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July 20th, 1969: Neil Armstrong steps off the Eagle’s footpad and onto the moon uttering those famous words; “That’s one small step for {a} man, one giant leap for mankind.” I wonder if Al Mann had those words ringing in his ear when deciding on the name ‘MannKind’ for the company he founded and still serves as Chairman and CEO of. MannKind is a standout among a field of biotech companies trying to change the world and bring their first product to market. It is the only company I know of whose founder has invested such a vast fortune in it. Entrepreneurs often invest a large portion of their wealth on new companies, but when your wealth is in the Billions, it is rare indeed. To date, MannKind has invested $1.6B developing their Technosphere delivery platform, the first drug to use that platform, AFREZZA, and their cancer immunotherapy programs. Al Mann has stated in the past that he doesn’t invest his money on anything he can’t expect to get at least a 10x return on. In Al’s case, that is approximately $800M including a line of credit MannKind is using for funding, which would mean Al expects to get at least $8B for his investment.

That would value MannKind close to $20B in Al’s eyes. Those are big numbers for a company trading with a market cap of $560M. Al Mann is one of the richest men in America. Why would he bother at the ripe age of 85 to still spend his time championing MannKind and betting his hard earned money backing the company? Could he be senile? I don’t think so. I believe he knows what the market and most of the analyst community doesn’t. That is that MannKind’s Technosphere platform is a ‘game-changer’ and has the potential to be a disruptive technology in pharmacology.

Technosphere is MannKind’s proprietary drug delivery system and one of the crown jewels of the company. Think Nanotechnology in computing. Technosphere allows for the safe pulmonary delivery of peptides, proteins and small molecules through an inert transport mechanism that is excreted from the body without any long-term effect to any organ, including the lungs. Most drugs that are injected today can be formulated into a Technosphere-based delivery. The pharmacokinenic’s of Technospere allow for an almost immediate effect of the drug delivered through the pulmonary route. This will allow biotechnology companies to develop compounds that weren’t previously able to be pursued because they might need immediate onset to have the desired effect. It will also allow reformulation of existing drugs to improve their efficacy and to extend their patent life. The first drug to be marketed using the Technosphere platform will be AFREZZA, for mealtime insulin control in diabetics.

AFREZZA is creating a new class of ‘Ultra-Rapid Acting’ Insulin thanks to underlying Technosphere technology. It is Ultra-Rapid Acting because it Peaks in 12-14 minutes and dissipates from the body just like a normal person’s insulin response during a meal. This greatly reduces a patient's risk for hypoglycemia and is weight neutral. To see an informative video from MannKind you can view the following animation here.

click to enlarge

AFREZZA Kinetics

AFREZZA will not replace an underlying Basal insulin therapy but it will cannibalize the Rapid Acting Insulin market and will open up a large population of diabetics who aren’t currently taking a meal-time Prandial insulin therapy. Rapid Acting Analogs including Lispro - Eli Lilly’s (NYSE:LLY) Humalog and Novo Nordisk’s (NYSE:NVO) NovoRapid is a $10B worldwide market. The problem with the current RAA solutions are that they Peak in 30-90 minutes and remain in the body for up to 5 hours, which can cause weight gain and more importantly, hypoglycemia events which is a leading cause of death among diabetics. Diabetes is the #6 leading cause of death in the US and diabetics can expect to live a decade less than a non-diabetic. Even new faster-acting RAA in development such as Biodel’s (NASDAQ:BIOD) VIAject still have a long tail associated with them because they are injected. Analysts who say that diabetics don’t mind taking injections and are accustomed to it are living in a fantasy world.

That is like saying someone doesn’t mind getting punched in the face a few times a day. Are patients used to it? Yes. Have patients learned to live with it? Yes. Does that mean they won’t change and want something better? No. Of course some will take longer than others to convert but over time, I believe AFREZZA will become the new standard of care for Prandial insulin therapy. Would physicians like to prescribe Prandial therapy earlier and do patients put off taking mealtime injections? Absolutely. Dr. Jay Skyler, Professor of Medicine for University of Miami, Associate Director of Academic Programs for the Diabetes Research Institute, a recognized expert in Diabetes and Diabetes treatment said the following about AFREZZA as the first super rapid-acting insulin, he has “not seen such an advance in diabetes therapy in 40 years of research and practice.”

