Initially, there was a lot of optimism toward smaller biopharmaceutical company MannKind Corporation (NASDAQ: MNKD ). But the reality now is that MNKD stock has lost 92% of value since its market introduction. Is it destined for the trash heap, or can it pull off a remarkable rally?
Healthcare, especially the pharmaceutical subsector, is a brutal business. No other industry disconnects itself from its fundamental or technical posture quite like the pharmaceuticals. Despite the best analytical approach, there's no telling how a company will react to a news release. This is most evident in smaller pharmaceuticals like MannKind.
The Bearish Case Against MNKD Stock
Former InvestorPlace Assistant Editor John Divine lays out the bear case quite persuasively. After a dismal earnings report in the first quarter of fiscal year 2016, there's absolutely no margin of error for MannKind stock.
The company missed a consensus target for a 4-cent loss by 2 cents, clouding the rest of the year. Even more ominous, MNKD stock has rarely met or exceeded earnings expectations in the last 13 quarters. As Divine argues, you can only walk on water for so long.
To further the bearish argument, the fundamentals for MNKD stock have almost nothing of redeeming value. Financial stability is as poor as you can get without being bankrupt, with key metrics indicating distress.
Profitability and growth trends are dire, with MNKD registering an average net loss of nearly $231 million over the past 10 years. The balance sheet is especially disconcerting. Total equity for MannKind stock clocked in a loss of $350 million in fiscal year 2015. In fact, the troubled pharmaceutical company hasn't had a positive balance sheet since 2008!
As bad as things look on paper, we have to remember that there are no set rules in pharmaceuticals. "Rudy"-style miracles can happen at any time. For long-term believers in MNKD stock, they ironically find support in the challenges of the diabetes market.
The company's primary drug is Afrezza, an inhaled insulin treatment. Multiple competitors abound, but so far, none of them has delivered the Holy Grail. That theoretically buys time for MNKD to revolutionize the market. Afrezza's potential is a lot more enticing than constant finger pricking.
The much-maligned news coverage of Sanofi SA (ADR) (NYSE: SNY ) exiting its relationship with MNKD over poor sales of Afrezza isn't great, but also may not be a deal-breaker. The company's CCO Michael Castagna has stepped up to the plate, hiring some of the best sales professionals following massive layoffs in the pharmaceuticals sector.
Hope for MannKind?
With abundant opportunities in the diabetes market, MNKD could do well selling Afrezza on its own. Nor is this merely corporate gamesmanship. Castagna himself bought 50,000 shares of MannKind stock two months ago, putting his money where his mouth is.
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Still, it is going to be tough to convince people to take a shot on the company. From 2004 to the end of 2015, there were only four years where MNKD stock produced positive returns. The other eight years averaged losses of nearly 38%. With the exception of 2004, the bullish years were always in response to sharp selloffs. In other words, MannKind has never enjoyed a consecutive string of annual profitability.
But if you're a gambling type, there is room for a contrarian perspective. Losses exceeding 20% have seen a steady progression since 2005, but they appear to have peaked in 2015, when MNKD stock lost 74% of value in the markets. That suggests the worst is over.
Even if this year ends up in the red, there's an argument that MNKD is "due" for a recovery. Shares have never suffered four-year consecutive losses. In addition, the historically high amount of short interest means that any panic from the bears could easily result in huge gains.
With all things considered, it's highly unlikely that any reputable analyst will give a long-term recommendation for MannKind stock due to severe fundamental roadblocks. At the same time, MNKD management is giving it another go.
Understanding pharmaceuticals, it could be a Napoleonic disaster, or a Ronaldo-less Portugal team attempting to win its first major tournament. I will say this - there is just enough substance to give MNKD stock a highly improbable, but possible, chance to surprise everyone.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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