MannKind Corporation (MNKD), Novo Nordisk A/S (ADR) (NVO), Eli Lilly & Co. (LLY): A Good Drug That’s Too Risky to Buy

Assuming MannKind can get a decent deal, a partnership should drive the stock higher. Of course, that’s what we said of Amarin Corporation plc (ADR) (NASDAQ:AMRN), and more than a year after its approval, we’re still waiting for a partnership. In general, biotech management doesn’t like to give away the farm in a partnership and that likely goes double for MannKind’s CEO, namesake, and largest shareholder — Al Mann. Given the large market size, MannKind would have a hard time launching on its own.

The market

This is the area with the highest risk-reward proposition. Afrezza’s potential is huge; fast-acting insulin is a multi-billion market.

But it’s unlikely that doctors will immediately switch their patients from injected insulin sold by Eli Lilly and Novo Nordisk to Afrezza. Some patients that hate their needles might get switched, but convincing doctors to change the way they think about delivering insulin will be an uphill battle.

The easiest group to capture might be new-to-insulin type 2 diabetics. They typically start with oral medications, such as metformin and Merck’s Januvia, but the medications eventually can’t control the blood sugar levels. Starting on inhaled insulin would be an easier transition than going directly to an injected medication.

Stay on the sidelines

The time to buy MannKind was earlier this year before it tripled in value. At this point, unless you have very high confidence that MannKind can find a partner with good deal terms, staying on the sidelines is your best move.

MannKind has a good product, but there’s just too much risk to justify buying at this inflated price. Wait until the risk is gone or the price falls enough to justify taking on the risk.

The article A Good Drug That’s Too Risky to Buy originally appeared on Fool.com and is written by Brian Orelli.

Fool contributor Brian Orelli has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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