We are maintaining our Neutral stance on MannKind Corporation (MNKD) with a target price of $3.00.
Valencia, California-based MannKind is a 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.
In January 2011, MannKind suffered a setback when the US Food and Drug Administration (FDA) issued a second complete response letter (CRL) for Afrezza. While issuing the CRL, the US regulatory authority asked for additional information besides asking MannKind to conduct more trials.
One trial (study 171) is to be conducted on patients with type I diabetes and the other (study 174) on type II diabetes patients. Based on meetings with the FDA, the company has finalized designs for the studies.
However, the requirement of additional trials is not good news for MannKind, as these could stretch its financial condition. The need for additional trials will push up MannKind’s research and development expenses.
Management believes that the current cash balance and available credit facility will be sufficient to fund operations only until the first quarter of 2012. Consequently, it will have to tap the capital market to raise additional resources. Inability to raise sufficient funds could jeopardize Afrezza’s future development path.
Following the receipt of the second CRL, MannKind trimmed its work force by approximately 41% and cancelled its insulin supply deal with Merck’s (MRK) subsidiary, Organon. MannKind paid Organon $16 million in two equal installments after receiving certain quantities of the recombinant human insulin. The headcount reduction coupled with the termination of the deal is expected to bring down operating costs at MannKind.
The magnitude of the setback regarding Afrezza is significant as all other candidates at MannKind are in early stages of development. The setback causes us to believe that there is limited scope for upside from current levels at MannKind. We prefer to remain on the sidelines until we have more visibility on the approval process for Afrezza and retain our ‘Neutral’ stance on the stock.
MANNKIND CORP (MNKD): Free Stock Analysis Report
MERCK & CO INC (MRK): Free Stock Analysis Report
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