MannKind Evenly Poised - Analyst Blog

We are maintaining our Neutral recommendation on MannKind Corporation (MNKD) with a target price of $6.25.

MannKind is a Valencia, California-based biopharmaceutical company focused on the discovery, development and commercialization of therapeutic products for diabetes, cancer and inflammatory and autoimmune diseases. The company’s lead pipeline candidate, Afrezza, is inhaled insulin for the treatment of type I and type II diabetes.

MannKind filed a New Drug Application (NDA) for Afrezza with the US Food and Drug Administration (FDA) in March 2009. However, the agency issued a complete response letter (CRL) asking for additional information in addition to updated safety data. MannKind subsequently submitted a response to the CRL. The regulatory body classified the response as a class II resubmission. The resubmission included safety and efficacy data from recently completed studies on the candidate.

A decision from the FDA should be out shortly (target date: December 29, 2010). We note that the company has resumed partnership discussions for the candidate following the acceptance of the amended NDA by the FDA.

MannKind recently posted narrower year-over-year loss in the second quarter of 2010 due to lower expenses.

(Read our full coverage on this earnings report: "MannKind Q2 Loss Shrinks")

We believe that Afrezza offers some advantages over traditional needle-based insulin therapy, which currently dominates the market. The key advantage is the convenience of inhaled delivery. Diabetes patients using Afrezza will no longer have to worry about a needle injection. Along with this convenience, Afrezza aids rapid uptake into the bloodstream following inhalation, reaching peak levels within 12 to 14 minutes.

Even though Afrezza will target the highly lucrative diabetes market on approval, we remain skeptical about the approval of the candidate because many companies have tasted failure in their efforts to introduce inhaled insulin. Moreover, MannKind’s excessive dependence on Afrezza coupled with the early stage of development of other pipeline candidates also bothers us. We believe that investor focus will remain on the fate of Afrezza going forward.

We believe that MannKind’s current valuation adequately reflects its fairly balanced risk/reward profile. We see limited upside from current levels. We have a Zacks #3 Rank (short-term Hold recommendation) on MannKind’s shares. This implies that MannKind is expected to perform in line with the broader US equity market over the next 1 - 3 months.

We are Neutral on the stock in the long-term, which indicates that MannKind’s shares are expected to replicate its short-term performance, but over 6+ months. Consequently, we advise investors to retain the stock over the time-period.