MannKind Corp (NASDAQ: MNKD)
There’s a lot of buzz online surrounding small biotech company MannKind. Perhaps it has to do with the stocks eye-popping 95% depreciation in its stock price, going from a high of $20 a decade ago to $1 today. Or perhaps it has to do with the promise of a novel diabetes drug. My guess is that the allure of a potential silver bullet, wonder drug in concert with all time lows in the stock price are getting people excited, blind, and greedy.
MannKind operates in a tough industry: the biotech industry. It is a relatively small player among $100 billion market cap giants such as Gilead Sciences (NASDAQ: GILD) and Amgen (NASDAQ: AMGN). MannKind, on the other hand, is a fish swimming amongst whales at a market capitalization of $435 million. Not only is it a smaller, riskier company, the risk is compounded by the fact that it only has one approved product and a product pipeline with development of newer drugs in its early stages.
That one approved product is called Afrezza. It is a novel approach to diabetes therapy that could potentially turn the established injectable rapid-acting insulin treatment for diabetes on its head. Afrezza delivers insulin directly into the bloodstream via inhalation, like an asthma puffer, and the benefit of this method is supposed to be that the insulin in the lungs more closely matches the body’s natural physiological response to increases in blood sugar. Afrezza has been shown to achieve comparable levels of overall glucose control that is evident in the current, state-of-the-art insulin treatments, while also demonstrating a lower risk of hypoglycemia and weight gain.
These are the potential benefits of the one approved product that MannKind currently carries. However, the company still has hurdles to get over with the FDA. The FDA and the medical community are not entirely convinced on the safety of insulin inhalers. Additional testing is required by the FDA for Afrezza to be clear of this regulatory hurdle.
When you look through the financials of the company, there is very little there that you can grasp to get a rational sense of what the company is worth. There is no profit. There are no earnings per share. Shares outstanding has expanded by an astounding 10 times over the past decade, going from 40 million shares to 401 million by the end of 2015. This type of dilution is concerning, especially when there is no revenue or profit growth to analyze the effects of such dilution. The balance sheet isn’t much better, as liabilities exceed assets. And the cash flow statement provides little clues or confidence in the company’s ability to generate cash.
At the end of the day, it all hinges on the ability of MannKind to profitably sell Afrezza. There are signs that it could be a big hit and signs that it might not succeed – it’s hard to know at this point in time. There is no past record of profitability and revenue generation to look at to gauge what the value of the company is. Therefore, MannKind stock is inherently a pure speculative play.
There is nothing wrong with speculation. But you have to own up to the fact that what you are conducting when purchasing MannKind shares is speculation, not sound investment. If you want to speculate in MannKind stock, I’d advise that you create an entirely separate trading account away from your core portfolio and designate some “play money” that you are entirely willing to lose, as the stock could triple in short time or go all the way to zero.
With a company such as MannKind, never fool yourself into thinking that you are investing: it is inherently a pure speculative play.
Disclosure: This author has no positions in any stocks mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.