Earnings Preview: MannKind

MannKind Corporation (MNKD) is all set to announce its fourth quarter and full year 2010 results on February 10, 2011. The Zacks Consensus Estimate for the fourth quarter of 2010 hints at a loss of $0.40 per share, as against a loss of $0.53 incurred in the year ago quarter. The Zacks Consensus Estimate for 2010 suggests a loss of $1.57, which is $0.50 narrower than the 2009 loss.

Third quarter 2010 recap

MannKind’s third quarter 2010 net loss of $0.40 per share was wider than the Zacks Consensus Estimate of a loss of $0.39. The company had suffered a loss of $0.42 in the year-ago quarter.

The narrower year-over-year loss was attributable to lower expenses incurred in the third quarter on the inhaled insulin candidate Afrezza. The candidate is being developed for treating type I and type II diabetes. MannKind failed to generate any revenues in the third quarter of 2010 as in the previous year.

(Read our full earnings report at Loss at MNKD Wider than Expected)

Agreement of Estimate Revisions

There hardly has been any estimate revisions over the past month. While estimates for the fourth quarter as well for full year 2010 have remained unchanged over the last 30 days, estimates for the first quarter of 2011 and the annual estimates for 2011 have a significant downward bias.

For the first quarter of 2011, 2 of the 6 analysts following MannKind have trimmed their estimates with 1 moving in the opposite direction. The downward movement is more pronounced for full year 2011 with 4 of the 9 analysts following MannKind slashing their estimates with no upward movement.

The downward sentiment regarding MannKind is primarily attributable to the refusal of the US Food and Drug Administration (FDA) to approve the company’s lead pipeline candidate Afrezza, an inhaled insulin for the treatment of type I or type II diabetes, in the present form.

The US agency issued a complete response letter (CRL) regarding Afrezza. The CRL, the second regarding Afrezza, has pushed back the target date for the inhaled insulin significantly. The FDA has asked for additional information in addition to asking MannKind to conduct additional trials.

The requirement of additional trials will push up MannKind’s research and development expenses. However, MannKind’s current cash balance will last till the third quarter of 2011, whereby it will have to tap the capital market to raise additional resources making Afrezza’s future more uncertain.

Magnitude of Estimate Revisions

Estimates for the final quarter and full year 2010 have remained static due to the absence of estimate revisions. Loss estimates have widened both for the first quarter of 2011 and full year 2011.

While loss estimates have widened by a penny for the first quarter of 2011 over the last 30 days, the widening of the loss is more pronounced for full year 2011. Annual loss estimates for 2011 have widened to $1.21 from $0.81 over the last 30 days.

Our Take & Recommendation

MannKind currently carries a Zacks #4 Rank (short-term ‘Sell’ rating). We note that Afrezza is the company’s only late-stage candidate under development. Hence, the recent CRL for Afrezza is a cause of major concern for MannKind, which has no marketed products in its portfolio. Besides Afrezza, the company’s pipeline primarily consists of products in early stages of development.

Our skepticism on Afrezza’s approval gets further deepened by failures encountered by many other companies including Pfizer Inc. (PFE) in introducing an inhaled version of insulin into the market.

Longer term, we have a ‘Neutral’ recommendation on MannKind.

MANNKIND CORP (MNKD): Free Stock Analysis Report

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