Reconciling Rival Views Of Afrezza, And How To Play The Post-AdCom Surge

 |  About: MannKind Corporation (MNKD)
by: Jeff Eiseman


I review how the ground has shifted since the release of the FDA briefing document.

I explain my investment strategy in the light of MannKind’s shares highly predictable volatility.

I contrast two rival views of Afrezza: one highly favorable vs. one that Afrezza has limited value.

I list one set of conditions under which the highly favorable view is probably valid, and another under which the rival view is probably valid.

Afrezza is an inhaled insulin developed by MannKind (NASDAQ:MNKD). The FDA Advisory Committee Panel voted 13 to 1 and 14 to zero that Afrezza was appropriate for people with Type 1 and Type 2 diabetes respectively. Now there is little basis for predicting that the FDA will withhold approval on April 15.

My Investment Strategy in the Light of the Highly Predicted Volatility

In the April 2 pre-market or thereafter, I plan to sell 10 percent of my shares if I can get $8 or more, but hold onto the rest. If the share price gets down below $7, I will buy them back. I am aware that there are a variety of hedge strategies that might make more money, but they are riskier. I am giving this section short shrift because I deem the material below more important.

What We Learned Since the Briefing Document was Released

We learned that:

1. The reduction in baseline blood glucose levels may be related not to Afrezza acting alone, but rather to the fact that its exiting faster than other forms of prandial insulin reduces the frequency of moderate or severe hypos, thereby allowing the basal influence to be increased.

2. There is a dosing problem: At higher levels, the relationship between the dose of Afrezza and the size of blood glucose level reduction is not linear. It may reach a plateau, beyond which extra Afrezza doesn't do much.

3. The implications of Points #1 and #2 are that optimal performance will depend upon achieving the right balance among other medications especially the basal insulin.

4. It will be more difficult than some of us thought for general practitioners with limited diabetes experience to work out and monitor dosage issues without involvement of endocrinologists.

5. Because of Greg Johnstone's article, we recognize that injections and pumps have their own set of side effects.

6. Many of the panel members felt that the populations for which Afrezza might have a favorable risk/benefit ratio were somewhat limited, but that seemed to be especially true for those who considered that the only efficacy criterion that mattered involved A1c.

Reconciling Two Rival Views of Afrezza

Below are two apparently incompatible views:

1. Afrezza is less effective than existing insulins and appropriate only for limited populations.

2. Afrezza is highly effective and appropriate for many kinds of patients.

Because I assume that intelligent, experienced, and mature people have apparently incompatible views because any one view is only valid under certain conditions, I developed a way to reconcile apparently incompatible assertions by constructing a more comprehensive perspective that takes into account relevant dimensions.

A dimension is relevant, when you can locate one location on the dimension under which one of the assertions is likely to be valid and another under which the other is likely to be valid.

To provide an easy-to-interpret format for understanding the two sets of conditions, I developed what I call an integrative framework table. After studying such a table, it is possible to adopt a stance that takes into account the more comprehensive view.

Below is my integrative framework table for Afrezza. Because it contains a lot of information but is framed concisely, please study it carefully

Click to enlarge

I believe that the way to predict Afrezza's future is to work through the complexities and nuances involved on the right side of the table, and to recognize that that is exactly what the AdCom panel tried to do, and that other stakeholders are, and will be attempting to do.

Disclosure: I am long MNKD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I disclose my investment strategy within the article.