Mannkind: High Risk Diabetes Bet

04/10/2015 7:00 am EST

Focus: ETFs

Nate Pile

Editor, Nate’s Notes and The Wagmore Advisory Letter

Our first warning regarding this favorite biotech stock is “do not own more of the stock than you can comfortably sleep with at night,” asserts Nate Pile, editor of Nate's Notes.

While I remain optimistic that we will likely make a lot of money on MannKind (MNKD) over the next several years, I cannot promise you it won’t see $4 per share before it sees $8 again, for example.

That being said, I want to remind you of the main reasons we own the stock and then I will try to touch on as many of the recent news events as space allows.

So, why do we own the stock? In a nutshell, diabetes is a huge and growing market and prandial (or meal time) insulin is a multi-billion dollar subset of that market.

And, while scientists have made great strides over the decades figuring out ways to deliver meal time insulin to diabetics in an increasingly efficient manner, the fact of the matter is that they have essentially hit the wall in terms of being able to improve upon existing products.

However, thanks to the unique composition and delivery method of MannKind’s Afrezza, it is my contention that this segment of the insulin market is about to be turned on its head.

And though it may take longer than the optimists are hoping for the paradigm shift to hit critical mass, I believe that once that tipping point is reached, Afrezza will be the dominant player in the multi-billion dollar meal time insulin market.

Afrezza enters and exits the body in a way that matches the way insulin is produced and used in the bodies of non-diabetics; this should allow diabetics to lead normal lives rather than spending a sizable chunk of their time managing their diabetes.

Of course, what makes the story that much more compelling is the fact that it happens to have the added benefits of not only eliminating needles from the equation—in terms of delivering the insulin—but of also doing so in a manner that is extremely easy and convenient relative to the old way.

And this brings us to the first point of contention many of you have asked about this week, namely that a big deal is once again being made of the fact that in the most recent clinical trials that were done using Afrezza, the drug didn’t appear to show much of a benefit versus existing therapies.

Yes, pessimists have been mocking the low numbers of prescriptions that have been generated so far, but I want to remind you of a number of variables that are in play at this stage of the game.

But I want to emphasize that it will take a while for patients and doctors alike to get up to speed with Afrezza and I think the very earliest we could start to see meaningful trends will be somewhere in months 4–6, or so.

Meanwhile, billionaire founder Al Mann himself has not parted with a single share. I believe it is also worth noting that institutional ownership has been increasing, not decreasing, over the past several months.

Even if it takes awhile for things to play out, there are a lot of reasons to think we are going to make a lot of money in this stock as time goes by; but it will require patience and there will undoubtedly be plenty more volatility along the way.

With each passing day, I become more optimistic that Afrezza is on its way to disrupting the insulin market—and with 91 million shares currently short—the fireworks could be spectacular, indeed, if/when the stock starts to head higher again.

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