*** The following is excerpted from the commentary section of the February issue of Nate’s Notes that was published for subscribers on February 8, 2019, and reflects our opinions of the MannKind (MNKD) story as of that date. ***
First off, for those of you who do not have an interest in the story, I want to say that, knock on wood, this will be the last “extra” commentary on MannKind that I spend time on in the newsletter until the May issue (or later) comes out (see below)… but, as part of “clearing the decks,” I feel compelled to share the following so that folks know what to expect over the next few months.
As was discussed in the Inter-Issue Commentary that was put out at the beginning of the year (the MannKind/Afrezza portion of which is available as a blog entry on the free side of the website; you can see it by clicking here if you’d like to read it again), given where we are likely at in the adoption cycle for Afrezza, along with where we seem to be on the road map that Mike Castagna has been putting together for us since he took over as CEO, I believe 2019 is shaping up to be a make-or-break year for MannKind.
However, because I have received a number of emails on the topic, I want to acknowledge/clarify that, while the phrase “make-or-break” certainly does imply a binary outcome, my statement does NOT mean that I think that MannKind will either be a wild success or in bankruptcy court by the time 2020 rolls around!
Rather, it means I think that, sometime in the next twelve months, we will have a much better sense of whether MannKind is going to be able to build a franchise around Afrezza on its own, or if the company is going to decide that it might be better to either sell-off or license the product to a larger entity with deeper pockets and more personnel after all in order to focus its attention on the other molecules currently in the pipeline… and, again, to clear up some of the confusion that I have been asked about, neither of these situations involve the company going out of business (and, it should be noted, both of them would almost certainly count as “wins” in the eyes of most shareholders, even if one has more potential upside over the long-haul than the other).
And, to help you better understand how I am approaching the situation today (and plan to navigate it going forward), please note that, due to the fact that I am currently more confident about the situation than I have been at any point along the way (and despite the fact that the stock is already the largest position in each Portfolio!), I am purchasing the stock yet again in both Portfolios this month.
Not only will these purchases bring our already intentionally large position sizes up to some nice, psychologically pleasing, round numbers, they will also give us some extra “cushion” from which to take profits (assuming they develop) without experiencing as much of the emotional angst that often comes with making a decision to lock-in profits (especially in a stock that you intend to own for years), and, barring some unforeseen turn of events, these will likely be my last purchases of the stock in the newsletter for quite some time as we shift gears to “watch and wait mode” to see how the sizable marketing push that is currently underway by the company ends up playing out (for those wondering, according to at least one online resource, it appears that the TV ad has already been aired more times in the three weeks since the current campaign started than was run in all of 2018 (and it has been run in a far larger number of geographic regions as well, I might add)).
As it stands (and though I am choosing to not disclose them publicly for a variety of reasons), I have identified prescription milestones for myself that I am hoping to see Afrezza hit in 2019, and, as long as they are being hit in a timely fashion, I plan on just sitting tight with the bulk (and perhaps all) of our position until the stock is back above its current buy limit of $10… and, while I obviously cannot guarantee that the stock will go up at all, I encourage you to spend some time thinking about what your own plan looks like ahead of time so that you will be able to pull the trigger with complete peace of mind if/when the time comes.
On the flip side, however, if the first milestone on my list still has not been hit by the time the May issue goes to press, I will likely start the process of scaling-out of those intentionally large position in that issue; however, please note that since history suggests that if/when Afrezza scripts finally do reach “critical mass,” they could hit not just one, but two (and perhaps even three), of my milestones between one issue and the next, I plan on being as equally methodical and patient about unwinding our positions as I have been in building them (and this, in turn, means that even if we end up selling off a portion of our position every month from May through the end of the year, we will still likely be sitting on something close a “regular-sized position” that we can then start to manage in a more typical manner as 2020 gets underway).
Finally, to drive the point home one more time, I want to reiterate that I am as confident and optimistic about the story as I have ever been, and though I am obviously betting that we will be selling shares at higher prices down the road, I encourage you to start thinking about what your own exit plan might look like – be it for a profit OR a loss – so that you will be able to execute on it “without emotion” if/when the time comes (and, as always, please don’t forget that there is no “right” way to use the newsletter, i.e. there is nothing wrong with buying and selling at a different pace than I am if it helps you sleep more easily at night!).
No, the journey has not been an easy one, especially for those of us who have been involved since I first recommended the stock back in 2009, but I like how things are shaping up under Castagna’s leadership, and I am optimistic that our patience is finally about to be rewarded – thanks again for your interest in what has truly become the most exceptional story I have ever watched unfold in my 31 years of following biotech! Cheers!