Take the money and run
Incredible as
it may seem investors are buying into the MannKind (NASDAQ:MNKD) story in a big
way. On a year to date basis shares of MannKind have risen an incredible 200%
and that was before today’s trading where shares rose another 12%. There are
two main reasons behind this surge, first the company submitted Afersa™, their
inhaled insulin product, to the FDA for approval and second rumors are swirling
that the company will soon announce a partnership agreement with a major
pharmaceutical company.
What Diabetic
Investor finds so amazing is that anyone at all would be buying into the
concept that Afersa will be more than a niche product when approved by the FDA.
While no one should need a refresher course on the history of inhaled insulin it’s
worth reminding everyone that Pfizer (NYSE:PFE) lost $4 billion with Exubera,
the first and so far only inhaled insulin approved by the FDA. It is also worth
noting that Lilly (NYSE:LLY0, Novo Nordisk (NYSE:NVO) and Sanofi-Aventis
(NYSE:SNY), the three largest insulin companies, have all abandoned their
inhaled insulin projects.
As happens so
often in the diabetes space, investors look at the epidemic growth rate of diabetes
and begin to see dollar signs. They reason that patients and physicians will
folk to any insulin product which does not require an injection. They see
insulin usage increasing and believe that when the needle is taken away insulin
sales will somehow skyrocket. Like so many who do not truly understand the
diabetes market they believe the fear of injection is the main impediment to
greater insulin usage.
In the real
world injection fears are vastly over-rated and the reason more physicians do
not prescribe insulin therapy has more to do with fears of hypoglycemia and
need for greater patient education. But these facts rarely come between
investors and their greed. It is much easier to buy into the needle fear story
than to actually research the insulin market and understand its complex
dynamics.
Just in case
anyone wants a perfect example of just how investors can suckered into the inhaled
insulin myth, Diabetic Investor suggests looking at the history of Nektar Therapeutics
(NASDAQ:NKTR). For those unfamiliar with Nektar the company was once called
Inhaled Therapeutics and was Pfizer’s partner with Exubera. Just as MannKind’s
shares are rising on anticipation of approval and a deal, shares of Nektar
reached their pinnacle back on May 1, 2006 closing at $22.75. The bottom fell
out for Nektar when Pfizer pulled Exubera from the market back in October of
2007 with shares eventually hitting a low of $2.83 on October 18, 2008.
Just as
Diabetic Investor is warning investors today about the future of MannKind
shares, we tried to warn investors back when Nektar shares were riding high. We
knew Exubera would be a dismal failure yet investors believed the many analysts
who kept stating that Exubera would be a mutli-billion dollar product. The
story for Nektar was almost identical to what investors are being told about
MannKind, that inhaled insulin would revolutionize diabetes therapy because
patients would no longer have to inject insulin.
Diabetic
Investor is sure there are investors out there who believe that MannKind is
different than Nektar and will somehow succeed where so many others have
failed. While it is true that Afersa is a far superior product than Exubera,
one fact hasn’t changed a fact that will eventually doom Mannkind’s shares just
as they Nektar shares. The time for inhaled insulin has come and gone. Inhaled
insulin will be nothing more than a niche product. No matter how good Afersa
is, the Exubera failure is still fresh in the minds of physicians and patients.
Just as
Diabetic Investor was proven correct on Exubera, we will be proven correct on
MannKind. Investors shouldn’t be greedy here and should learn from the Nektar
example. When it comes to the inhaled insulin market it’s best to sell when the
going is good, because it won’t be good for very long. Take the money and run.
