Special Report #2

[The Worthington Stock Letter presents one or two special reports a year for non-subscribers.  Our last special report highlighted Masimo Corporation (Ticker: MASI) which has provided a 50% return for readers of the initial report compared to a little over 10% for the S&P 500.  Why we still like the stock, it no longer offers the same upside returns over the short-term at current price levels.]

The opportunity we present today deviates from our more traditional value stock picks. Although our award-winning newsletter specializes in established value stocks, on a rare occasion, we’ll uncover a developmental stage stock that has tremendous near-term growth potential. In fact, we’re expecting an announcement anytime that could propel the stock of MannKind up by 100-200% in price overnight.

In full disclosure, this stock has already been presented to members of our newsletter, and I have since taken a substantial position in the stock myself.  The good news is that you have the opportunity for a better entry price than my own, at current price levels.

MannKind has multiple catalysts in place that could spark an enormous rally in the stock over the next few months. If the company can capture just a small portion of their targeted markets, this stock has the potential to generate spectacular returns for investors over time. But the opportunity doesn’t come without risk, as you’ll see in our high-level overview below.

The biggest opportunities for MannKind are in the mega hot cannabis market, the expansive diabetes market and additional opportunities related to partnerships leveraging MannKind’s Technosphere platform.

If you’re looking for more traditional value stocks and the occasional game-changing stock, consider checking out our top performing value investing stock newsletter, the Worthington Stock Letter.


MannKind. (Ticker: MNKD)

Sector: Health Care

Industry:  Biotechnology and Drugs

Exchange: Nasdaq

Market Cap ($M): 169.1

12-Month Projected Valuation:  $6

Company Overview: MannKind Corporation is a biopharmaceutical company. The Company is focused on the discovery and development of therapeutic products for diseases, such as diabetes. Its lead product candidate is AFREZZA, which is an inhaled insulin used to control high blood sugar in adults with type I and type II diabetes and helps in glycemic control. AFREZZA consists of a dry formulation of human insulin delivered from a portable inhaler. AFREZZA utilizes its Technosphere formulation technology.

Technosphere is a drug delivery platform that may allow the oral inhalation of a range of therapeutics. Technosphere powders are based on the Company’s fumaryl diketopiperazine (FDKP), which is a potential of Hydrogen (pH)-sensitive organic molecule that self-assembles into small particles under acidic conditions. The Company has also created a range of breath-powered, dry powder inhalers. Its inhalers can be produced in both a reusable (chronic treatment) and a single-use (acute treatment) format.

Market Differentiation

MannKind’s Technosphere platform has the ability to deliver powdered drug formulations quicker and more effectively than any other inhaler on the market.  The benefits include a smaller required dose and the elimination of needles for shots, making the drug delivery more cost effective and efficient for both the payor and patient.

We’ll start with an overview of the technological advantages of using Technosphere to deliver medications using excerpts from  MannKind’s CEO, Michale Castagna, and then provide a brief overview of the new partnership which will help demonstrate the potential for new partnerships going forward.


Michael Castagna, CEO of MannKind provided the following overview of the Technosphere platform “….a lot of devices you lose about 70% of the powder between the mechanical loss and the device that cheeks in the back of the throat, our device you get about 70% directly into the lungs. And so you get a localized effect in the lung and you get a systemic effect going into the blood immediately and you can see that purple in the middle of the lungs, you really get deep lung penetration with a 2-3 second inhalation and it really takes two seconds for the powder to get deep in the lungs in one second it’s already out of the cartridge in the device itself. So there’s not a lot bottom mechanical loss.”

“So what are these Technosphere molecules. So FDKP, one of the things that people don’t always understand is, this is a carrier molecule. It’s inert, gets excreted. But you will see the length of that molecule allows us to put a lot of drug around it and bind to it. And once that FDKP touches your lung it disassociates the drug and delivers it right into the blood, right through the lung just like an injection goes right through your skin and deliver that target right there. It doesn’t sit in your lung. It doesn’t dissolve in your lung over time.”

