Can Al do it again?

Can Al do it again?

With shares of MannKind (NASDAQ:MNKD) sinking on incredibly heavy volume, investors are beginning to wonder if this stock will ever bounce back. Although Diabetic Investor does not see much of a future for the company, it’s understandable if there are some investors who see an opportunity. As bleak as the future looks this is not the first time MannKind has been down for the count.

Back on March 16, 2009 when the company first submitted Afrezza® to the FDA shares closed that day at $3.10. When the company update the status of the NDA on January 8, 2010 shares closed at $8.04, only to fall back to $6.68 on July 20, 2010 when the company had to resubmit their application. Shares moved only slightly to $8.12 on December 28, 2010 when the FDA said they will three or four more weeks to complete the review and prior to yesterday’s announcement shares were trading at $9.11 before trading was halted by the NASDAQ.

With shares down almost 40% today and using history as guide, investors with a strong tolerance for pain just might jump in. As previous history shows this stock has come back from the dead before so why not take the risk. After all the FDA did not decline Afrezza nor did they indicate there was anything seriously wrong with the drug. If you believe what the company says, this is just a minor glitch and eventually Afrezza will be approved and become, as Al Mann said at JPM, a “super-blockbuster.”

While Diabetic Investor does not want to dissuade investors from following this foolish strategy we should point out just a few facts to consider before they jump from the frying pan into the fire. Yes we know that Al Mann is a billionaire who has invested much of his good fortune into this company and yes it’s likely that if need be Al will dig deep to keep this company afloat. Yet no one seems to care that with all the money he has put into the company, what it will take for Al just to break even. We’re not talking about making a profit mind you; we’re just talking about getting back what he put in.

Realistically the only way this would happen is if someone else came along with delusions of grandeur and bought the company. Looking over past deals in the diabetes market this is not outside the realm of possibility as there are plenty of fools who seem eager to turn billions into millions. Given that it will be at least a year before Afrezza makes it to market, assuming of course there are no more delays and the FDA actually approves the drug, who would buy a company with just one unproven product, no market presence, no field sales force, no formulary coverage and a host of competing drugs targeted at the same patient base. The simple fact is whoever is crazy enough to buy MannKind will have to spend another $300 to $400 million just to market the drug.

As improbable as this may seem, looking at his past experience this would not be the first time Al Mann used his magic to sell a company at a highly inflated price. One has to wonder how the folks at Medtronic (NYSE:MDT) feel today after spending over $4 billion to acquire MiniMed. While they will never admit it publicly, privately they rue the day they made this move. The main difference between MiniMed and MannKind was at least MiniMed was the market leader with actual patients using the product, an established market presence, field sales force, growing insurance coverage and customer support personal. Medtronic may have overpaid for MiniMed but at minimum they acquired a company that actually had something patients wanted and were actually using.

Still if there is one thing Diabetic Investor has learned after all these years covering the business of diabetes there always seems to be a company out there who buys into the hype and willingly plunks down billions without bothering to do even the slightest due diligence. As one noted diabetes executive has told Diabetic Investor on more than one occasion the best way to make a small fortune is to start with a big one. Or put another way, there is no cure for stupid.