Pfizer’s (NYSE:PFE) Exubera failed so will AFREZZA. A common opinion circulated by negative analysts which is kind of like saying an iPod isn’t a better Sony Walkman. Pfizer estimated Exubera would be a $2.8B product and become a force in the RAA Insulin market just because you inhaled it instead of injecting. It offered no medical benefit like AFREZZA does. If failed miserably. Why? The main reasons why it failed wasn’t because it didn’t work as an inhaled rapid-acting insulin, but because it was a terrible product design and offered no medical benefit. The most common reasons patients stopped using Exubera in trials were complaints about its Size, Inconvenience and Complicated Dosing. It isn’t a ‘better’ insulin, you just inhaled it. And if the inhaler was the size of a bong, who would want to take it if it offered no medical benefit?

Adding to the blackcloud of Exubera, are concerns of increased risk of cancer for Exubera patients that came out after Pfizer pulled it from the market. Keep in mind, there has never been a direct correlation made to an increased risk of cancer for Exubera patients. Those who did come down with lung cancer were former smokers and the numbers weren’t outside of the rates for cancer in non-Exubera patients. Still, that adds to the negativity surrounding inhaled insulin. MannKind has conducted what is probably the most rigorous set of testing and analysis that has ever been done with a drug to show there is no pulmonary risk associated with AFREZZA and the Technosphere technology. In addition to the usability aspects of Exubera, it cost a lot more than injected insulin as opposed to AFREZZA, which will be priced within 5% of currently available RAA.

MannKind

Pfizer

MannKind's 'Dreamboat' Inhaler vs Pfizer's Exubera

AFREZZA will offer diabetics who need mealtime insulin therapy a better product that mimics the body’s normal insulin function, reduces risk of hypoglycemia, is weight neutral and is administered through a simple inhaler the size of a whistle. It is the Technosphere technology that is the key . In the future, MannKind should be able to show that no carb counting will be required, that you may only have to check your glucose around once a week, as opposed to many times a day and that they may even be able to halt the progression of Type II diabetes thereby increasing a patient’s lifespan by as much as a decade.

The FDA missed the original PDUFA date for AFREZZA of January 16th of this year apparently due to the missed inspection of a 3rd party supplier of insulin. It turns out, there was much more the FDA needed than just a 3rd party inspection. The FDA issued a Complete Response Letter on March 15th, a year after the NDA was filed. It is never good to receive a CRL instead of approval but what is important is that the FDA cited no safety concerns and requested no additional trials. The questions pertained to the device itself and the ‘clinical utility’ of AFREZZA. Negative analysts such as Jon Le Croy with Hapoalim Securities had a field day with the phrasing of ‘clinical utility’ claiming that the FDA saw no need for AFREZZA in the market place since rapid acting insulin is just fine.

Since that initial CRL, MannKind has discussed the phrase ‘clinical utility’ with the FDA who has clarified that their phrasing of those words were around where in the course of treatment AFREZZA is the best fit based on the underlying studies and when in the treatment cycle to use it. The questions and concerns the FDA has around the delivery device are solved with the latest generation ‘Dreamboat’ device MannKind developed prior to filing the NDA. The bioequivalancy study design for that device was vetted with the FDA and assays have been recently been completed showing linear bioequivalancy. Whether or not MannKind can use that data for the Dreamboat device in their resubmission to the FDA will be clarified in a face to face meeting with the FDA in ‘early June.’ If that meeting goes as MannKind expects, they will file their resubmission within a few weeks after. According to MannKind, at least two potential Big Pharma partners have been helping them with preparations for that face to face meeting. In September 2009, partnership talks broke off with a potential Big Pharma partner due to disagreements around what the final label would look like. Now that the CRL will be clarified in the face to face in early June, MannKind and the potential partners will have a very good idea as to what the final label will be which should clear the road for inking a commercial agreement.

