The MannKind Lifeline Lights Up

After closing at $9.78 on Thursday, shares rose on Friday to above $10 after an RBC Capital Markets analyst started the speculative biotech player with an Outperform rating. The firm even gave it a whopping $16 price target. MannKind’s consensus price target was closer to $9 at the time, and the RBC number is a street-high target.

A word of caution may be worth mentioning here, just to keep both sides of the story equal. Again, MannKind is a highly controversial stock. MannKind insiders have registered to sell hundreds of thousands of shares from option exercises over the past 10 days or so. We have not seen all of these shares, and registering shares for sale does not always mean that all of them will be sold.

MannKind’s future is an easy one to assess, but only if you know what the FDA ruling is going to be. The FDA has not been a friend of inhalable insulin in recent years, and it sent MannKind back for more studies. In short, Afrezza has faced multiple delays.

The stock’s recent trading action to above $10 would give bulls the hope that this time the FDA will approve Afrezza.

More than 70,000 call options expire in July in the open interest in the strike prices of $9 and higher. There were also close to 70,000 contracts in the open interest in the July put option with the strike prices of $10 and under. The translation here is that there are now enough options that control about 7 million shares on either side of the bet. In mid-Friday trading, the appropriate volatility trade (owning a put and a call) was close to $3.75 — and that means that the stock would have to rise to about $14 or fall to about $6 to be profitable.

ALSO READ: Companies Betting on the Next 10 Blockbuster Drugs

The other consideration is that the short interest, as of the end of May, was more than 68 million shares.

Note that a $10.20 share price generates a market cap of almost $3.9 billion. Afrezza almost certainly will become a blockbuster drug if approved. After all, diabetics can inhale their insulin rather than having to inject themselves.

If you do not think that this is a highly watched issue, just look at what the American Diabetes Association projected as the 2012 cost of diabetes, and this is before the impact of unlimited expenses under the new health care law:

The total estimated cost of diagnosed diabetes in 2012 was $245 billion, including $176 billion in direct medical costs and $69 billion in reduced productivity; and the percentage of that expense included 18% as prescription medications to treat complications of diabetes and 12% for anti-diabetic agents and diabetes supplies.

ALSO READ: Short Sellers Remain Vigilant Against Top Biotech Stocks