MannKind Corporation Downgraded, Analysts Cut Peak Sales Estimates

MannKind shares rallied today following bearish reports from at least two firms. One downgraded the insulin maker, while the other slashed its price target. Despite those reports, shares of MannKind edged upward by as much as 2.48% today to $3.72 per share, perhaps reacting more strongly to Monday’s bullish report from RBC Capital.

MannKind price target to $2

In a report dated May 11, Goldman Sachs analysts Jay Olson, Jami Rubin and Ariel Herman slashed their price target from $3 to $2 per share and maintained their Sell rating on MannKind. The Afrezza maker and marketing partner Sanofi revealed that during the first quarter, they sold about $1.1 million of the inhaled insulin. Their joint venture incurred a net loss of $35.4 million, with MannKind’s share of that loss amounting to $12.4 million. They financed that loss through a $175 million loan facility with Sanofi.

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MannKind said sales of Afrezza were ramping more slowly than expected, although MannKind bull Adnan Butt of RBC Capital Markets has said repeatedly that the growth of Afrezza sales will continue to move slowly. The company also explained plans to address some concerns like the warning label on the insulin which states that patients must undergo pulmonary function testing. They’re also dealing with resistance from managed care like the requirement for prior authorization before Afrezza can be prescribed.

Afrezza sales peak cut

The Goldman Sachs team lowered its peak sales estimate for Afrezza from $1 billion to about $750 million based on MannKind’s first quarter results. They’re unsure whether the drug will reach the sales targets MannKind needs in order to garner the milestone payments from Sanofi as outlined in the companies’ partnership agreement.

Goldman’s earnings per share estimate for this year falls from 16 cents to 28 cents.

MannKind to Underweight

In a report also dated May 11, JPMorgan analyst Cory Kasimov and team downgraded MannKind from Neutral to Underweight and withdrew their previous $6 per share price target. They also noted that sales of Afrezza have been slow to pick up, but that’s not what concerns them the most about MannKind.

Instead, they’re worried about the barriers to adoption that were brought up by both Sanofi and MannKind. Their main concern remains the requirement of the pulmonary function testing because of the theoretical risk of lung cancer that may come with inhaling insulin. Other issues management named were sampling problems and delays in patients getting appointments with their doctors.

JPMorgan even more bearish

Kasimov and team are even more bearish on the outlook for Afrezza sales than Goldman is, as they have reduced their peak sales estimate for the drug to about $500 million. They think MannKind’s current valuation suggests a peak sales estimate of $1 billion for Afrezza.

The JPMorgan team remains “increasingly skeptical” that Afrezza will gain much traction in the near future, which they say “could put the balance sheet into an increasingly precarious position.” Nonetheless, they still see value in MannKind’s $1.8 billion “diluted market cap.”