A commercial agreement for AFREZZA will be the only thing in the short term to affirm to the market the potential of an Ultra-Rapid Inhalable insulin. If a Big Pharma rewards MannKind with a nice upfront for AFREZZA and values the drug at let’s say $2B a year, then MannKind should be valued at over $4B relatively quickly in my estimate. MannKind is currently relying on a credit line supplied by Al Mann, which provides them funding through Q1 2011. They will either need a partnership before approval, more funds from Al or a cash raise before the end of 2010. Until that partnership happens, it is pure speculation what AFREZZA is worth. You can listen to Pro-MNKD Analysts from Wells Fargo or Cowen & Company or Negative Analysts from Oppenheimer and Hapoalim Securities but the fact is that nobody knows exactly what AFREZZA is worth yet.

The positive analysts seem to understand the underlying technology and market need. The negative analysts seem to focus on the failure of Exubera, the delays by the FDA, the lack of a commercial agreement and completely ignore the benefits and science around AFREZZA, or just don’t understand it. Nobody knows where the FDA’s head is at either but we’ll have a much better idea after MannKind’s meeting with them in early June. What we do know is that:

· The FDA asked for updated readily available data on AFREZZA.

· The FDA asked for no additional studies.

· The FDA cited no safety concerns.

· The FDA recommended that MannKind lower the age on the recommended Pediatric Phase IV study down to 4 year olds.

· The FDA asked MannKind to change the name from Afresa to Afrezza so as to not be confused in the market with other drugs.

· The FDA asked MannKind to improve the labeling on their blister packets for the drug.

· The FDA completed inspection of 3rd party manufacturing facilities in Europe.

· The FDA will have at least 4 separate divisions represented at the face to face meeting, which is highly unusual.

· The FDA has NEVER asked AFREZZA to and Advisory Committee and has told MannKind that one will not be required.

Does the FDA do all of the above if they don’t think they will approve AFREZZA? I personally don’t think so but will leave that to your own analysis.

We also shouldn’t overlook MannKind’s other programs including cancer immunotherapy, especially on the heels of Dendreon’s (NASDAQ:DNDN) success with Provenge. MannKind’s MKC1106 program for advanced melanoma and solid tumors has shown impressive success in Phase I. MKC1106 is an active immunotherapy where the vaccine is injected directly into a patient’s lymph nodes. MannKind has recently decided to engage in partnership discussions on the MKC 1106 programs in an effort to speed up development of the drugs. I don’t believe any value at all is currently in MannKind’s market cap for the cancer program. Another interesting program is MKC253 for a GLP-1 drug for diabetes delivered via Technosphere. Today’s GLP-1 drugs such as Amylin’s (AMLN) Byetta are injected into a patient’s stomach and are associated with uncomfortable side effects, such as vomiting.

Since MannKind’s CRL letter, the stock has been cut by more than half. Uncertainty around where the FDA’s head is at and uncertainty of AFREZZA’s place in the market has given the bears control of the stock. The face to face with the FDA in early June and subsequent resubmission of the application, will clear up much of that uncertainty. However, the only clarification that is really matters in the short term is that between the final label and potential Big Pharma’s valuation for MannKind. Big Pharma’s willingness to ink a deal after that face to face and before approval is much more important than any targets of analysts which range from $1 from those who think AFREZZA won't be approved to $26 for those that seem to understand the benefit of this new Ultra-Rapid Acting Insulin. Big Pharma doesn’t care what analysts say, they care about what their own analysis tells them and that will be the basis of AFREZZA’s valuation. Big Pharma has spent Billions to come out with a successful inhalable insulin, less alone a BETTER ultra-rapid version, and failed miserably. MannKind has succeeded where they have failed and we’ll know what the short time value is within the next few months.

Until then, long investors have a chance to own a piece of what could be the next little biotech that makes it big, all at a cost basis much lower than it cost to create the technology and a lot less than the largest shareholder and CEO. The last time Al Mann was in this situation was his company MiniMed, which developed the insulin pump. At one time, that company was $4 until he sold it at a split adjusted $196 or $3.7B. Al Mann knows that MannKind is much more valuable than MiniMed but only time will tell how much more valuable.

Disclosure: Long MNKD


Source: A Giant Leap for MannKind