Oppenheimer is downgrading MannKind (NASDAQ:MNKD) to Underperform from Perform:
We had the opportunity to meet with MNKD management to discuss AFRESA and partnership developments. Importantly, (1) in contrast with investors who have bid up MNKD stock price, we do not believe an AFRESA partnership agreement will be secured by 3Q09. (2) In our view, MNKD's ~$60M financing in August suggests MNKD had to seek alternative sources of cash since near-term upfront partnership payments are unlikely. (3) We believe the FDA may require a 4-mos bioequivalence study comparing dreamboat and medtone inhalers, potentially delaying approval past the 1/16/10 PDUFA. (4) In our view, inclusion of AFRESA in metabolic advisory panel committee (12/15) may suggest FDA has concerns; however, AFRESA program may not be available for review by December.
Partnership Timing Slipping, May Not Surface During 2009. We believe a partnership around inhalable insulin product AFRESA is unlikely by 3Q09 and doubtful before approval. In our view, much of MNKD's recent stock move surrounded expectations for this partnership. As a reminder, MNKD had an internal goal of establishing a partnership by 3Q09.
Recent Cash Raise Suggests Partnership Unlikely. In our view, the fact that MNKD raised ~$60M in August suggests that management chose to access alternative sources of funding since the upfront cash from a partnership agreement likely would not be coming in 2009.
Additional Bioequivalence Study Could Delay Approval. Should MNKD launch AFRESA with the dreamboat inhaler, we believe the required ~4mos bioequivalence study would start in November, potentially delaying approval beyond the 1/16/10 PDUFA. We believe MNKD will launch the dreamboat inhaler, given insulin administration advantages, but FDA is likely to require bioequivalence at a minimum.
AFRESA Advisory Panel May Suggest FDA Has Concerns. We believe the FDA may review AFRESA at the Endocrinologic and Metabolic Drugs Advisory Committee meeting scheduled for 12/15 given safety concerns for inhaled insulin. Also, the safety bar for AFRESA is expected to be high, since millions of patients could be treated with the drug.
Action: I expect these comments to pressure the shares today. Nothing completely new as the reasons are basics for any bear case for the stock, but over the past few days seems like investors have less appetite for risks. I would expect the shares to fall below $9.50 and even more if the market stays red.