The Motley Fool - Mankind

Can This Stock Go Higher?
By Tim Beyers
November 18, 2009 | Comments (0)

ShareThis MNKD - MannKind Corp

Rate MNKD CAPS Rating 2/5 Stars
$7.28 $0.41 (5.97%)

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Is MannKind (Nasdaq: MNKD) headed higher, or lower?

That's the question we ask when we evaluate insider buying and selling. We ask because how executives spend their paychecks is often a reflection of what they think of their companies' prospects.

Here's how MannKind founder Alfred Mann and his team have spent their money over the past year:

Insider Rating
Moderately bullish
Net buying derived entirely from one huge purchase. Only one sale at prices lower than current.

Business Description
Developer of a unique inhaled insulin treatment that's yet to be approved by The Food and Drug Administration.

Recent Price
$6.87

CAPS Stars (Out of 5)
**

Percentage of Shares Owned by Insiders
43.49%

Net Buying (Selling)*
$8.07 million

Last Buyer (% Increase)
Alfred Mann, Founder, Chairman, and CEO
1,000,000 shares at $8.11 apiece on Aug. 10
(Purchase bolstered direct holdings by 2%.)

Last Seller (% Decrease)
Diane Palumbo, VP, Human Resources
5,000 shares at $5.70 apiece on Nov. 6
(Sale represented 4% of direct holdings.)

Competitors

Pfizer (NYSE: PFE)
Eli Lilly (NYSE: LLY)
Novo Nordisk (NYSE: NVO)

Recent Foolish Coverage of MNKD
5 Stocks in a Tailspin
3 Stocks Hitting High Notes
MannKind Needs More Leaps

What we're tracking here, and why

Insider buying data can be confusing. Here, I'm concentrating only on buying and selling conducted in the open market. With most of these transactions, insiders control the timing. Other times they're buying or selling under the purview of a 10b5-1 plan. Either way, personal holdings are being bought and sold.

Those personal holdings matter the most -- they're the shares executives hold for investment, rather than compensation. Employee stock options are different; they're compensatory in the purest sense. I've stripped out options-related buying and selling from the calculations you see above.

The Foolish view: Moderately bullish
MannKind is one of a kind among story stocks.

Founder Al Mann, now 83, is a highly successful entrepreneur that Forbes ranks 522nd on its list of the world's richest, with a $1.4 billion fortune. He'll move higher if MannKind pays off; Mann owns more than 40% of the business as of this writing.

Yet success is anything but assured. MannKind is the last company standing in what was once an emerging market for inhaled insulin products used to treat diabetes. What went wrong? In a word: Exubera. This onetime competitor to MannKind's Afresa was permanently tainted when a safety analysis showed a higher incidence of lung cancer in Exubera-treated patients.

Today, Afresa is still at least several months away from FDA approval, and MannKind is without a marketing partner. The good news: The company's third-quarter loss was smaller than analysts expected, thanks in part to careful expense management.

And insiders? How are they spending? Al Mann bet big in August, at $8.11 a share. I like that buy, but I'm also mindful that MannKind is an all-in bet for him. He'll be first in line to supply capital if the company needs it.

Meanwhile, the selling pattern here is ... confusing. Sure, VP of Human Resources Diane Palumbo sold a portion of her holdings at lower prices than MannKind trades for today. That's not necessarily a bearish indicator; she still owns more than 130,000 shares.

What's more, Chief Scientific Officer Peter Richardson in August sold only a sliver of what he holds, and at $7.79 apiece -- a 13% premium to yesterday's close. I'd expect more lowball selling if insiders genuinely feared that this stock story would end badly.

But that's also just my take. Do you agree? Disagree? Log into Motley Fool CAPS today and tell us how you would rate MannKind.

And if you want me to take a Foolish peek at the insider action of your favorite stock, email me here or use the comments box below. I'll write this column as often as you, our readers, demand.

Comment

00buckshot (68.30) Submitted: 11/12/2009 10:07:10 AM : Start Price: $6.54 MNKD Score: +4.38 The MNKD pipeline includes a market disrupting insulin product called Afresa that has been proven, in 40 clinical trials, in thousands of patients, over multiple years, to address diabetes in a way that reduces or eliminates the life and health threatening glucose swings (including hypoglycemia), safely and effectively. Afresa changes the rules of diabetic treatment by allowing diabetics to maintain normal blood glucose levels simply, discreetly and without needles.

Diabetes affects approximately 170M humans worldwide and is increasing, with the WHO predicting 300 million diabetics by 2025. Global sales of diabetes drugs totaled US$27.3 billion last year, making diabetes the No. 4 drug class, according to IMS Health. Decision Resources, one of the world's leading research and advisory firms for pharmaceutical issues, surveyed U.S. and European endocrinologists and found that Afresa (a non-injectable, short-acting insulin with significantly improved efficacy over Novo Nordisk's NovoRapid/NovoLog) would earn a 50 percent patient share in type 1 diabetes alone in the United States and a 58 percent patient share in Europe. I peg current realistic value at closer to $20.

