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Summary

  • In terms of expense, treating diabetes is on the top ten list in the U.S.
  • Small cap companies like MannKind stand to gain significantly from their diabetes drug products.
  • Big Pharma companies gain by replenishing their product lines that were depleted due to the "patent cliff.".

MannKind's (NASDAQ: MNKD) surprise recommendation of approval for its diabetic inhaler by a Food and Drug Administration panel this week provides another platform to discuss this multibillion area of pharmaceuticals.

For those who have been diagnosed with Type 1 or Type 2 diabetes, such approvals mean another opportunity to improve their qualities of life. For the drug makers who develop the products, such approvals provide another means to tap into the growing market. For investors, it means a chance to take stock in an industry that is among the top ranked in terms of treatment costs.

MannKind joins some pretty stiff competition in developing the latest treatment for diabetics. Those include GlaxoSmithKline (NYSE: GSK) and Bristol-Meyers Squibb (NYSE: BMY, with GlaxoSmithKline have a diabetic drug on tap for FDA approval this month and Bristol-Meyers recently having one approved.

GlaxoSmithKline has a drug to treat diabetes up for FDA approval on April 15, too. Its drug is called Abiglutide and it is used to treat Type 2 diabetes and is taken once a week using an injector pen.

The good news for GlaxoSmithKline is that this drug was approved last week in Europe. If it is approved here, it could help the pharmaceutical giant replenish its drug pipeline in light of falling revenues stemming patent cliff.

The FDA approved Bristol-Myers Squibb's Farxiga (dapaglifozin) in January. The tablets improve glycemic control, along with diet and exercise, in adults with type 2 diabetes.

In the case of MannKind, getting this approval amounted to a life or death situation.

MannKind FINALLY

MannKind is tapping the $7 billion injected insulin market with its insulin inhaler called Afrezza. It had pretty much put all of its eggs in one basket in developing the product, which is specifically for Type 1 and 2 diabetes. The company has been trying to bring it to market for years, but has faced obstacles from the FDA.

MannKind considers Afrezza to be its lead product candidate. Interesting about the inhaler is that it can be used by people with Type 1 and Type 2 diabetes. Rumors had swirled that the drug would not be approved by the people with Type 1 diabetes, which are those who are dependent on insulin because their pancreases produce little to none of it. One of the biggest differences between Type 1 and Type 2 is that Type 1 is not preventable, but the latter is. Type 2 affects more people and is more likely to be developed in people who are obese.

With that being said, MannKind's made many claims about its product, such as the inhaled insulin causing less weight gain and dissolving faster into the blood stream. Still, the FDA panel raised some serious concerns. For example, in a briefing document released last Friday, the panel noted concerns about Afrezza's safety, such as its pulmonary safety and lung cancer risk. Then we learned of an analyst who'd reviewed it and concluded that there was a slim chance that the drug would receive the needed recommendation from the panel.

As all this news broke, the stock fell almost 20%. Then the stock was halted from trading due to a pending news announcement on Tuesday, the day of the meeting, and remained halted until the meeting was over Tuesday evening.

Once the market learned of the panel's recommendation Tuesday evening, they sent the stock soaring. It closed Wednesday at $6.99, which was a whopping 74% increase from where it opened.

Still the drug has to pass muster with the FDA itself, as it will determine whether or not to approve the drug based on the panel's recommendation on April 15.

The Market

To understand the importance of cutting out some share of the market to treat diabetes, you have to understand its size. And then when you consider the amount of money that stands to be made in the treatment of diabetes, it's no wonder that biotech companies, both small and large, are clamoring to develop drugs and treatments.

In the U.S., the sales forecast for products that treat diabetes reached roughly $36 billion in 2012. Furthermore, that domestic growth is expected to continue at least through 2023, according to VisionGain.com. Its estimates place the potential sales to be made from diabetes medications to reach $55.3 billion worldwide in 2017.

I found these stats for diabetes-related pharmaceuticals at Wikivest.com:

Glucose monitoring: $8 billion market

Injected Insulin: $7 billion market

Insulin Pumps: $750 million market

If the FDA follows the panel's recommendation and approves Afrezza, I expect the stock to not rise much. In fact it may fall. My main reason relates to the percentage of the stock that was floated - about 28% - prior to the panel's recommendation release. As you know, stocks this heavily shorted tend to move up significantly on positive news. With no other foreseeable catalysts to move the stock, MannKind will likely settle down again around $5 in the coming weeks. The whopping 98 million shares we saw change hands for the stock on Wednesday will soon go back to the average 8 million to 10 million shares that the market is accustomed to seeing.

Source: How MannKind Shows Depth Of The Diabetes Market