Healthcare Business

Events and Presentations Shake Out MannKind Short Sellers

MannKind Corp. (NASDAQ: MNKD) remains one of the most controversial stocks in the realm of biotech and pharmaceuticals. After finally getting U.S. Food and Drug Administration (FDA) clearance for the inhalable insulin Afrezza, and after a very slow start to the diabetes market, MannKind shares have now nearly doubled from their 52-week low.

A few things are driving the cart here. One is the 2015 Annual American Diabetes Association, which gives more awareness opportunity for Afrezza to be discussed by physicians and patients. A presentation at the Jefferies conference last week was a boost, and there is hope that its presentation at the Goldman Sachs 36th Annual Global Healthcare Conference on Wednesday, June 10, 2015 will be another driver here. Lastly, short covering is an obvious force here.

24/7 Wall St. has tracked many issues around MannKind over the years. This stock looked as though it was grossly oversold and was becoming overly bearish in sentiment in prior weeks, but then it looked as though shares had signaled a bottom. It was just on May 12, 2015, when MannKind shares hit a 52-week low of $3.46. With an 8% gain to $6.65 on Monday, its shares are approaching a 100% gain in just under a month.

While MannKind recently signaled that more products might be coming, and while the firm Jefferies recently gave it a stellar upside target of $9.00, much of this had already been known.

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The coming Goldman Sachs health care conference this Wednesday could be another driving force. At issue is that Goldman Sachs has been very negative on MannKind. In fact, the firm’s Sell rating and prior $3 target have come with bullish investor allegations in chat rooms and social media that the analyst has a vested bias against MannKind over issues that we will not go in detail about here.

It seems as though investors are taking the firm’s appearance at the Goldman Sachs conference as meaning MannKind can overcome the Goldman Sachs research tone. If a company knows going into a presentation that it has no chance of getting a positive reception, why bother to schedule a showing, and then bother even further by showing up?

Another key driving force behind the sharp snapback rally in MannKind is the huge short covering. The last short interest settlement date of May 15 showed a whopping 112.9 million shares in the short interest. This was the ninth increase in the short interest and was a new high for at least the past year — and it was more than one-fourth of the shares outstanding.

It is not common at all for a quarter of a company’s shares outstanding to be sold short. This means that any hint of positive news will send short sellers running for cover. That creates buying to exit the shares, and it allows nimble speculative buyers to jump into the situation betting that the pain will cause short sellers to buy even more.

It is worth noting that the peak in the short interest also was within days of the 52-week and multiyear low. Below is a listing of the raw short interest based on settlement dates:

  • 5/15/2015: 112,949,758
  • 4/30/2015: 100,934,186
  • 4/15/2015: 96,880,182
  • 3/31/2015: 95,717,587
  • 3/13/2015: 90,882,779
  • 2/27/2015: 90,734,471
  • 2/13/2015: 86,114,829
  • 1/30/2015: 80,678,801
  • 1/15/2015: 76,855,662

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While it will be interesting to see what happened to the short interest for the May 29 settlement date period, it will still have a rather large look-back to the data — at $6.65 on Monday, MannKind shares were down at $5.18 on that settlement date, and the stock was down around $4.50 to $5.20 in the four trading days prior to that.

A change in sentiment often occurs faster than normal when short sellers are forced to exit a big bet. Now it is up to MannKind to see if the recovery can continue.

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