By: Adam Feuerstein | 08/13/14 - 12:04 PM EDT(MNKD) shares are bouncing a bit Wednesday but the stock is down significantly since Monday's announcement that Sanofi (SNY) has signed on to sell the inhaled, rapid-acting insulin device Afrezza. Why? Because even in biotech where the "blue sky" potential for experimental drugs so often sends stock prices soaring, no company can escape the gravitational pull of balance sheets and income statements. The slump in MannKind's valuation since Afrezza's approval is a great example of why biotech investors can't ignore fundamental financial metrics forever.
However, even with SNY, we remain skeptical that the commercial potential of Afrezza is enough to warrant its current valuation, especially considering the perceived lower relative efficacy vs. injected insulin, potential limitation of use to certain patient subgroups, and lingering safety concerns. Indeed, we estimate that Afrezza has to match the leading mealtime insulin in the world just to justify MNKD’s current valuation let alone offer upside potential. [Emphasis his.]
Running different scenarios through our models (both a rNPV and multiple based scenario analysis), we find it noteworthy that Afrezza peak sales need to match those of the leading insulin analogs Novolog and Humalog (generated $3B and $2.6B in sales last year, respectively) to generate a value to MNKD of $6-7/share (on a FD basis). Thus, the drug needs to be significantly larger to justify material upside from current levels based on our assumptions.
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