In my previous blog entry, I have explained why I was not as optimistic as Mr. Mann about the approval of Mannkind's experimental inhaled insulin drug, Afrezza. So the FDA was delayed in December 2010, when can we expect to hear the final ruling? While the FDA did not provide a firm date for the final decision announcement (PDUFA action date), it did indicate that the delay was going to be 4 weeks. This would be coming up next week roughly Wed. on Jan 26, 2011. If a complete response letter is issued to the Valencia, Cali-based biotech, which in my opinion will be very likely, then the company history tells us that we're looking at a ~30% drop right off the bat (Mannkind had received its first complete response letter in March 2010 and suffered a blow to its stock value). The dip may even be greater this time around because a second rejection would put the nail in the coffin for Mannkind's (and largely Alfred Mann's) pursuit of a beathable insulin medicine to treat diabetes.
Trading Map
Despite the 'hype' all over the web about Afrezza's soon-to-be-received approval, I maintain my short position in the stock. Here is what may be a profitable short play through put options. Look to purchase February put options at the lowest possible price before Tuesday, Jan. 25 (remember the announcement might be out any time between now and next Wed. Jan 26). Aim to buy whenever MNKD share price takes another leap as put options price changes in opposite direction to share price. I know it's expensive right now ($2.15, strike price $9) but it will be worth it!!!!! If and when Mannkind's Afrezza gets rejected, the put options will seem that much shinier!!!!!
Note: Because put options become cheaper and cheaper by the day, it may be worth it to wait until the last possible minute before the order is sent in. The only caveat is that you might miss the play completely in the event that the FDA jumps the gun on decision release. Weigh your options (no pun intended). Good luck!
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