MannKind Corporation (NASDAQ:MNKD) has been popular among investors lately, gaining over 72% in the last four weeks. Biotech sector investors are keenly watching the drug maker as its PDUFA date approaches, when the company is expected to get FDA approval for its inhaled insulin drug, Afrezza. However, a report from Seeking Alpha by Achilles Research says that significant insider selling before the FDA approval raises some doubts.
“Selling shares as an insider when the stock price jumps — as it did in the case of MannKind — in anticipation of FDA approval, leaves a really bad taste in my mouth,” says the author.
ARK Invest is known for targeting high-growth technology companies, with one of its most recent additions being DraftKings. In an interview with Maverick's Lee Ainslie at the Robinhood Investors Conference this week, Cathie Wood of ARK Invest discussed the firm's process and updated its views on some positions, including Tesla. Q1 2021 hedge fund letters, Read More
Increasing insider transactions
Since the June 3, 2014, insiders have sold around 392,000 shares of the company. Furthermore, Yahoo’s insider transaction history for MannKind Corporation (NASDAQ:MNKD) shows that insider transactions are increasing for the drug maker.
According to the author, insiders may offload shares for a variety of reasons such as diversification, automated divestment plans or for personal reasons. However, eventually insiders selling does “make a profound statement,” which in the case of MannKind is the belief that insiders are trying to cash out.
Recent insider transactions just before the FDA approval date “raises some serious questions,” according to the author, who further argues that Afrezza is a milestone product for MannKind Corporation (NASDAQ:MNKD), and recent cash outs raise questions over the generally assumed “ensuing stock rally” if approval is granted.
Are MannKind shares overvalued?
An insulin drug to help treat diabetes certainly holds a lot of potential for revenue, but MannKind shares are already trading at a premium as investors have priced in the expected revenue windfall for Afrezza. According to the author, MannKind Corporation (NASDAQ:MNKD)’s market capitalization of $4 billion “seems overly ambitious for a development-stage company” with no revenues and a loss of $191 million in 2013.
MannKind shares hit a 52-week high last month, and are now trading close to the current 52 week high of $11.11. Investors must seriously consider whether or not they want to buy shares close to a 52-week high, and that at a time when insiders are increasingly selling shares.