BST Trade Alert: January 23, 2013
January 23, 2013
Recommendation:
Buy MannKind (NASDAQ: MNKD) up to $2.85 per share.
About the Company:
MannKind is a clinical stage biotech on the brink of a major breakthrough. Phase 3 testing of their potential blockbuster product for diabetes is almost complete. And FDA approval could come as early as the first half of 2014.
With such major upside catalysts coming down the pike, you’d think MNKD would be trading at a nosebleed valuation. But it’s not. The shares are actually grossly undervalued by the market.
You see, MannKind has received two Complete Response letters (CRL) from the FDA on this product since 2009. In case you don’t know, a CRL is the FDA’s way of saying we need more information before we can approve this product.
As a result, the stock has lost about 75% of its value since the second CRL was issued in March 2010.
However, we think the upcoming third attempt at FDA approval will be successful.
MannKind has nearly completed the two additional clinical trials requested by the FDA. And the data collected to date indicates the product has a favorable safety profile.
Top-line results from these pivotal phase 3 trials are expected in July 2013. And if they show the drug is safe and effective, MNKD is going to skyrocket.
What’s more, MannKind has plenty of cash to see this product through the completion of phase 3 testing.
The company’s cash burn rate is running at about $28 million per quarter. But thanks to a recent equity offering, MannKind’s sitting on a cash hoard of $88 million. That’s more than enough cash to get them safely through the expected release of phase 3 trial results in July 2013.
Now that you have a clearer picture of the opportunity ahead, let’s take a closer look at the company’s leading product candidate.
About the Drug:
Afrezza is an ultra rapid-acting mealtime insulin therapy for patients with type 1 and type 2 diabetes. It’s a revolutionary product that has potential to change the way diabetes is treated.
This amazing product is unlike any diabetes treatment on the market today.
In fact, Afrezza is actually a drug/device combination product. It consists of Afrezza inhalation powder (pre-metered into single use dose cartridges), and a small, easy-to-use inhaler called Dreamboat.
Here’s how it works…
After loading a cartridge into the inhaler, the patient simple inhales through the device. By inhaling, the patient pulls air through the cartridge which aerosolizes the powder. The particles are then pulled into the air current and out through the mouthpiece.
The individual particles are very small and aerodynamic so they fly efficiently deep into the patient’s lungs. When the particles contact the moist lung surface, they dissolve immediately, releasing the attached insulin molecules.
The insulin molecules then pass through a thin layer of cells into the patient’s bloodstream. The insulin absorption step is a passive process that occurs without any disruption to the cell membranes or the tight junctions between cells.
Clearly, Afrezza is entirely different from the usual diabetes treatments of insulin shots an oral medications.
But here’s the key…
MNKD believes the product’s unique formulation and delivery method may enable it to treat diabetes more effectively, and just as safely, as the current treatments.
And so far, the results from 61 clinical studies involving over 5,600 adult patients show Afrezza offers the following benefits:
- A significant reduction in post-meal glucose fluctuations… (this is a huge benefit as these fluctuations are believed to be an important risk factor in the development of complications)
- The ability to achieve levels of glucose control that are comparable to current insulin therapies
- Lower fasting glucose levels than current insulin therapies
- A lower risk of hypoglycemia compared to current insulin therapies… (hypoglycemia is a major problem for diabetics)
- And, less weight gain than is typically associated with other insulin treatments
In addition, a two-year pulmonary safety study in Type 1 and Type 2 adult diabetes patients showed Afrezza was as safe as current treatments.
Changes in lung function tests were comparable to the changes seen in patients treated with the usual care. The most common adverse event was a mild, transient, and non-productive cough.
But the number of patients choosing to discontinue treatment with Afrezza was low.
As you can see, Afrezza has performed very well in extensive clinical testing. All that remains now is for MannKind to report positive data from the final two phase 3 trials.
Study 171 involves patients with Type 1 diabetes.
This trial is designed to demonstrate that Afrezza is at least as effective as an injected insulin analog in lowering blood glucose levels. It will also permit a head-to-head comparison of the lung safety data for the Dreamboat inhaler and the company’s earlier model, the MedTone inhaler.
Study 175 involves patients with Type 2 diabetes who are inadequately controlled on metformin (an oral anti-diabetic drug that is the first line treatment for Type 2 diabetes).
This trial is designed to show Afrezza is superior to placebo powder in lowering blood glucose levels. MannKind has previously compared Afrezza to placebo powder in successful phase 2 studies involving patients with Type 2 diabetes using the MedTone inhaler.
Based on Afrezza’s long and successful track record in clinical testing, we’re expecting great results from these trials.
About the Market for This Drug:
Diabetes is a major health concern in the United States and around the world.
According to the Centers for Disease Control, 26 million people in the US had diabetes in 2011. And if current trends continue, one in three adult Americans are expected to have diabetes by 2050.
The International Diabetes Federation estimates that approximately 366 million people worldwide suffer with diabetes. And by 2030, that figure is expected to increase to 522 million.
No question about it, diabetes is a major disease area with a huge treatment population.
And as a result, diabetes drugs were the third fastest growing medications in the US two years ago. In fact, Bloomberg reports that sales of diabetes drugs jumped 10.7% in 2011 to $19.6 billion.
Clearly, there’s a massive, fast growing market for diabetes medications. If Afrezza is ultimately approved by the FDA, it has potential to generate billions of dollars in revenue for many years to come.
About the Potential Catalyst:
Top-line results from the two phase 3 studies of Afrezza in patients with Type 1 and Type 2 diabetes are expected in July 2013.
About the Shares:
There’s no question MNKD has suffered a massive fall from grace. The stock has dropped 76% from the March 2010 high of $10.73 per share to $2.62 today.
But we believe the stock is poised for a major upward climb.
Afrezza has potential to be a mega-blockbuster treatment for both Type 1 and Type 2 diabetes. Yes, the drug has had its problems getting approved by the FDA. But the prospect of billions of dollars a year in sales is just too much for investors to ignore.
We think investors will begin piling into MNKD very soon.
They’ll want to snap up shares while the stock’s still trading just off the all-time low of $1.57 hit in May 2012. And they’ll want to avoid the herd by getting positioned well ahead of the upcoming trial results.
This should drive the shares higher leading up to the trial results.
And the best part is…
If the results are positive, MNKD could easily be worth double or triple its current valuation. That’s huge profit potential for any stock, biotechs included.
In our opinion, this is one of the best biotech trading opportunities of the year. Don’t miss your chance to participate in what could be a major money making event.
Key Facts:
| Company: | MannKind |
| Ticker: | MNKD |
| Recent Price: | $2.62 |
| Market Cap: | $527 million |
| Avg. Daily Volume: | 2,688,180 shares |
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Category: BST Trade Alert
