Neutral on MannKind - Analyst Blog

We are maintaining our Neutral recommendation on MannKind Corporation (MNKD) with a target price of $7.50.

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 an inhaled insulin for the treatment of type I or 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 aims to enter a global partnership with a major player and discussions in this regard are moving forward.

MannKind posted a narrower loss in the third quarter of 2010 due to lower expenses.

(Read our full coverage on this earnings report: Loss at MNKD Wider than Expected)

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.

Moreover, competition in the inhaled insulin field is virtually absent now following the withdrawal of inhaled insulin candidates by big pharma companies like Pfizer (PFE). The lack of competition in the inhaled insulin market will help Afrezza in our view after approval.

However, we note that even though Afrezza would target the highly lucrative diabetes market on approval, we remain skeptical about the approval of the candidate because many companies have stumbled 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. Consequently, we remain Neutral on the stock in the long run, which is supported by the Zacks #3 Rank (short-term Hold rating) carried by the company.