Mannkind

01/07/2015 7:00 am EST

Focus: STOCKS

Nate Pile

Editor, Nate’s Notes and The Wagmore Advisory Letter

For my top speculation, I again turn to my Top Pick from last year—a biotech stock which rose nearly 100% during 2014 before giving back most all of those gains, explains Nate Pile, editor of Nate's Notes.

MannKind (MNKD) produces Afrezza (inhalable insulin for diabetics), which was approved by the FDA last summer.  I believe it represents a significant step forward and has the potential to become the mealtime insulin of choice over the next several years.

Of course, there is a chance that I am wrong and Afrezza will end up struggling to gain traction in the highly competitive world of diabetes drugs (please read that sentence again and again). The last inhalable insulin that was introduced to the market (Exubera) flopped big-time.

Working against the company are the fact that its partner for the product, Sanofi (SNY), is struggling with personnel and PR issues. And, as it stands, the labeling for Afrezzais less favorable than the company would like (though this variable can change over time as more studies are done).

There is very significant short interest in the stock. While the company has expressed confidence that it will be able to meet all of its cash flow needs going forward, there are still a lot of variables in play that might make this a challenge.

And, while there have not been any flags raised based on the studies that have been done so far, the possibility of Afrezza being a lung cancer risk may cause a number of potential users to hold off trying it. And, of course, there is a chance that lung cancer mightactually be identified as a risk after more studies are done.

Overall, if you had told me in January 2014 that the stock was going to finish the year where it started after having the uncertainty regarding both approval and finding a partner (Sanofi) removed from the equation, I would not have believed you. But that’s exactly what we’re looking at.

In my 26 years of following the sector, I believe the MannKind story may represent one of the most inefficient markets I have ever seen for a stock.

Given our long-term approach to investing, we don't mind waiting (and have been aggressively buying the stock at current prices). MNKD is a strong buy under $6 and a buy under $9.

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