PDUFA date for Afresa is January 16th, and a partnership with a major pharmaceutical company appears inevitable at that time, with sales to begin by mid-year. This assessment totally ignores the value of the cancer vaccine pipeline and drug delivery platform licensing.

zzlangerhans (99.50) Submitted: 5/6/2009 10:45:38 PM : Start Price: $5.10 MNKD Score: +11.43 I haven't had much luck lately taking on top-rated players on biotech stocks, as Demon took me to the cleaners on Dendreon and GMX spanked me on Arena and Repros. Since I refuse to learn a lesson about anything, ever, I'm going to now fly against Aracer on Mannkind. Aracer obviously knows much more about this company than I do, but according to my philosophy that's not necessarily a good thing for investment purposes. After all, John Connolly knew a heck of a lot about the Charlestown mob and look where that got him. Sometimes getting too close to a company can impinge on that all important quality of objectivity. I pride myself on having red thumbed and green thumbed most of my score leader stocks at different times. I don't believe in anyone or anything. I'm all about the game.

What troubles me the most about Mannkind is their insanely high burn rate. Any professional biotech analyst will tell you that the critical factors to watch in a baby biotech are cash, burn, and the timing of catalysts. As of the end of Q1 the company has 30M in cash and is about to plunge headlong into debt or dilution, with 260M available under a current credit arrangement. They've reduced their quarterly burn from the 80M range to the 50M range, which gives them a little more than a year if they can control their burn. How they spend even 50M a quarter is beyond me, unless they're making their insulin inhalers out of platinum.

The problem for Mannkind is that their PDUFA will be in November at the earliest, and possibly as late as March 2010. Their current financing will take them through that PDUFA, but if they don't get full approval at that point they're going to be in deep manure. Does Afresa work? Very likely. Is it safe? Probably. Will the FDA approve it on first pass after getting faced on Exubera? Don't bet on it. The stock made a big jump yesterday on no news, which could mean a leak of FDA acceptance of the NDA with priority review. But I see it as a good time to reverse the flow and pick up some points as enthusiasm ebbs through the beginning of next week. I'll probably move to the sidelines if I can pick up 10, then decide how to get back in after the PDUFA is released. Obviously I'm looking for leadership here, which either entails being extremely lucky or taking some serious risks. And I've never been a lucky player.
Report this Post 3 Comments

aracer (99.62) Submitted: 5/7/2009 3:15:32 PM Recs: 2 Rec This
Heh heh. Great post. I agree that being deep in the trees can make it difficult to see the forest. Your ability to maintain objectivity and to ride macro trends by applying your Baby Bio Rules hold you in good stead predicting forest trends. As much as I could be wrong, and often am, in this case I hope my deeper read leaves me more like Whitey than John.I get the burn rate concern on both a general principle level, and in this case specifically. Management thinks they have until next Q2 to close a marketing agreement with a big boy that will include a fat upfront and other favorable terms as well. Considering CEO Al Mann's track record of astounding successes (Forbes billionaire list via 6 for 6 homeruns in the Medical Device field and 10 for 10 including earlier Aerospace businesses), in conjunction with Big Pharma's blockbuster devoid pipeline, the likelihood of MNKD closing such a deal appears large, especially in light of the Phase III data confirming superiority and the abdication of competitors in the space (due to lack of superiority not found in Afresa).The burn rate is very high in comparison to non-platinum inhaler makers. Its not that high for a company actively pursuing vaccines (ala DNDN) for solid malignancies and melanoma. To me, maintenance of a burn rate that high means they are confident that a partnership is imminent, or they'd shelve the cancer research for a while. Public utterances confirm that confidence as well with statements about multiple "emerging term sheet discussions."Good luck pulling down the top spot on this one. Here's some help. Around May 18th a green thumb would be wise. If FDA grants priority, there are about 8M short share that will be scrambling. Same in September when management expects to ink a marketing partnership. Wouldn't want you getting Departed.

Report this Post quinpeung (39.56) Submitted: 5/7/2009 4:32:56 PM Recs: 0 Rec This
Very interesting. Looks like the smart short money started to withdraw today.

Report this Post Chanbhan (< 20) Submitted: 11/18/2009 4:31:20 PM Recs: 0 Rec This
They have money to burn until 2011. If they get FDA approval in January or before, partnership will follow - there is no question about it. There are now indications that Dreamboat device will be approved along with the NDA on the pdufa date...

Investment opportunity that doesn't come very often in opinion

Comment

My buddys wife is diabetic and he has invested in this company because he knows from her, how valuable it would be to have inhalable insulin. Also, the potential for cancer vaccines cannot be ignored. The owner does have a great track record.