The Expected Rise and Inevitable Fall of MannKind

I was asked on Twitter last week to comment on the big move in MannKind (MNKD) shares recently, ahead of the expected FDA approval decision for Afrezza on July 15. The tweet below was my reply but I want to elaborate a bit more. Using Arena Pharmaceuticals (ARNA) (a very similar, retail-driven cult stock) as a precedent, MannKind should go even higher as we get closer to July 15, but if/when Afrezza is approved, the sell off begins.

MannKind (Afrezza, insulin, diabetes) and Arena (Belviq, obesity) are very similar companies. Each pulls a significant following from retail investors who are 1) rabid and devoted to their beloved companies; and 2) fervent believers in the multi-billion dollar revenue potential for their products. It's fair to describe both MannKind and Arena as battleground stocks for bulls and bears -- each has (or has had) a significant short position. And both companies have survived past FDA rejections and managed to win at subsequent FDA advisory panel meetings

Given the similarities, I thought we could learn something about MannKind's current stock behavior by looking back at what happened to Arena when Belviq was making its way through the FDA approval process. 

The chart below tracks Arena's stock price in May and June 2012. For those who might not remember, Belviq was reviewed by an FDA advisory panel on May 10, 2012. The experts on the panel voted to recommend the drug's approval for treating weight loss. As you can see, the positive FDA panel vote had a big impact on the value of Arena's stock.

Here are some specific numbers: From May 10 (the day of the Belviq panel) to the close of trading on May 11, Arena's stock price rose 74% (from $3.66 per share to $6.36 per share.) This 74% jump in Arena's stock price is represented by the almost-vertical spike on the left of the chart. 

After that initial bump, Arena's stock price continued higher heading into the FDA approval decision for Belviq on June 27, 2012. From May 11, 2012 to June 27, 2012, Arena's stock price rose another 80%, closing at $11.39 per share. On the night Arena executives and shareholders were celebrating Belviq's approval, the company sported an enterprise value of just over $2.25 billion.

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