MannKind (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.
A chart of MannKind's performance this week relative to the biotech sector:
Here's MannKind's performance since FDA approved Afrezza on June 27:
MannKind bulls have blamed the stock's underperformance on bear raids by short sellers and market manipulation -- anything to distract from the real problem: MannKind's lousy balance sheet, which makes it almost impossible to justify owning the stock.
J.P. Morgan analyst Cory Kasimov believes MannKind did well landing Sanofi as the Afrezza partner. He called the deal a positive for MannKind. But...
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.]
And here are the numbers from Kasimov's MannKind model fleshing out the challenge ahead: