MannKind Corporation (NASDAQ:MNKD) stock shot up in after-hours trading on Friday after the company announced that it had signed a deal with Sanofi SA (ADR) (NYSE:SNY). However, investors appear to have gotten over their initial euphoria, as shares plunged in regular trading today. Analysts are now weighing in on the deal between MannKind and Sanofi.

MannKind

Sanofi is MannKind’s “ideal partner”

In a report dated Aug. 11, 2014, Brinson Patrick analyst Christopher James, M.D. said he sees Sanofi as being the perfect partner for MannKind in its quest to bring Afrezza to market. Under the terms of the deal, MannKind receives an upfront payment of $150 million and possibly additional milestone payments of $775 million. The two drug makers will share profits and losses in sales of the inhaled insulin, with Sanofi receiving 65% and MannKind receiving 35%.

Sanofi will also advance MannKind up to $175 million to pay its share of the costs of bringing the drug to market. The reason Dr. James thinks Sanofi is the best possible partner MannKind could have gotten is because of the company’s depth and also the deep reach it already enjoys into the world’s insulin markets. He says Afrezza fits perfectly into Sanofi’s diabetes drug portfolio alongside Lantus, which leads the market in diabetes treatments.

The analyst sees “significant upside” to his estimates. He has modeled $3.65 billion in U.S. Afrezza sales in 2025. He thinks Sanofi will use its own global expertise to bring the inhaled insulin into the European Union. He plans to revisit his sales assumptions as more visibility into the efforts comes to light. Dr. James has reiterated his Market Outperform rating and $15 per share price target on MannKind.

Risk remains for MannKind

In another report also dated Aug. 11, 2014, JPMorgan analyst Cory Kasimov and the rest of the team said they also think Sanofi is the ideal partner for MannKind. As a result, they weren’t surprised by the surge in the drug maker’s shares. Nonetheless, they point out that there is still “significant” commercial risk. They also note that Afrezza still has a long way to go to catch up with the world’s top mealtime insulin, which they say will have to happen in order to justify MannKind’s current valuation.

The JPMorgan team is concerned about the “commercial potential” of Afrezza compared to MannKind’s valuation. At this point, there aren’t any details about pricing for the diabetes treatment. They assume that it will be priced competitively with other similar drugs. They note that the top insulin analog, Novolog, generated $3 billion in sales last year and that the second one, Humalog, generated $2.6 billion in sales. Because of the label that will be placed on Afrezza, the analysts at JPMorgan are skeptical that Afrezza will be able to match those sales levels.

Their primary concern about MannKind is valuation, so they have maintained their Neutral rating on MannKind.