10 Known Unknowns That Matter For MannKind Investors

| About: MannKind Corporation (MNKD)


Ignorant opinions are dominating the discussion of MannKind's new partnership with Sanofi.

Investors appear to be dumping the stock based on opinions founded entirely on guesswork.

Serious investors will wait for clarity on several very important known unknowns before buying or selling.

Pundits of all stripes are opining about the Mannkind-Sanofi partnership without knowing any of the facts.

Many statements being made both by bulls and bears display a lack of understanding of the product itself, its potential market, or the business environment in which all diabetes drugs are sold.

I have already explained why Sanofi (NYSE:SNY) was by far the best partner that Mannkind (NASDAQ:MNKD) could have chosen. Whatever the terms of the deal, there is no other company in existence with the motivation, the resource, and the expertise that will be needed to make this drug a success.

But with what we know now, it is impossible to know whether the terms of the deal were as good for MNKD investors as the company claims they are. More importantly, with what we know now it is impossible to make any estimates of what the potential sales might be and what magnitude of earnings MNKD investors might expect to see over the next year or two.

So the interwebs have been taken over by partisan pontificators making exaggerated claims on both sides of the argument. You may feel better reading those published by people who share your investment in the stock, long or short. But if you are serious about determining the likely future of MNKD stock, you'd be well advised to realize that we simply don't have the facts needed to make any calls here.

Here are ten huge questions we need to know the answers to that are currently completely unknown. Until they are answered, it is impossible to determine what kinds of earnings we might see from MNKD, when we might see them, and what would be a realistic price target for MNKD.

1. How will Afrezza be priced?

Afrezza is dispensed very differently from injected insulin. Injected insulin is available in 10 ml vials containing 1000 units and in packages of five 3 ml pens. The pen packages provide a total 1500 units.

This means that patients with Type 1 who use only two or three units per meal must still pay for at least 1000 units every month, because injected insulin is not very stable, the insulin tends to lose its potency long before all the insulin in the vial or pen is used up.

At the other end of the spectrum, patients with Type 2 diabetes who may use 24 units per meal will generally have to buy three vials or two packages of pens to supply one month's worth of meal-time insulin.

According to the FDA label, Afrezza is to be sold in six different configurations, The smallest provides two doses a day of the smallest 4 unit dose. The largest provides three doses a day of 12 units each. A patient with Type 1 would require only 1 pack of the 90 dose/4 unit packages (which contain the equivalent of 360 units of insulin) rather than the much more expensive vials or pens available. Patients requiring the large doses of insulin typical of Type 2 diabetes (24 units per meal) would require two of the largest packages of Afrezza each month.

Depending on how Sanofi decides to price Afrezza, it is possible that when sold in the lower doses used by Type 1s, it could offer a price advantage over vials and pens, which could go a long way towards motivating insurers to pay for it.

The Type 2 doses don't offer that advantage now, assuming that a package is priced similar to a package of pens, which is what MNKD executives have often stated in the past was their goal. And how the 12 unit cartridges would be packaged and priced is unknown, since they aren't yet approved.

But given that the biggest untapped market is Type 2s who need big doses of insulin, due to their high insulin resistance, there is a real opportunity here to use pricing to make Afrezza more attractive to payers than pens. If large doses of Afrezza are cheaper than pens, taking a bit less profit per unit sold might motivate insurers to adopt Afrezza as a Tier 2 drug. This could result in far more sales over the long term.

But since we have no idea how Sanofi intends to price the different configurations of Afrezza, any assumptions about sales and earnings are worthless until we have this vital bit of information.

2. How much Afrezza can MNKD make for sale in 2015?

We have been told by MNKD management that the Danbury plant can currently manufacture 375 million doses a year and that, when fully built out, it can make 2 billion doses.

But pray tell, what is a "dose?" Is it a cartridge? Is it the 4 unit smallest dose available? Is it the amount a patient needs to cover one meal, which for most Type 2s requires several cartridges?

Without knowing this it is impossible to know how many prescriptions' worth of insulin the company can produce for sale next year and hence what the upward bound for sales figures might be. If the prescriptions are priced differently, by format, that introduces a further complication.

3. How many people currently using fast acting insulin will switch from injected insulin to inhaled insulin?

There is no way of knowing this. In fact, it's not at all clear how many people in the U.S. use fast-acting insulin, as insulin sales are always reported in ways that include long-acting and short-acting insulins in one figure.

However, it's pretty certain that most people with Type 2 diabetes are using only long-acting insulin. A smaller number are using premixed insulins which combine long- and short-acting insulin into one product. Afrezza does not replace either of these formulations, though a combination of injected Lantus and Afrezza would replace the premixes.

