According to the American Diabetes Association, over 25 million people in the US alone have diabetes and the numbers keep on growing. Although insulin injections have come a long way, poking yourself with a needle in public still draws unwanted attention. MannKind Corporation (MNKD) is on the cusp of releasing an inhalable insulin treatment, Afrezza, that promises to revolutionize the way people treat this disease.
The Exubera Menace
Back in mid-2006, Pfizer (PFE) introduced an inhalable insulin treatment system created by Nektar Therapeutics (NKTR). Put mildly, it was a disaster. Just over a year after introducing the drug, Pfizer pulled the plug after losing about $2.8 billion on the flop.
The Exubera debacle still haunts MannKind, scaring away potential investors. What the market as a whole hasn't considered is that although both the treatments involve an inhalable form or insulin, the similarities stop there.
Pfizer tried to market Exubera on the assumption that diabetics didn't care for the inconvenience of needles. It was right, but only to a point. The Exubera delivery device was about the diameter of a toilet paper tube and twice as long. It was far more conspicuous to use in public than a needle.
Few people look twice at asthmatics using their inhalers, soon diabetics will enjoy the same convenience. MannKind's inconspicuous inhalers are tiny. A diabetic could administer a dose at a restaurant table without anybody noticing.
The few patients that did use Exubera, quickly went back to injections because administering the proper dosage was horribly complicated. Afrezza addresses this problem by making the dosage much simpler.
Also, during the latest conference call, MannKind's Senior Vice President of Clinical Sciences, Robert Baughman, explained the company's method of dosage management during clinical trials. Self-administered glucose meters communicate with an independent titration committee which evaluates both the patient's blood glucose and current dosage levels. The titration committee coordinates with the patient's physician who can make adjustments as needed.
The "electronic diary" and behind the scenes evaluation are a part of the clinical trial, but I don't see a reason the method cannot be put to use once Afrezza wins FDA approval. All Afrezza insulin cartridges contain a uniform amount of insulin -- unlike Exubera -- adjusting the dosage is simple arithmetic.
FDA Approval: If he can't do it no one can
Founder, Chairman, and CEO Alfred Mann has personally provided nearly half of the $2 billion so far invested on the development of Afrezza. This is not Mann's first rodeo. The octogenarian has a long and successful history of founding and funding companies similar to MannKind.
Mann's previous successes material to the MannKind venture include Pacesetter Systems, MiniMed, and Medical Research Group [MRG]. Pacesetter Systems developed pacemakers beginning in 1972 and was later purchased by Siemens (SI). With MiniMed, Mann produced glucose infusion and monitoring solutions that radically changed the treatment of Type 1 diabetes. MRG attempted to develop a synthetic pancreas. Both MiniMed and MRG were purchased by medical device giant Medtronic (MDT).
The important takeaway is that Mann has a solid history of success winning FDA approval for medical devices. Not only is he personally invested to the tune of $930 million, but I wouldn't be surprised if he coughed up another billion, if necessary, to bring Afrezza to market.
MannKind is still a dictionary definition of speculative
MannKind's CFO Matthew Pfeffer bluntly stated that with existing credit facilities and cash on hand the company can continue operations, including clinical trials of Afrezza, until the end of the year. This should buy the company enough time to resubmit its new drug application to the FDA.
Back in January of 2011 the FDA issued a response letter to MannKind's new drug application [NDA] requiring further comparisons of the company's next generation delivery devices to the ones used in previous clinical trials. According to Alfred Mann's statements during the Q1 2013 earnings call, clinical trials will be completed in June. The company intends to share its data in August before resubmitting the NDA in late September or early October.
Potential partners... or victims
MannKind doesn't have the resources to mass market Afrezza if it wins approval, so a partnership is definitely in its future. The company has mentioned there are interested parties, but so far no names have been mentioned. If similarly priced, Afrezza's increased convenience and effectiveness over existing insulin treatments will crush its competition.
Earlier this year the FDA refused to approve Novo Nordisk's (NVO) longer acting insulin product called Tresiba. The world's leading insulin maker's shares dropped from about $192 to $165 almost overnight. The FDA wants further studies into Tresiba's cardiovascular effects, and Novo insists it won't be ready for resubmission until 2015 at the earliest. A partnership with MannKind could be just what the company needs to remain a leader in the field of diabetes treatment.
Although Pfizer's board might not approve another venture into inhalable insulin, the delivery device itself might get the company's attention. Inhalable Viagra would be faster acting than its pill form, and the dosage would be much easier to manage. Producing inhalable versions of its most popular products could be just what the drug major needs to reverse almost 3 years of declining sales. Licensing an inhalation device that has already won FDA approval should speed up the process.
An asymmetric gamble, but a gamble nonetheless
Buying shares of MannKind at the recent price of about $5 is like making a ten-to-one bet on a winning team going into the fourth quarter. MannKind's inhalant devices are rainmakers, but if the company can't win approval this year, the entire venture could go up in smoke. MannKind's share price spiked after delivering news of steady progress towards FDA approval, but if the clinical study results, to be published in August, are anything less than stellar you can expect the bottom to fall out again.
I have an open order for a tiny long position that I'm ready to kiss goodbye if the FDA doesn't approve Afrezza and its delivery devices by the end of the year. I would never bet a significant portion of my capital on the whims of the FDA, but the next six months will be awfully exciting.