MannKind: The FDA Did What?

Last week, shares of MannKind (MNKD) surged 42% after an FDA panel recommended approving its inhaled diabetes drug, Afrezza. The good feelings didn’t last too long, as the FDA has extended its review period by three months.

Cowen’s Simos Simeonidis and Yatin Suneja call the decision “not a real surprise.” They explain why:

The decision to extend the Afrezza PDUFA date is not a major surprise, given all the information and feedback FDA has to incorporate into an approval decision, including the debate on the product’s efficacy and safety, its potential label and the postmarketing surveillance program.

We expect that despite the serious concerns raised by the panel, including about Afrezza’s safety and efficacy, the agency is highly likely to approve it. After attending the panel last week, we came out with the view that the agency wants to make Afrezza available to patients, in great part because of what is viewed as a “real need” for specific patient groups that may not be good candidates for injectable insulins, like patients not willing or able to use injectable insulins due to poor eyesight, lack of manual dexterity, being alone in their homes without a caregiver, needle-phobia etc…

We remain on the sidelines on MNKD given current valuation, small but not insignificant risks around, approval and partnership and most importantly, the launch.

The FDA’s decision can’t feel to good to MannKind bears who exited en masse, which is exactly what happened last Wednesday. Andrew Wilkinson explains what happened last week:

The welcome news forced abandonment of bearish bets and demand for upside calls. Heavy selling of put options and a general reduction in downside fears for its stock allowed the uncertainty measured by implied volatility to fall. Implied volatility fell by almost half, yet still stands at a lofty 177%, maintaining fat premiums within option prices. We should note that despite the apparent victory, the FDA does not have to follow the panel's recommendation. One of the heaviest traded put series was at the 3.0 strike price in the April 17th expiry where bears had built up nearly 40,000 positions set to gain should shares in MannKind continue to slide. So far on Wednesday some 32,500 of those put options appear to have been sold, most at a premium of just 7-cents.

Shares of MannKind have dropped 10% to $6.15 at 2:30 p.m., a big move even on a day when the SPDR S&P Biotech ETF (XBI) has fallen 1.8% to $131.03 and the iShares Nasdaq Biotechnology ETF (IBB) is off 0.8%.