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MannKind's Most Financially Conflicted Sell-Side Analyst Loves Afrezza

By: Adam Feuerstein | 03/18/14 - 03:22 PM EDT

"... I'll say there is a 90% chance of a positive FDA AdCom outcome."

                         --- MLV analyst Graig Suvannavejh, on MannKind (MNKD) and the prospects for the April 1 FDA advisory panel reviewing the inhaled insulin device Afrezza.

Congrats to Seeking Alpha, which managed to publish an interview Tuesday with the most financially conflicted sell-side analyst covering MannKind today. MLV, Suvannejh's employer, is in charge of selling $50 million in MannKind stock through an At-The-Market (ATM) equity sales agreement signed on March 3. [Another firm shares the assignment.] MLV could be selling MannKind shares to retail investors today, just days before the Afrezza FDA panel. Suvannavejh is doing his part to promote MannKind and act the loyal MLV soldier with today's interview.

By the way, Suvannavejh covers 21 biotech and drug stocks as a "research analyst" for MLV, according to Bloomberg. Every company on his coverage list is a MLV banking client, most with active or completed ATMs. He knows who butters the bread. 

Here's more from Suvannavejh's MannKind interview published on Seeking Alpha:

The April 1 AdCom was a surprise to many of us, including myself. But I really see this as more of a "checking the box" exercise by FDA, especially given a recent change in the leadership at the FDA's Endocrinology and Metabolic Drugs division. Also, there have been some safety issues that have been associated with a number of high-profile diabetes drugs over the past several years. Keep in mind that diabetics are on their meds in essence for the rest of their lives, and while efficacy is certainly important, safety is more so. So perhaps the new head of the division is being a bit conservative for the sake of simply being conservative. After all, there's no real downside to holding an AdCom from an FDA perspective.
Safety issues with high-profile diabetes drugs? Diabetics taking meds for the rest of their lives? Don't worry, FDA is just "checking the box" with the Afrezza panel. 
In the case of Afrezza, I am not particularly concerned about the outcome of the AdCom given my view that there is nothing worrisome about either the Phase III data itself for Afrezza or the safety profile of the product. A key concern for FDA when it comes to diabetes drugs in the recent past has been the potential increase in cardiovascular adverse events, but from what we've seen from the safety profile of Afrezza, there's no obvious signal.
You mean the Afrezza data we've seen only in MannKind press releases? How comforting! And about that persistent cough caused by Afrezza or the FDA's previous concerns about inhaled insulin (a growth factor) causing cancer -- mere speed bumps on the way to a rapid approval! 
First, there's a bear thesis out there that the data generated from the most recent Phase III trials for Afrezza don't adequately address FDA's concerns that arose from the second complete response letter that was issued in January 2010. My view on this is that while an interesting take, I derive my confidence in the fact that the latest Phase III trials for Afrezza - AFFINITY-1 and AFFINITY-2 - were designed specifically with extensive input from the FDA, and since the data in totality were very positive, at least in my view, I don't think there will be an issue.

"Extensive input from the FDA," but no Special Protocol Assessments for either phase III trial. Did I mention that I totally trust MannKind's description of the Afrezza data issued in press releases? 
Lastly, by the time Exubera was finally available commercially, the product was linked to a potential increase in cancer. So not good. To be fair, a causal relationship however was never formally established.
No risk for Afrezza there. 90% odds of a positive vote! 
Therefore, for all intents and purposes, should MNKD be unsuccessful in getting Afrezza approved in the US -- which would then probably mean a no-go in ex-US markets -- we see little, if not zero, value in the pipeline.
So, if the April 1 FDA panel votes against Afrezza, MannKind shares are going to zero. No risk there, either. Move along.
... as MNKD mentioned on its 4Q call last week, its cash burn for the year ending 2013 was a whopping $164M. That said, MNKD has been savvy enough in taking advantage of some unique financing vehicles, including an "at the market" (ATM) sales agreement and a $160M debt financing with Deerfield, a well-known and well-respected healthcare focused institutional investor, that has given it additional runway.
Translation: MannKind's balance sheet is a train wreck but at least MLV is making some coin selling shares to retail investors through the ATM. Thanks, Al! 
In addition, on March 3, 2014, MNKD announced through its 10-K SEC filing, that it was renewing its ATM agreements with MLV & Co. and another bank for yet another $50 million.
Which is why I'm speaking with you today.
I've had a Buy rating on MNKD shares since I initiated coverage on the company last May. My current price target is $9, which is based on an Afrezza-driven DCF analysis taken out to 2025, assuming a 12% discount rate and 5% terminal growth. My current price target implies there's additional room for the stock to run.
In other words, MannKind has 60% upside but 99% downside going into the Afrezza FDA panel! Excellent risk reward!




Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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