Buy rating on stock with target price of $12.00
NDA Filing Has Been Deemed Complete by FDA; PDUFA Date is December 29TH
Uncertainty Reduced; We Continue to Anticipate Approval of AFFREZZA™
Regulatory Pathway Clear. MannKind has received notice that the FDA has accepted its supplemental filing for
approval of AFFREZA™ with the FDA setting a six-month PDUFA date of December 29, 2010, quelling the speculation that the FDA would require a formal resubmission of the NDA and set a 10-month review of that filing.
Near-term Upside Expected. We believe the 3.75% Senior Convertible Notes and Common Shares are poised for near term gains, recovering much of the securities’ lost ground which occurred after the FDA delayed action on the January 16th PDUFA date (converts then trading at 82% of par; shares then trading at $11.12). Yesterday’s closing prices were 58% of par and $6.21. MNKD later received a Complete Response Letter on March 12, 2010 which required additional information regarding MNKD’s most advanced inhaler and the “utility” of AFREZZA™. MNKD submitted clinical data, apparently on June 29th, from a recently completed TYPE 1 efficacy study, updated its pooled safety data and submitted comparability data regarding the next-generation inhaler system. The FDA has deemed the supplemental data to be sufficient for a complete filing, leading to today’s announcement.
Financial Resources in Place to Fund into 2011. The unsecured Founder Loan is sufficient, in our view, to fund
operating needs for at least a year, eliminating the near-term need for a dilutive capital raise. MNKD had utilized approximately $205 million as of the end of Q1 2010 under its $350 million unsecured line of credit provided by its Founder and Chairman, Al Mann (who also owns approximately 40% of the Company’s Common Stock). We believe the remaining availability under this line of credit plus the cash on hand at March 31, 2010 million) is sufficient to fund MNKD’s needs through the approval date. We estimated quarterly cash needs without partnering to approximate $40-to-$50 million per quarter during 2010.
AFREZZA™ remains unpartnered. We believe that the Company continues to be in discussions with prospective partners. We believe AFREZZA™ is partner-able and should be partnered worldwide.
We continue to anticipate approval of AFREZZA™ for the treatment of TYPE 1 and TYPE 2 diabetes by year end with a launch by the end of Q1 2011. We continue to believe MannKind’s AFREZZA™ will be approved by the FDA – and enter the market as the best inhaled insulin amongst a sea of previous competitor disappointments. While we acknowledge the Street’s anxieties and scrutiny of AFREZZA™, we continue to believe that the level of dta provided in the Company’s NDA is impressive – and speak to AFREZZA™’s efficacy and safety (with data from more than five years of study). We focus investors back to our previous research notes in which we hypothesize that AFREZZA™ may ultimately prove to be even ‘better’ than available short-acting injectable insulin products.
At the end of the day, we again focus on the data, not the hype – as will the FDA.
The research projects Afrezza sales for Type 2 increasing from $15 million by end of 2011 to 1.113 Billion by end of 2016. For type 1, it is from 5 to 397 million for the same time period.
The report further states
We set a six-month price target of $12 today. This is based on a 4.0 times multiple of five year forward worldwide sales, discounted back over 5.5 years at 25%. We assume that the Founder’s Loan is fully drawn at $350 million. Our model assumes 118 million diluted shares (post option conversion) to be outstanding in six months. We believe that a multiple of sales is an appropriate valuation methodology. Assigning a four times multiple is relatively conservative, in our view, as we believe that sales will continue to ramp in outer years, and the product could be outright sale-able to large pharma at multiples in excess of four times. Clearly, there remains some risk to FDA approval. With a 25% discount rate, we believe we’ve appropriately discounted for both approval risk and launch risk. We continue to believe that MNKD should partner AFREZZA™ having never launched (within this corporate structure) a new drug, yet recognizing the business acumen of founder, Al Mann.