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We are maintaining our Neutral stance on MannKind Corporation (MNKD - Analyst Report) with a target price of $3.50.

Valencia, California-based MannKind is a biopharmaceutical company focused on the discovery, development and commercialization of therapeutic products for diabetes, cancer and inflammatory and autoimmune diseases. The company’s lead pipeline candidate Afrezza is an inhaled insulin for the treatment of type I or type II diabetes.

We remind investors that in January 2011, MannKind suffered a setback when the US Food and Drug Administration (FDA) issued a second complete response letter (CRL) for Afrezza. While issuing the latest CRL, the FDA asked the company to conduct two phase III trials with Afrezza. While one trial (study 171) is being conducted with type I diabetes patients, the other (study 174) is evaluating type II diabetes patients.

Both studies are underway. The company intends to complete them by the end of 2012 and seek FDA approval subsequently.

We note that the requirement of additional trials means further cash outflow for Mankind. Currently management estimates its current cash balance will last only till the first quarter of 2012. Consequently, it will have to tap the capital market to raise additional resources. Inability to raise sufficient funds could jeopardize MannKind’s future.

The magnitude of the setback regarding Afrezza is significant as all other candidates at MannKind are in early stages of development. The setback causes us to believe that there is limited scope for upside from current levels at MannKind. We prefer to remain on the sidelines until we have more visibility on the approval process for Afrezza and retain our Neutral  stance on the stock.

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