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Summary

  • On June 27, 2014, the FDA approved Afrezza for both Type 1 and Type 2 diabetes with a very clean label that will benefit the majority of diabetic patients.
  • With the FDA Approval, MannKind’s Technosphere Technology becomes a fully legitimate platform for MannKind to enter into numerous multi-billion dollar drug markets.
  • MannKind’s directors have previously noted their interest in moving the Technosphere platform into the pain management, vaccine, and other drug markets.
  • Partnership possibilities remain very strong with the clean Afrezza label, and I expect the main partnership players will emerge soon.
  • Current stock price is nowhere near the valuation it should be, if the Technosphere Technology was being applied to the shares.

FDA Approves Afrezza

In a sudden and stunning fashion, the FDA announced the approval of Afrezza for both Type 1 and Type 2 diabetes for MannKind Corporation (NASDAQ:MNKD). The approval ends a long and very tough road to finally bring their revolutionary inhalable insulin product to market. In a previous article, I stated that I did not believe it would take the FDA the entire 90 days to render a decision, and the FDA proved me correct. In another article, I explained my expectations of what the approved label would look like, and once again the FDA proved me correct. The label comes with a "Box Warning" as expected for those with COPD, Asthma, or Chronic Lung Disease (CLD), which was expected, and in fact, noted by MannKind that they had no intention of marketing Afrezza towards. The box warning does not affect the reachable market of patients intended for Afrezza. The FDA also called for additional follow-up studies, which again, I noted would be required in my previous articles as well. Investors should be very pleased with the negotiated label, and it will be very exciting moving forward to the next phase, a partnership.

Possibilities Partnership

In my previous articles, I explained that MannKind was likely the side delaying the announcement, or holding back on signing a partnership deal until the label was negotiated. A bad label would have easily forced them into a bad deal, or the chances that a partnership deal with a global leader would not occur at all. With the clean FDA label, I fully expect that several major Big Pharma companies are interested in partnering with MannKind. My lead candidate for a partnership with MannKind is Pfizer (NYSE:PFE). Pfizer's previous attempt at inhalable insulin, Exubera, was scrapped and the company lost millions on the failure of the product. It was a product that came before its time and was not ready for acceptance in the marketplace. I believe Pfizer will want back in the game. Afrezza is a much more improved product than Exubera, and the FDA and ADA have clearly called for new treatment methods for diabetic patients over the past several years.

MannKind's Technosphere Technology is the primary reason I believe Pfizer makes the best partner for MannKind, which I will expand upon in this article. My other two candidates are Eli Lily and Novo Nordisk, as each of these companies are heavily involved in the insulin markets, and stand to lose heavy market share with global adoption of inhalable insulin. MannKind previously gave a 6-8 week timeline several weeks ago for a deal to be finalized, but the early approval of Afrezza by the FDA, will likely advance the timeframe of a finalized agreement by several weeks sooner.

Pain Management Global Market

Pfizer as the lead candidate to partner with MannKind comes simply from the Technosphere opportunity to branch across numerous drug markets. MannKind's previous statements to head into the pain management market, after the approval of Afrezza, is big for Pfizer. Pfizer is the Market Leader pain management sales company in the world. Their global sales for pain management were $22 Billion in 2010, and have risen sharply every year to date. Market projections vary, but Espicom estimated the global pain-management market at $46.4 billion at the close of 2011. The U.S. market accounts for 48% of that. Another market analyst, Global Industry Analysts (GIA), one year ago predicted the global pain-management market would reach $60 billion by 2015.

Knowing this information, investors should really be excited about the future of MannKind. It makes sense that there are likely many candidates that are interested in MannKind for the right partnership deal, because MannKind's future product competition would affect their operations. Partnering with MNKD and having the ability to put their already approved drugs into an inhalable format would be very smart going forward.

Vaccine Global Market

The global market for vaccines is relatively small in comparison to other drug markets. However, it does come with a hefty sales potential for MannKind, if they are able to develop inhalable vaccines through the Technosphere platform. The global market for vaccines may only comprise about 2% to 3% of the total pharmaceuticals market but this sector has, and continues to experience a stellar growth rate of 10% to 15% per year. The World Health Organization (WHO). In 2000, sales were just $5 billion, yet today the global vaccine market is worth an estimated $24 billion, and is projected to rise to $100 billion by 2025.

Technosphere Technology Valuation

From MannKind's website:

The Technosphere Technology Platform, is a versatile delivery system that mimics the pharmacokinetics of intra-arterial administration. Technosphere technology allows the pulmonary administration of therapeutics currently requiring administration by injection and offers several competitive advantages over other pulmonary drug delivery systems. While the technology is currently focused on pulmonary drug delivery for systemic absorption, research studies indicate the Technosphere platform has potential applicability for local lung delivery as well as other routes of administration. Technosphere technology has the potential to provide impressive drug delivery solutions across a wide variety of therapeutic areas encompassing a number of diverse products and disease states.

As I have noted previously, Afrezza is just the first step in a very prominent future for the Technosphere Technology. The numerous drug market possibilities for MannKind's technology are extremely valuable. Placing a true valuation on this technology is virtually impossible, but personally, I would be comfortable placing a $30 to $40 billion dollar (15-20% of diabetic, pain management, vaccine markets combined) valuation on it. While the technology may not be suitable for all diabetics, it could certainly be useable to treat all pain management and vaccine related issues of already approved drugs. As I mentioned above, the projected market sizes in the coming years for both of these markets is over $150 Billion annually. This total does not include the $58 Billion dollar diabetic market that MannKind just received approval from the FDA to enter.

Of course, these valuations are only possibilities for MannKind right now, they are real, and how fast the company can enter these markets remains to be seen. However, I fully believe that the right partnership could bring these markets to fruition for MannKind very quickly. Since the Technosphere platform has been approved, and the pain management drugs and vaccines are already approved, it would allow quick entry into these drug markets with very limited time lost to long trials and studies with the right partner. This is why I believe MannKind's stock continues to be extremely undervalued at current levels, and investors have not priced in the full market potential for the Technosphere Technology. How much longer this low valuation continues is unknown, but the approval of Afrezza should change that thinking fairly quick with investors.

Short Interest

As of the most recent short interest report, and prior to the FDA announcement on June 27, 2014, short sellers had continued to increase their short position in MannKind's stock to just fewer than 70 million shares short. It seems they were expecting either another 90 day delay, or a poor label being issued by the FDA that would affect the sales and market potential for Afrezza. Well, both of those worries are now dispelled, as the FDA has now confirmed that neither of these theories short sellers may have used to increase their position are true. It seems that the short sellers are quickly running out of ways to attack MannKind like they have for the past 7 or so years, and I am confident now that the Technosphere Technology is fully FDA approved, and the numerous drug markets MannKind can now enter in full view, they will begin to reverse those short sales in a very quick fashion. Currently, I rate MNKD stock an extremely long term strong buy with the FDA approval of Afrezza, and consider the stock to be very undervalued based on the total enterprise value (TEV) that the Technosphere Technology adds to the company. It is an exciting time to be a MannKind shareholder.

Source: Afrezza Approval Opens The Door To Multi-Billion Dollar Markets For MannKind