MannKind Q2 Loss Shrinks - Analyst Blog

MannKind’s (MNKD) second quarter 2010 net loss of 37 cents per share was narrower than the Zacks Consensus Estimate loss of 40 cents per share. The company, which reported negligible revenues of $93,000 as against none in the year-ago quarter, suffered a loss of 54 cents per share in the year-ago quarter. The narrower year-over-year loss was attributable to lower expenses incurred in the reported quarter on the inhaled insulin candidate Afrezza. The candidate is being developed for treating type I and type II diabetes.

Operating expenses in the reported quarter declined 30% year-over-year to $37.4 million. Research and development (R&D) spend in the quarter fell 34% year-over-year to $26.2 million mainly due to lower spend on the development of Afrezza following the submission of the New Drug Application (NDA) in March 2009.

General and administrative (G&A) expenses in the reported quarter declined approximately 17% year-over-year to $11.2 million. The year-over-year decline in G&A expenses was primarily attributable to the lower salary related costs resulting from headcount reduction in April 2009 coupled with the non-recurrence of professional fees related to MannKind’s acquisition of Pfizer’s (PFE) insulin factory at Frankfurt in June 2009.

The primary candidate at MannKind is Afrezza for which the company is seeking approval from the US Food and Drug Administration (FDA). Recently, the company received a boost when the US FDA accepted MannKind’s response to the complete response letter (CRL) issued by the agency on Afrezza.

The agency informed the company that the resubmission will be treated as a class II review. Consequently, a decision from the FDA should be out by Dec 29, 2010.

Lucrative Diabetes Market

The diabetes market provides one of the largest opportunities in pharmaceuticals. In the US alone, the disease affects 23.6 million people. The market has a huge unmet need with the incidence of diabetes on the rise. A study published by Diabetes Care in 2006 projected that about 48.3 million people would be diagnosed with diabetes in the United States by 2050.

Our Take and Recommendation

We believe that the approval of Afrezza is crucial for MannKind. However, although Afrezza offers distinct advantages over the traditional needle-based insulin therapy that currently dominates the market, the path to approval is not easy.

Furthermore, with no product on the market and no revenues, we are very concerned about the company’s financial position. The company believes that its funds and the available credit facility will enable it to conduct operations through the first quarter of 2011.

MannKind is a Zacks #3 Rank (Hold) company, which indicates that the stock is expected to perform in line with the overall US equity market for the next 1-3 months. We are also Neutral on the stock in the long- term which indicates that the stock is expected to perform in line with the US equity market over 6+ months.
 
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