A lot has changed since my last update on MannKind (MNKD). The share price has almost tripled since then and prospects of an FDA approval seem brighter than ever. The company has released data from its Phase III trials of AFREZZA on 14th August and pleasantly surprised the market. Despite meeting all endpoints of Phase III trials, the shares have declined almost 20% in the last month. This decline in valuations is primarily due to short-term investors taking profits after an epic run and is not a red flag for long-term investors. In fact it is an excellent opportunity to add more shares before the NDA filling at year end. The prices will rally as we approach the FDA approval of AFREZZA.
Phase III Results
MannKind has released data for AFREZZA's Phase III trials. The treatment was tested in two studies, Study 171 for type 1 diabetes and Study 172 for type 2 diabetes. According to MannKind, both studies met all their endpoints. The market was more concerned about Study 172 which was conducted for type 2 diabetes due to the much larger size of this market.
Study 172 assessed the combination of AFREZZA and oral therapy as compared to oral therapy alone. The trial proved that AFREZZA demonstrated a superior reduction in A1c levels as compared to only oral therapy. The patients on oral therapy saw A1C mean reduction of 0.42%, while those on AFREZZA combination saw almost double mean reduction of 0.82%.
Although cases of hypoglycemia were higher under the AFREZZA regime, there was a significant reduction in postprandial glucose excursion under the AFREZZA regime. The increase in hypoglycemia is a normal occurrence when any insulin treatment is combined with oral medicine. These occurrences were not severe and not a single subject was removed from the study due to hypoglycemia.
The company will submit its drug approval request with the FDA by the end of this quarter. The market is anticipating that the decision will come out in the first quarter of 2014. The FDA rejected MannKind's NDA in 2011 and had asked for additional trials. The authority had requested that MannKind proved that its second generation device was equivalent to first generation inhaler. The studies 175 and 171 have shown that the second generation inhaler is also just as effective.
One of the biggest plus points for MannKind has been the continued faith of insiders in the company. During the last six months, insiders have purchased approximately 39.8 million shares of MannKind, increasing total holdings to 137 million. Mr. Mann himself has led this 41% rise in insider holdings. The institutional investors have also continuously added to their holdings, adding 3.9 million shares and increasing holdings by approximately 7%.
Cash Flow Position
The cash position of MannKind has been a big worry for long-term MannKind investors. The company missed analyst expectations of $-0.14 EPS and reported a loss of $-0.16. The company burned approximately $29.7 million in the previous quarter and ended the quarter with around $28.5 million in cash. This might show a hopeless picture but since then it has acquired more financing. After the successful Phase III trial, it is set to receive the second and third installments from its $160 million loan from Deerfield. This will add approximately $80 million to the cash pile. The company will also receive a further $19 million from another milestone payment. The cash situation will continue to improve next quarter as MannKind will net a further $65 from conversion of warrants in October.
The market is still reluctant to jump on the MannKind gravy train due to past experiences with the Exubera failure. This is a totally misplaced comparison, Exubera failed because doctors were hesitant to prescribe a drug which can harm the lungs. The dreamboat delivery mechanism has a much higher absorption rate and doesn't share the weaknesses of Exubera. A major reason behind Exubera failure was its very high price. Pfizer charged a high price because a lot of the drug was wasted due to an inefficient delivery mechanism. With its higher absorption rates, AFREZZA will be only 10%-15% more expensive than injectable insulin.
During the last month, MannKind's shares have come down approximately 20% because investors are taking profits after an epic run. The company is all set to get FDA approval and with better absorption rates and lower price will be able to penetrate the lucrative insulin market, which will reach $30 billion in 2018.