So how many people might replace their current insulin with Afrezza is currently unknown, and makes it very tough to estimate first year sales.

4. How many people not currently using insulin will be prescribed Afrezza?

The biggest market for Afrezza lies in people diagnosed with Type 2 diabetes who are currently not using any insulin. This is a potentially huge market and is what makes Afrezza a potential blockbuster. However, doctors have been heavily marketed the idea that the incretin pills are safer and more effective for their patients than insulin is.

This is very likely not true. In fact, the incretin drugs may be causing very disturbing changes in the pancreases of those who take them. But they are currently the top selling diabetes drugs still under patent. They are also what Sanofi will have to market against, as the incretin pills are so expensive that it is not realistic to think that newly diagnosed patients with Type 2 will be put on both the pills and Afrezza.

So how aggressive with Sanofi be in pointing out the weaknesses of the incretin drugs? My guess is, very. It is also my guess that this is why they are not willing to disclose their marketing plan. If their main pitch was going to be that Afrezza didn't require shots, there would be no reason to keep their strategy under wraps. If it is, in contrast, that the currently most prescribed drugs appear to be causing precancerous lesions and pancreatitis (which there is solid evidence they may be doing), they will mumble about their strategy in public for months to come, while explaining to doctors why their drug is not only more effective, but safer.

5. How fast will Afrezza be approved outside of the U.S.?

It was clearly stated in the conference call following the partnership announcement that more studies will have to be done before Afrezza can be approved in many of the more important worldwide markets, such as Japan. We don't know what the timetable looks like for these approvals, or, for that matter, if the drug will be approved in all these markets.

Since international sales could provide a huge boost to total profits, this is essential, but missing, information.

6. How much will MNKD actually earn from Afrezza sales under this partnership?

This is the question generating the most ridiculous statements from analysts on all sides. Tea leaves are being read, astrologers consulted, and random management remarks interpreted in ways more characteristic of Talmudic scholarship than reasonable business analysis.

Not enough information has been released about the actual partnership terms for anyone to be able to make any intelligent statements about whether it is a good deal or bad deal or how likely MNKD is to profit from it. Comparing this deal to other deals for drugs used for cancer or acute, rather than chronic, diseases is stupid.

Assuming that there could have been a better deal is also stupid as there are only a very few companies in the world capable of marketing this particular insulin and Sanofi is the only one that does not have a strongly selling fast-acting insulin on the market that Afrezza would compete with. (Sanofi does have a fast-acting insulin, but it is used almost exclusively in insulin pumps.)

Until we learn more about what the partnership terms really are, ignore everyone making statements about them, whether those statements fill you with fear or greed.

7. How likely is it that the Technosphere technology will be used for a GLP-1 agonist?

We have been told that Sanofi has the right to make the first offer for a Technosphere version of a GLP-1 agonist. Given that these GLP-1 agonist drugs are currently available in versions that require only a single shot every few days, it is hard to know if there is any reason any company would go to the bother of going through all the FDA requirements to get such a drug approved.

Contrary to what 90% of people writing about Afrezza have stated, the main thing that makes this insulin exciting is not that it is inhaled rather than injected. No. What sets it apart from other insulins (including the previously inhaled insulin, Exubera) is its very short activity curve, which not only avoids causing dangerous hypos but also avoids causing the nagging hunger that makes people who use insulin tend to gain weight.

But GLP-1 agonists do not have these problems that injected insulin has. A shorter activity curve is not desirable for them, as the longer they last, the better they work. Only Sanofi, which markets a GLP-1 agonist in Europe knows whether there would be any point in following up this possibility. You and I don't. So don't figure it into your price estimates.

8. Does Sanofi or any other company have any real interest in other uses for Technosphere technology?

Your guess is as good as mine. Until such a product is created and tested no one knows if it will have any significant advantage that would make it worth the expense of going through the clinical trials needed to bring a new drug to market.

What we do know is that just coating Lantus in Technosphere material will not make a product that replaces injected long-acting insulin. This is because what makes Lantus slow is that it absorbs slowly from the fatty tissue into which it is injected. If you inject Lantus into a blood vessel, it becomes very active, very quickly, and loses its long-lasting properties. (It also causes very scary hypos. Ask anyone who's had one!)

However, that doesn't mean there isn't some way to modify Lantus and combine it with Technosphere. Only we must keep in mind that if this were to be done, you would end up with a brand new drug that would have to go through the whole lengthy product testing cycle required by the FDA.

So while a non-injected long-lasting insulin would be a huge blockbuster, we have no clue whether such a thing is possible. Wait for phase 1 studies before you get excited about this idea.

