It’s only been a couple of days since we last looked at MannKind Corporation (NASDAQ:MNKD) but action since our previous coverage dictates that we’ve got to take another look at this one. The company currently trades for $5.13 a share. On October 4, at the time of our previous coverage, it was trading in and around $3.50. Go back to the end of last week and this dips to $1.80.
That’s a 185% run in less than a week.
For anybody that missed our initial coverage of this stock, the driver behind the run is a label change for the company’s lead portfolio product, and inhalable insulin called Afrezza. We went into the situation in detail last time so it might be worth jumping back to get caught up before continuing here.
For those not wanting to click away, however, the situation is this: Afrezza wasn’t selling well after a second attempt at launch (with the first attempt having failed despite Sanofi SA (ADR) (NYSE:SNY) being the one marketing the asset) and markets were getting to the point where they had pretty much written off the long-term potential of the asset.
As we pointed out early on in the year, the failure of the drug to register any significant sales was in large part due to the inability of the company to express one of its major unique selling points – that it is faster acting than the current standard of care mealtime insulin options and it leaves the body quicker post-admin. This dramatically reduces the potential for hypoglycemia and makes the drug an attractive option against the backdrop of the current short-term acting insulin products.
Anyway, the recent development, the one that got the stock running, was the FDA’s announcement that it has greenlighted a labeling change, which will allow MannKind to make a far more compelling case as part of its sales pitch for Afrezza going forward.
The appreciation in value, therefore, comes from market expectations that this improved sales pitch should boost topline and, in turn, should help MannKind to turn around what was a pretty mute launch.
So why are we looking at this one again today?
Well, we want to put forward a strategy as to what might be the best approach towards buying and selling MannKind shares near term.
The thing is, MannKind doesn’t have much cash on hand – around $44 million at last count – and while it has access to up to $50 million through an ATM facility, it’s still going to need capital medium-term if it is going to take full advantage of the label change and really push Afrezza to market.
This means it’s going to issue equity to raise and what better time to do that than when you’re trading at hundreds of percentage points higher than you were just a week ago?
In other words, we think there is a near-term raise announcement on the cards. If this proves to be the case, there is a good chance that MannKind will correct, and potentially substantially, over the coming weeks.
Longer term, we are fully supportive of the impact that the label change should have on the company’s ability to sell Afrezza and, by proxy, we hold a long-term bullish bias on MannKind. For anybody that’s in the stock now, however, it may be worth taking a portion of profits off the table, waiting until the company announces its raise and then jumping back in as the stock bottoms out with a view to holding a long-term position in a freshly capitalized company with a rejuvenated lead asset.
Of course, it is speculative to say that MannKind is going to raise capital, but we’ve have seen exactly this sort of situation play out before and we wouldn’t be surprised if things turned out that way.
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Image courtesy of Jill Brown via Flickr
Disclosure: We have no position in MNKD and have not been compensated for this article.