We Like The Risk-Reward Profile For MannKind, Says Jefferies

In a research report released today, Jefferies analyst Shaunak Deepak initiated coverage on shares of MannKind (NASDAQ:MNKD) with a Buy rating and a $10 price target, which represents a potential upside of 36% from where the stock is currently trading.

Deepak noted, “We like the risk-reward profile for MNKD and are taking a contrarian stance on the much-maligned Afrezza, which we think will have peak sales of $3.2b. We believe Afrezza could address a swath of type 2 diabetics failing oral meds who want to avoid injections and establish a niche within the mealtime market for diabetics already on insulin.”

The following bullets contain some highlights from this report: 

  • MNKD is off 33% since the Afrezza approval, reflecting negative Street sentiment about the Sanofi partnership and upcoming launch. Key concerns include docs not adopting Afrezza as a first-line insulin, aggressive counter-detailing from Novo and Lilly to protect their stake in the $6b+ mealtime insulin market, and a bad track record with the only other approved inhaled insulin, Exubera.
  • We believe Afrezza could address a major unmet need among patients poorly controlled with oral drugs that have not advanced to injectable agents. Surveys of insulin non-adherence suggest a not insubstantial portion of patients reject insulin due to reluctance to take shots. Accounting for other factors that influence patient avoidance of insulin, we believe Afrezza could be used as a first-line insulin for almost 8% of type 2 patients failing oral drugs, worth $1.6b in peak U.S. sales. We believe Sanofi would promote Afrezza as a first-line insulin to gain and retain patients for its $8b+ insulin franchise.
  • While Afrezza has shown non-inferiority to Novolog as a mealtime add-on in both type 1 and type 2 diabetics, we believe the significantly better A1c reductions with Novolog will be a challenge for marketing Afrezza. Compounding this is the Street’s memory of Exubera as a flop associated with lung cancer. We believe some patients only on basal insulin will be attracted to Afrezza’s benefits in hypoglycemia and weight gain, while some current mealtime insulin users will be drawn to reductions in injection burden and the whistle-like delivery device, which is more discrete than Exubera’s. We expect modest 3% and 6% penetration among type 1 and type 2 patients already on insulin, contributing $200m and $650m in U.S. sales. We see Sanofi as strongly motivated to promote Afrezza in this setting as its mealtime insulin, Apidra, only has a 3% share.

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