9. Will influential physicians and the online diabetes community get on board with Afrezza?

There is an assumption among people who don't have diabetes that Afrezza will be greeted with wild enthusiasm and powerful word of mouth once it hits the market, simply because it isn't injected.

However, people who already use insulin and the doctors who prescribe insulin don't make anywhere near as big a deal about the shots as the general public. Insulin needles are painless when prescribed in the right sizes. Doctors and patients currently using insulin are much more concerned with how the new insulin performs.

This is why executives from both MannKind and Sanofi have been harping on how important it is that the product be launched with the proper doctor education. Because if Afrezza does not improve the blood sugars of those who take it, it won't be around any longer than Exubera.

And getting a brand new class of insulin to work properly involves educating the doctors who prescribe it, so that they dose the drug properly, which is not as simple as just prescribing a standard dose of a pill. If Afrezza doses are right, and if the doses of any other insulin used are adjusted correctly, patients' blood sugars will improve dramatically. If not, they won't.

This is all the more true because making Afrezza into a blockbuster drug means convincing family doctors to prescribe it for patients who are "insulin naive." These are people with Type 2 who can live quite easily without insulin, who will only be prescribed it if their doctors think insulin, prescribed soon after diagnosis, will provide significant improvements to their health and wellbeing.

The family doctors who treat diabetes look for guidance to a few influential, high profile endocrinologists who present at conferences and write articles in professional newsletters. For these endocrinologists to get excited about Afrezza, they will have to see it making a real difference in the patients they prescribe it to. These highly visible endocrinologists were not involved in the ADCOM. So their response in the future is still unknown.

Sanofi understands this, because Lantus, when it was introduced, was a new form of insulin with a different dosing schedule than the insulins it replaced, and Sanofi launched it brilliantly. Can they do that again with Afrezza? It's too early to tell.

On the patient front, there are maybe 50 diabetes bloggers out there who reach many tens of thousands of motivated people with diabetes. Until they try Afrezza, it's impossible to know how they will react. Most other less-involved diabetics pretty much do what their doctors tell them. So the impact of the bloggers on the involved people with diabetes who make up the online community is important, because it is the people they reach who are going to be asking their doctors for Afrezza if what they hear is good--and whose experiences will be appearing in comments all over the internet, once they try it.

Right now, there is no sentiment one way or another for Afrezza in the online community. People are eager to try it, but they want to know how well it works before they recommend it to anyone else.

So it will be at least three months after Afrezza launches, until we'll know whether it gets the support it needs from either of these powerful groups.

10. How many shorts are still holding positions shorted at pre-ADCOM prices?

A huge amount of MNKD stock was shorted back when it was trading in the range between $5 and $6.25 before the ADCOM. So its likely most shorts need the price to drop below $5.50 to make any money.

But the lack of the expected short squeeze is making a lot of people dump the stock right now, which may be getting a lot of shorts out of their positions with a controlled loss.

Or not. Perhaps people who bought in at $2 are taking their profits and those who bought in late expecting to become overnight millionaires are cutting their losses, by selling to funds and individuals who were waiting for the partnership to buy in.

There is no way of knowing right now how likely is it that the short squeeze has been merely postponed, rather than avoided. The only people who know what prices are critical here are the remaining shorts, and they aren't saying.

We don't know how many there are, nor what price point they originally sold at. All we know is that they are doing what they can to spread the fear and doubt that will get people dumping their positions.


Until we know how Afrezza is going to be priced, how it is going to be marketed, and what the details are of the collaboration between Sanofi and MannKind it is impossible to know whether this deal was great or terrible. Market conditions make it that much harder to know how likely earnings numbers are to translate into share prices.

One thing is for sure, if you rely on people who are speculating and, in many cases, making "facts" up out of thin air, you will not make sound judgments about the desirability of holding MNKD stock.

I'm holding mine and have added a bit over the past few days to bring my holding closer to a full position, which is what I had decided to do once I knew who the partner would be. There were quite a few companies, that had they been the partner, I would have sold the stock no matter what the terms of the deal had been, because I didn't think they were capable of marketing Afrezza properly.

Sanofi has that ability. But until the unknowns listed above are addressed, I don't think it is possible for any of us to predict what will happen with the stock over the next year or two.

My position is small enough that I will sleep well at night no matter what happens to it. If yours isn't, you probably shouldn't be holding it. (That same advice applies to any stock you might be holding.)

When we start getting answers to some of these questions, it will be possible for analysts to come up with price targets that have some foundation in reality, though, like all analyst projections, they will still be based on a certain amount of speculation.

But until those questions are answered, when you hear anyone, no matter what their credential might be, telling you what they think the stock is worth, be very cautious.

Disclosure: The author is long MNKD. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.