What’s Behind MannKind Corporation (MNKD)’s Incredible Run? – Pfizer Inc. (PFE)

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After seeing MannKind Corporation (NASDAQ:MNKD) rocket upwards over the last week, Motley Fool health care analyst Max Macaluso and Fool contributor Brian Orelli sat down to chat about what's going on with the inhaled insulin drugmaker.

Max Macaluso: It's been an amazing week for biotech company MannKind. Shares were up more than 4% yesterday, and shares are up more than 30% in the last 5 trading days. Big jumps with small, volatile stocks like this can be common, but the company actually didn't have any news or catalysts. What's happening here?

MannKind Corporation (NASDAQ:MNKD)Brian Orelli: Options expire this week, and we're hitting all-time highs in the Dow. Also they're getting ready to selecting a new pope in Rome.

None of those have anything to do with MannKind Corporation (NASDAQ:MNKD)'s fundamentals, but I wouldn't be surprised if they're influencing the stock price -- minus the last one, unless investors are hoping a needle-phobic diabetic pope could be MannKind's next spokesman -- biotechs move for strange reasons.

There's no reason that MannKind should be moving up this week, but it's not all that surprising that it's moved off its lows. The biotech has been dead money since its last FDA rejection. At some point, it becomes worth waiting for.

Macaluso: Usually biotech stocks have a mind of their own and don't necessarily move with the Dow, but let's take a look at how the iShares NASDAQ Biotechnology Index's performance correlates with the Dow.

IBB Chart

IBB data by YCharts.

Orelli: Not that surprising. As the generalist investors get excited, the biotech investors get really excited. Unfortunately it works the same way on the way down, too.

Macaluso: So MannKind Corporation (NASDAQ:MNKD) is now perched on a 52-week high. Looking at their cash position, do you think the company needs to raise more capital with a follow-on public offering?

Orelli: Do we really need to look at their cash position? They've got a billionaire founder with so much tied up in the company, there's no way Al Mann is going to let his namesake go out of business at this point.

Macaluso: Well, let's say does Afrezza get rejected by the FDA again -- do you think Mr. Mann will put more money into the company? I know I'd probably call it quits.

Orelli: Me too. But I think Mann is more stubborn than either of us. It obviously depends on the nature of the rejection. Unless it's clear the FDA will never approve it, I think he sticks with it.

Macaluso: OK, let's circle back to my previous question: Do you think now is a good time to raise capital with a follow-on public offering?

Orelli: In general, I think biotechs should raise money when they can, not when they need it. By that standard, hitting a 52-week high falls in the "when you can" segment.

But MannKind has already diluted the heck out of its shareholders. Shares outstanding at the company are up 59% since the end of 2010, before the latest FDA rejection. Put another way, a dollar of earnings that a share was entitled to in 2010 -- assuming MannKind becomes profitable someday -- is only worth $0.63 today.

So I guess my answer is no; MannKind Corporation (NASDAQ:MNKD) shouldn't raise capital. If the upcoming clinical trials fail -- probably unlikely, but anything's possible -- and the company runs out of money, so be it. It makes more sense to raise after the binary events, when the share price is hopefully higher and dilution won't be quite as painful.

Macaluso: It can be dangerous to assume a drug will get approved because FDA decisions are unpredictable. Take Novo Nordisk A/S (ADR) (NYSE:NVO)'s Tresiba, for instance. That drug was already approved in Europe and everyone believed it would be a shoo-in with the FDA, but it was handed a complete response letter.

Orelli: Yeah, buying after the run-up is almost never a good idea because in the risk-reward equation, you've lost some reward, but the risk is still the same.

Macaluso: So, Brian, what's the next catalyst that investors need to watch?

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