around.

On the other hand, however, these same buyers were probably well aware of the fact that if the stock broke $5, it would trigger another round of panic selling (and probably entice short sellers to become even more aggressive with their selling)… and, of course, if their goal is to load up on the stock at the lowest price possible, it is hard to fault them for playing their hand in this manner.

That being said, I want to remind you of the following as we head into the panel meeting next Tuesday…

As mentioned above, after reading through the briefing documents released this morning, it appears the panel is scheduled to spend its time debating all the questions one would expect them to discuss based on what we know about Afrezza at this stage of the game.

Yes, some of those questions on the agenda sound quite ominous (and members of the press are jumping all over them), but just because the panel is slated to discuss the topics of lung cancer and pulmonary risks, for example, it does not mean they have already reached a negative conclusion on those issues – it simply means that they will be discussing them to make sure they have been adequately analyzed, scrutinized, and evaluated as part of the review process (as a side note, my favorite headline of the day – which was both completely unbiased and completely “loaded” at the same time – was from Reuters, which titled its article in response to the release of the briefing documents “FDA staff review raises questions about MannKind diabetes device”… well, duh – that’s what Advisory Committees do!).

As it stands, based on the data that has been made available to us, I continue to believe the odds suggest that the panel will likely come to the conclusion that the potential risks of Afezza are not significant enough to justify a “no” vote with regards to the issue of safety, especially when they are stacked up against the far worse safety profiles found in a plethora of other widely used drugs already on the market (but again, the panel may reach a different conclusion than I have!).

And, speaking of things that the press seems to be focusing on (especially those folks who have clearly stated their skepticism of the story in the past), I think it is worth noting that a number of people are citing language from the briefing documents to explain why they think Afrezza will not be a commercial success… and, ironically, by making this part of their argument as to why the FDA won’t approve the drug (again ignoring the fact that “safety” and “efficacy” are really the only two pieces of the puzzle the FDA is charged with exploring), they are implicitly suggesting they actually think it has a chance at being approved (but chose to write the article with a negative bias anyway)! Go figure!

However, while the commercial viability of the drug is admittedly the one aspect of the story that is still completely open for debate (we won’t know if doctors will prescribe – or patients will use – Afrezza until it is actually on the market… though early surveys suggest they will), the fact that an FDA briefing document is being used to discuss the commercial potential of Afrezza ought to make it crystal clear that these articles are being written with the intent of being sensational rather than practical in nature, as the bottom line is that the FDA’s job is simply to evaluate whether or not a drug is safe enough and efficacious enough to be allowed on the market, NOT to determine how large of a success it will (or will not) become if approved (just think of our often mentioned friend Exubera if you don’t believe me!).

As it stands, based on what we do know as “outsiders,” I continue to believe Afrezza is likely to be deemed efficacious for at least a portion of the target population, and though the phrases “lung cancer” and “cough” do appear regularly in the briefing documents (and therefore in many of the negative articles written about the story as well), I have yet to see any compelling data that suggests these issues will actually cause the FDA to rule that the drug is unsafe.

In fact, though a number of bloggers, tweeter, and journalists have suggested that Afrezza has an unapprovable safety profile, I have yet to see a single one of them produce any meaningful data to actually back up the claims they make in their headlines and articles, which have been as extreme as “Afrezza use tied to lung malignancies” (or similar) for example.

Putting all the known pieces together – along with the fact that the ultimate “insider,” company founder and CEO Al Mann (who has seen ALL the data), has put close to a billion dollars of his own money on the line (and not sold a share heading into the panel meeting despite having plenty of time and opportunity to do so) – suggests to me that the drug IS likely to be approved for at least a portion of hoped for indications (and that’s all we need to unlock the rest of the potential waiting in the wings at MannKind).

As is almost always the case ahead of FDA panel meetings, the stock is likely to be extremely volatile over the next few days… and, as mentioned above, I will be the first to admit that it is hard to put a positive spin on the price action we saw this morning (other than to wonder out loud whether the short sellers might be getting “slow rolled” without even realizing it as they continue to bet aggressively in this high stakes match).

The shorts clearly appeared to be in control today, though as discussed above, given the nature of the players who have been invested in the story on the long side for some time now, this may, in fact, be an intentional turn of events on their part as they position themselves for the upcoming AdCom decision.

As mentioned so many times before, please do not own more of this stock than you can afford to lose in its entirety, as there is always risk when it comes to FDA evaluations.

However, for those of you who do own the stock (or might be thinking of starting a position on Monday), I want to encourage you to look beyond the noise and wait patiently for things to unfold at the AdCom meeting on Tuesday – the questions will be tough, but again, as best as I can tell, all the evidence points to Afrezza passing muster on both the SAFETY and EFFICACY fronts (which is all an FDA approvable is supposed to be about).

Yes, with a market cap of close to $2 billion, this is already a much larger company than Celgene was when we first got into it in 1995… but given all that is in the pipeline behind Afrezza, if the company can get past this one last hurdle, I believe this is a stock that we will also end up owning “forever” as the company grows and matures (though, of course, Al Mann’s history of selling his companies once they are “up and walking on their own” suggests we may have to settle for a buyout of the company instead if things do go our way… oh darn).

It has been a long ride since we first got into the stock back in June 2009, but the finish line is now in sight… don’t give up now!  Here’s to hoping for a fair and rational AdCom meeting!