Yesterday Brentie posted an article titled 'Bristol Myers Squibb (BMY) Nabs Diabetes Player Amylin Pharmaceuticals (AMLN). Who's Next? LXRX, MNKD, GILD, RHHBY, INHX, ILMN'. There was an imbedded link within the article that I skipped when I first read the article. When I read the article the 2nd time, the link didn'y seem to involve MNKD until you read half way down the page until you get to a subtitle "One Wild Riches to Rags Back to Riches Story". I thought that it should be posted due to the positive content ...

One Wild Riches to Rags Back to Riches Story

OK guys, I know we didn't give you any warning about it, but we've got a new Featured Stock for you today. We just fell in love with it last night. So...

It's a biotech stock, so right off the bat you have to approach this one differently than you would any other kind of stock. It's all about the potential pipeline, 'cause these stocks trade anywhere from six months to six years into the future.

I don't know how many of you suffer from diabetes. Hopefully none, but if our readers are a fair cross section of the American populous, than 8.3% of you have the condition. And as that 8.3% (25.8 million people) of the population can tell you, treating it is a giant pain in the %$#%. Though several companies are working on blood-glucose testing systems that don't require a finger prick, and several more companies are working on an insulin delivery system that doesn't require a needle, almost all of those developments have yet to become reality. A handful of those easier-to-use diabetes-management tools, however, are very, very close to the endzone. That's where MannKind Corporation (NASDAQ:MNKD) comes in.

If the name doesn't ring a bell, this might - MannKind is the company that's working on an inhalable insulin treatment, called AFREZZA.

Inhaled insulin? Yeah, I know what you're thinking - I thought it was gimmicky too, and something you might expect only to see on Star Trek. The fact that Pfizer, Lilly, and Novo Nordisk have all worked on inhaled insulin treatments but eventually dropped the research (or in the case of Pfizer, discontinued an approved product) waves a big red flag too.

The more I studied it, however, the more the concept made some sense.

The drug itself is fine... seems to have at least adequate efficacy, if not better than average. It's the delivery method that the game-changer though. While injecting insulin into the blood stream is fast-acting, the lungs absorb and distribute medicine to the blood stream very rapidly too. You get the same basic result, but no needle.

All that being said, that's not the really amazing part of the story. This is were it gets crazy, and bordering on ridiculous.

AFREZZA was the drug that most people thought for sure was going to be approved by the FDA back in January of 2011. In fact, an FDA chemist who had access to critical and confidential information - as well as a history of buying stocks before key FDA approvals - purchased MNKD shares three weeks before the established final-approval announcement date. Not to make light of it, but as it turns out his buy decisions correlated with 27 different positive drug announcements from the FDA. Translation: His purchase of MannKind all but said the FDA was going to give AFREZZA the green light. [Yeah, he got in big trouble for it later.]

However, at the 11th hour, Martin Shkreli, the principal of MSMB Capital Management (a firm well known for shorting biotech stocks), sent a letter to several key people at the FDA stating "that approval of Afrezza without a new clinical program ... does not comply with the FDA's mandate to secure public health interests. Specifically, the sponsor requested an inhaler for commercial approval without appropriately studying its efficacy and safety."

Don't get me wrong - I'm all for investors making their opinion known, and I'm all for holding regulators accountable. Let's face it though... there's something a little suspicious about (1) mailing an unsolicited letter directly to the chiefs of a government agency (2) telling them they can't approve the drug of a company who's stock has already rallied because of (3) the near-unanimous assumption (at the time) that the drug would be approved.

Shkreli's gambit may well have worked, however, as the drug was rejected in January of 2011, sending the stock from $9.64 to $5.76 in less than a week. The complete response letter (aka 'the rejection') basically sent MannKind back to the drawing boards with AFREZZA, and delayed any possibility of the drug's approval for about two years. The stock's been sliding lower ever since.

Crazy, huh? Like a weird, conspiracy-theory movie from the 90's.

Now, I didn't tell you that story just because it was interesting. I told you that story to explain why I think AFREZZA's odds of being approved are very good. Heck, who knows? Maybe it already was approved and then unapproved only after the Shkreli letter. If that's the case, you can bet the FDA isn't going to be unduly influenced like that again - it really put some egg on the administration's face.

More important right now, the potential approval date is getting close. It should be sometime in the first half of 2013. You veteran traders know how this works though... biotech stocks start to perk up months in advance of key milestones. I can't help but wonder if the perkiness we've seen over the past two weeks is the beginning of MNKD's pre-approval perkiness.

Honestly, I don't know if AFREZZA is the best thing since sliced bread or not. It looks pretty good, but the hype for some drugs can often be bigger than the actual impact.

On the flipside, I don't really care if AFREZZA is all that and a bag of chips. I only care if the rest of the market starts to think AFREZZA is going to make MannKind seem investment-worthy between now and the approval date And, I do think that's started to happen. [Said another way, I don't want to marry MNKD - I only want to date it, but I want to date it soon.]

It's not going to be an easy next few months, mind you. MannKind burns about $35 million per quarter, and doesn't have any revenue to offset any of its spending. With only $56 million in the bank right now, it needs to do something in the way of fund-raising to get the point where it can ask for the drug's approval again. Given the situation I just told you though, I can't imagine it not being able to raise some cash.

As far as trading it goes, I love the way MNKD has finally started to run up on higher volume after hitting a multi-year low of $1.59 in May.

The $2.09 level had been support since 2008, but finally snapped last month. I don't see it as a bad thing though. While it's counterintuitive, far more often than not I've seen a visit to new multi-year lows actually hit the proverbial 'reset' button for a stock, is flushes out the last of any would-be sellers.

The only thing I can add is that you may want to wait for the stock to either close back above the $2.09 mark a couple of times to confirm the new uptrend, or wait for it retest the $1.90 area, where a handful of various moving averages are providing technical support - whichever happens first.

That's it for now.... just a little pre-weekend light reading. Sorry I went long, but I figured you wouldn't mind. This is a wild story that's finally getting within reach of a happy ending, and is sure to be fun between now and then.

http://www.smallcapnetwork.com/One-Mans-Junk-is-Another-Mans-Treasure/s/article/view/p/mid/7/id/1099/