MannKind Corporation (NASDAQ: MNKD) caught my attention yesterday with a dramatic rise for the top. Today, those gains are continuing with the stock trading at $2.63 per share, up 26.44% from yesterday’s close. Digging in, I found an interesting story, one that reminds me a bit of the story of the Phoenix.
You see the Phoenix never actually died. The bird would burst into flames, rising from its own ashes at the end. That’s kind of what we’ve seen from MNKD as of late. The company created a product known as Afrezza, which is on the market today. However, it has struggled to reach profitability as Afrezza sales didn’t quite do as well as the company or its investors thought it would. Nonetheless, the gasoline that powers the revenue vehicle known as Afrezza is technosphere, and recent technosphere news is helping the Phoenix of biotech stocks to rise from the ashes.
What Is Afrezza And What Is Technosphere?
I know, I was very vague on the product and technology at the center of the MannKind story. So, let’s start by digging into Afrezza and Technosphere:
Afrezza is a prescription insulin that’s like no other. Through the use of the proprietary technosphere (we’ll discuss this in a moment), the insulin is delivered to diabetic patients through an inhaler, rather than having to be delivered through a needle. This less-invasive option led to quite a bit of excitement and even a commercialization agreement with Sanofi (SNY). As you could imagine, the stock soared.
However, months after the approval of Afrezza, it became clear that selling the product would be difficult. Soon, MNKD announced that it would be terminating its agreement with SNY and commercializing the treatment on its own. With sales far below what was expected, Afrezza isn’t the hit product everyone hoped for. As a result of poor sales, the company has been on wobbly financial footing. Unfortunately, this has been the reason that the stock has fallen from around $30.00 per share in June of 2015 to today’s price of under $3 per share.
Technosphere is the technology that allows Afrezza to deliver insulin through an inhaler, rather than a needle. The technology is an inhalable powder that medications are essentially fused to. However, just making the treatment inhalable isn’t the only benefit of technosphere.
When giving a shot, it takes time for the treatment to dissolve and become usable by the human body. the dried powder is quickly abosrbed in the lungs with the use of the technology. This reduces the time it takes for the medication to be absorbed into the body greatly. So, not only is technosphere an option to make treatments more comfortable for patients, it can also be used as a tool to make treatments more effective.
The Phoenix Rises
Just a few days ago, MNKD was trading at just over $1 per share. Today, it has risen in multiples. The gains are here for a good reason too. Yesterday, it was announced that MannKind entered into an agreement with United Therapeutics (UTHR). Under the terms of the agreement, the two companies would work on the development and commercialization of a pulmonary hypertension product that’s currently under investigation in clinical trials.
The idea behind the collaboration is that MannKind’s proprietary technosphere technology will improve the efficacy of United Therapeutics’ investigational drug for pulmonary arterial hypertension, also known as PAH. Because technosphere allows for the rapid absortion of the active ingredient in the drug, it is believed that combining technosphere with the drug will lead to a significant benefit to patients.
It’s also worth mentioning that the agreement did far more than validate the potential of technosphere. The agreement also floods MannKind with cash, that thanks to poor sales volume of Afrezza, it really needed. In fact, the agreement comes with an upfront payment of $45 million. After that, the company has the potential to earn an additional $50 million in milestone payments based on the achievement of its development targets. Should the treatment make it to market, not only will MannKind be entitled to low double-digit royalties, United is likely to expand the collaboration, paying an additional $40 million for the right to do so. So, all told, the agreement could yield $135 million plus royalties!
Today, The Phoenix Is Squeezing From The Ashes (if that’s a thing…)
With the rough times MannKind has been through over the past couple of years, short interest has been high, rounding at nearly 30% as of late. However, yesterday’s news hit shorts hard. Today, the stock is flying on no news, but for good reason. The shorts that are losing their shorts, shirt and boxers too are being squeezed out of their position in a short squeeze that is only leading to strong growth for MannKind and its bulls!
Consider The Risks
While the recent news makes MNKD a more promising stock to look at, it’s not the end all be all. The truth is that MannKind has struggled as of late. With Afrezza sales low and expenses relatively high, the company is burning through quite a bit of cash. In the short term, with the $45 million upfront payment, there’s not much to worry about. However, if that money isn’t used wisely and we don’t see improvements in revenue, we could see more financial struggles ahead, leading to a potential offering or other dilutive transaction in the long run.
The takeaway here is a simple one. With recent news from MannKind with regard to its agreement with United, the company is now on stronger financial footing and the value of technosphere has been validated in a big way. In the short run, things are looking pretty peachy. However, if you get in on this one, make sure to watch the financial data closely. With a relatively high cash burn, the new funds will only keep the company alive into the second or third quarter of next year. After that there may be cause for concern. Nonetheless, in the short term, there could be a big opportunity here and if the company plays its cards right in the long term, the opportunity could quickly grow from big to MASSIVE.