“A lot of inhalation products are mannitol or sugar-based where they sit in the lungs and then they release over time where we deliver the target through the lung because as soon as FDKP touches that pH, it’s bound in an acidic environment and the lungs are basic environment. So as soon as those two connect, it really releases the drug and FDKP gets excreted. That’s a really important differentiator of our technology and this is really why we see, when you look down, almost 70% of the drug gets delivered to the target where in other devices usually 70% does not get to the target, it’s about 30% gets to the target. So we really enable a systemic delivery and absorption that really mimics intra-arterial delivery when you think about how fast and how quickly you get those therapeutic levels.

And this turns out to be one of the biggest advantages for us in diabetes because we put this in front of your blood, it’s already in its active form. It doesn’t need to be metabolized. It immediately gets into the blood and starts touching hitting the liver.”

“So when I think about the R&D platform, it’s really just not the ability to make powders, that’s part of it, it’s also the ability to have the devices that make the powders fly. And I think a lot of people take for granted it’s really the powder plus device combination. You can print powders all day long. But if you don’t have the right device that delivers the drug deep in the lungs, that’s really what our technology is those two combined a breath activated devices that allow you to really get deep lung penetration.”

The First Technosphere Collaboration – $100 Million Deal Secured

MannKind completed a phase 1 trial, testing a drug called trepostinil as a potential treatment for patients with pulmonary arterial hypertension using the company’s Technosphere technology. This initial trial helped MannKind secure a $45 million upfront cash deal from United Therapeutics (UTHR) to develop an inhaled version of its injectable treprostinil drug, Remodulin.  Remodulin is a top-selling drug to help treat pulmonary arterial hypertension that’s losing patent exclusivity this year.  The deal provides up to an additional $50 million in milestone payments, and low double-digit royalties on any sales that may come from United Therapeutics’ effort to commercialize treprostinil delivered via the Technosphere platform.

United Therapeutics also provided MNKD an additional $10 million in cash for an undisclosed drug development program with an option to give MannKind another $40 million to opt in for a second drug.

“It was the first time in about 10 years that we put a second molecule besides Afrezza on the platform to see what could happen. And so when we flipped over that card in July and June, we’re very happy to see the data and that really gave us the conviction that the platform itself is unique beyond anything else that we’ve been focused on outside of Afrezza.” Michael Castagna

In our initial investment thesis, we believed that recent investors of MannKind were ignoring the potential marketing opportunities for the Technosphere platform.  The UTHR deal validates our thesis and demonstrates that the Technosphere platform can work with drugs other than Afrezza, thus opening the door to a multitude of potential partnership opportunities.

Any progress or potential partnership announcement along these lines of the UTHR deal will send the stock price of MannKind soaring in short order.

Market Opportunities

MannKind has been working with powdered formulations for years and has a distinct advantage over their competition.  They have over 800 patents protecting the technology, a proven track record of getting powdered formulations through the FDA process, accepted product safety delivering powdered formulations using FTKP and a high probability of success using known drug compounds delivered directly to the lungs.

“The reason this is all important is, once we have the powder, our probability of success going in the humans is pretty high, and I think that’s really what’s important. We have done PTH; we have done Treprostinil, we have done Afrezza. So we kind of learned a lot over the years, unfortunately, some bad some good. But at the end of the day, we kind of now know what it takes and that know how is what cost a lot of money to get to where we are.” Michael Castagna

Cannabis Market – Legal Worldwide Sales Expected to Hit $57 Billion by 2027

The Cannabis market is on fire thanks to the growing legalization of Marijuana across North America.  Legal cannabis sales exceeded $10 billion across North America, with Canada coming online in late 2018.

Because of the vast market potential, Cannabis stocks with very little sales to justify their market caps, have exploded in price over the last two years. Examples include IGC – up over 1,500%, CVSI – up over 1,000%, TLRY – up over 700%, ACBFF – up over 3,000%, APHQF – up over 10,000% and more.

What very few investors know is that MannKind has been testing their Technosphere platform with Cannabis for the last 3 years, with promising results. They have reusable devices called Cricket and the Dreamboat family that can be used when the patient wants a really fast intake.

Michael Castagna, CEO of MannKind: “We also have the Cannabinoid class [ph], so this is a hot space today. But we were in it three years ago before anybody else even really thought about this with a partner called Receptor Life Sciences. And so this is something that people somewhat forgot about.  The company has been working along the line behind the scenes, they’ve taken powders, they’ve formulated them, and we know we can take the tree sap of the leaves and make them into dry powder inhalations that work quite beautifully. So that’s something we expect to continue here more with Receptor Life Sciences in the cannabinoid space.”

While the above information is not enough to guarantee that a deal will be struck in the Cannabis sector, the foundation is in place which leads us to speculate that it is a high probability scenario.

What would a deal in this sector do for the price of MannKind Stock?  We’d have to see the details of the deal, but we can say with certainty that the stock price would jump overnight by multiples.

Diabetes Market –Human Insulin Market worth $39 Billion by 2020

MannKind received FDA approval for their rapid-acting inhaled insulin Afrezza in July 2014.  There were many missteps in bringing their product to market that hurt the company’s financial position under prior leadership.  These missteps included a failed partnership with Sanofi, FDA approval that was contingent on putting a warning label on Afrezza, the wrong insulin product dosage mix and lack of insurance payor coverage.  Most of those problems have been put behind the company by the new executive leadership team.

New Executive Leadership

Michael Castagna took over as CEO of MannKind Corporation on May 25, 2017, after serving as chief commercial officer at MannKind for about a year. Before joining MannKind, he spent over three years at Amgen as Vice President, Global Commercial Lead for a portfolio of nine biosimilar drugs and prior to that, as Vice President, Global Lifecycle Management for Amgen.

David M. Kendall, MD, joined as Chief Medical Officer on February 12, 2018. Dr. Kendall had served as Research Physician and Vice President of Global Medical Affairs for Lilly Diabetes before joining MannKind.

The new executive team has already made many improvements in the short time they’ve been on board.  This includes STAT study results that removed the product warning label, a new sales team, an increase in Afrezza sales with a rising trajectory, new product sku’s for proper dosing levels, increased payor and doctor awareness, new studies on the effectiveness of Afrezza that have been released and their recently announced partnership with UTHR, which could be the first of many to follow.


Research studies have shown that Afrezza is the fastest acting meal-time insulin available.  This is important as it helps diabetics control their insulin levels more effectively and reduces the potential for severe hypoglycemia. Severe hypoglycemia is the number one killer of dosing insulin for people that live with diabetes.

The AFFINITY 1 study demonstrated that the use of Afrezza significantly lowers the rate of hypoglycemia in patients with Type 1 diabetes while providing non-inferior glycemic control.

“The results demonstrated that Afrezza dosed before and (as needed) after meals significantly improved all-day glucose time-in-range, limited daytime glucose variability and significantly reduced the overall rate and time spent in hypoglycemia,” stated David Kendall, M.D., Chief Medical Officer of MannKind Corporation

Biggest Challenge

While many things have improved, it has proven more difficult than expected for the company to increase Afrezza script numbers (sales) at an accelerated rate. Script growth for Afrezza continues to disappoint with sales lacking projected guidance. In its most recent conference call, MannKind leadership acknowledged this and reduced Afrezza revenue guidance from $25-30 million down to $22-25 million. Current sales rates would cause guidance to be lowered even further.

The disappointing growth in Afrezza sales is mainly due to the most significant obstacle remaining, tier 2 insurance coverage.  To deter patients from switching to a higher priced insulin, some insurers require patients to go through a problematic prior authorization process including a lung function test before they can get coverage.  To make the process easier, MannKind developed their MannKind care program to help new customers get insurance coverage.  While it is very effective when used, approval is still a burdensome process that many doctors and patients prefer to avoid.

The key going forward will be to watch for any positive insurer coverage news and Afrezza script growth.  Current scripts are around 600 a week.  We need to see a significant uptick.  The key is to get momentum towards 1,000 new scripts a week and then 1,500 to meet guidance.

“We think we have a drug that will continue to grow for the next 10-15 years. There is nothing coming in competition.” Michael Castagna

Pediatric Market

The first phase in an ongoing pediatric study of Afrezza was recently completed.  The initial phase consisted of adolescents with type 1 diabetes aged 13-17 years old, The findings to date support that the single‑dose pharmacokinetic (PK) profile of insulin levels for this age group is consistent with patterns seen in adult patients.  In addition, dosing over one month period demonstrated a safety profile consistent with that observed in adults.

As a result of these findings, MannKind and the study investigators are proceeding with enrollment of the second cohort of subjects. The second cohort will study Afrezza in children aged 8-12 years and will assess PK, as well as the short-term safety and tolerability of multiple doses of Afrezza. If the second cohort is successful, Afrezza is expected to open to pediatric patients. Given a choice, children and young adults will want to inhale their insulin as opposed to taking painful shots.

Another Partnership Opportunity

MannKind may decide that it’s best to become a technology company and manufacturer as opposed to a sales organization. This would lead to the possibility of more partnership deals and an influx of cash which would give the company enough time to grow the business, without raising additional funds or diluting current shareholders.

Michael Castagna, CEO of MannKind: “I have expressed publicly that we’re open to a co-promote partner, which means you would take another large company’s 300 to 500 reps, and you would drop this in their bag as a secondary position.”

“We’ve run the company very resource constrained for the last year. But I think the reality is that if we had more reps or more money, we’d be growing even faster.”

Conclusion / Valuation

MannKind remains a speculative investment until they shore up their financial situation and should be treated as such.

If the UTHR deal is approved by the end of October, MannKind will have enough funds to last them through Q1 of 2019 at the current cash burn rate.  The company will have to raise more money through partnerships, new loans or a possible stock offering to fund operations until the company becomes profitable.

In doing our due diligence, we speculate that the most likely scenario is that MannKind will strike another partnership deal for its Technosphere platform and co-promote Afrezza with a larger pharmaceutical company.

The stock continues to attract a high level of short interest.  If a partnership deal related to Cannabis, another high-profile drug market or a co-promoter for insulin is announced, the stock spike price will spike on the shorts covering as it as in the past, providing a substantial short-term profit for investors. If the right deal is struck and investors believe the company has turned the corner, the stock should maintain a price well above current levels.

The risk is that a partnership deal is not struck, Afrezza sales continue to struggle, and the company has to raise cash through another stock offering or by taking on more debt.  The worst possible scenario, although extremely unlikely, is that the company would not be able to meet its debt obligations next year. This would result in significant losses for investors.  Again, our analysis shows this scenario as highly unlikely.


We consider MannKind a strong buy under $2.50 with a $6-$8.00 price target within one year. If the right deal is struck, the $6 price target would be on the low end of our guidance.

P.S. If you decide to invest in MNKD and make a significant profit, we’d like to ask a favor.  That favor is simply to become a subscriber to the Worthington Stock Letter and spread the word.

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Value Investors Association LLC is not a registered financial investment firm.  This newsletter is provided for informational purposes only.  Please consult a certified financial consultant before making any investments or purchasing any stocks.  The information contained herein was derived from sources believed to be reliable. However, no guarantees can be made concerning the completeness or accuracy of said information. Nothing herein should be construed as an offer or the solicitation of an offer to buy or sell any security. The Editor and employees/contractors of this newsletter may have positions in and may from time-to-time buy or sell any security mentioned herein.  Past performance is no guarantee of future results. © 2018