MannKind Corporation's (NASDAQ:MNKD) long-term CFO and newly chosen CEO, Matt Pfeffer, recently advanced a new blueprint at the J.P. Morgan Healthcare Conference, held two weeks ago, for the company's direction now that MannKind's partnership with Sanofi (NYSE:SNY) will be coming to an end.
In Pfeffer's plan, there are cost cutting measures designed to keep MannKind financially solvent in 2016, operational efforts to create revenue through new licensing opportunities with MannKind's patented technology, renewed efforts at strategies in marketing MannKind's inhaled insulin, Afrezza, through international foreign jurisdictions, and unique ideas which include creating an Afrezza Advocate Counsel and working with a third party creating specialized diabetes care centers where Afrezza will be one of the available insulin options offered to patients.
In addition, Pfeffer addressed some of the issues that may have resulted in Sanofi's apparently poor performance in getting Afrezza users to renew their prescriptions, including Sanofi's high pricing of the inhaled insulin which may have resulted in Sanofi's lack of success at getting Afrezza placed into private health insurance tiers where insurance would cover the majority of the patient's cost of Afrezza. Pfeffer also expressed his belief that MannKind could now lower the price of Afrezza and increase sales volume through MannKind's large production facility in Danbury, CT.
Pfeffer also promised more transparency between management and the investor community and suggested that there would be a conference call before the next earnings report in order for management to go into more detail about MannKind's initiatives.
"Now that we're in control of our own destiny, there is a lot we can do. There are steps we can take. In many ways, our hands are somewhat unshackled and things are moving forward very, very rapidly,"
Let's take a look at the pros and cons of MannKind's independence:
First, MannKind must have enough money in their treasury to be able to accomplish their goals. Pfeffer stated that MannKind does have enough capital to get comfortably into the second half of this year. He also promised that MannKind's burn rate is dropping rapidly. However, he did not say specifically how MannKind could survive into 2017 other than suggesting that there will be additional cash that the company presently "has a line of sight to" and he did not provide details about how management is lowering the company burn rate. Most importantly, there was no mention of billionaire company founder, Al Mann, increasing his economic support of the company in any way, going forward. Perhaps, these issues may be addressed in a possible conference call before the next earnings report.
Second, Pfeffer spoke about MannKind's patented technology, aka Technosphere, which he believes will lead to partnerships with other pharmaceutical companies. Consequently, management has announced a new agreement with a new company, Receptor Life Sciences, whereby "multiple inhaled therapeutic products will be developed to explore their potential to treat conditions such as chronic pain, neurologic diseases and inflammatory disorders."
Under the terms of the agreement, MannKind could receive milestone payments of up to $102.25 million as well as mid single to low double digit royalties on net sales of the new drugs developed. However, the company announcement did not mention any up front payments which may sorely be needed later this year. MannKind will be paying for the initial formulation studies but Receptor will be responsible for all development costs associated with clinical development, manufacturing, and commercialization of the new Technosphere drugs.
In addition, MannKind's Chief Medical Officer, Ray Urbanski stated at the J.P. Morgan Healthcare Conference that the company is also working on oral inhalation products for systemic delivery, including parathyroid hormone delivery with increased efficacy, epinephrine in the anaphylaxis situation, and drug candidates in the pipeline which will address the prevention and treatment of chemotherapy induced nausea and vomiting. But, there was no guarantee of any expectation that these products would produce partnerships this year which will include significant up front payments.
Third, Pfeffer said that MannKind will need to increase the market demand for Afrezza and get the production volumes up.
"We need to readdress the pricing strategy that Sanofi implemented. I used to talk about this as always being priced at parity. Ultimately Sanofi decided to price it at a significant premium. Clearly we can readdress that. I think that we'll have a great deal of impact on the sales volumes and maybe perhaps more importantly, our ability at reimbursement from insurance companies..."
In support of his view, Pfeffer also mentioned the keys to success for MannKind will have to include some innovative low cost ideas and not a simple rehash of the traditional bio pharmaceutical model of using a large sales force which adds substantially to the cost of promoting a new product and has become increasing less effective over the last twenty years. He also stated that Afrezza's success will be predicated on getting both doctors and patients educated and understanding that Afrezza is a fundamentally different product with some significant advantages if used in the right way.
To this end, Pfeffer suggested that social media will play a primary role in building awareness for Afrezza. Consequently, MannKind has created a Twitter account. However, Pfeffer did not mention just how the company will use its Twitter account and if someone would be hired to actively represent the company in daily Twitter communication. Also, Pfeffer did not mention if the company would design and launch an Afrezza site of its own for promoting the inhaled insulin to patients. He also did not mention if MannKind would launch an Afrezza site for healthcare professionals. And, Pfeffer did not mention if the company would create professionally produced and directed video about Afrezza for viewing on the internet.
Two innovative ideas Pfeffer talked about were the Afrezza Advocate Counsel and Specialized Diabetes Care Centers with Real Time Diabetes Management Powered by Afrezza. The former will be a way for diabetics to get information with potentially well known people in the space who contribute in a meaningful way, at minimal cost. The idea, for example, of a Tom Hanks endorsement, a T2 diabetic, of Afrezza and his advocacy of inhaled insulin could do more in a month to raise awareness of the inhaled insulin within the diabetic community than Sanofi achieved in almost an entire year.
The latter is also potentially a game changer for MannKind because it directly addresses one of the main problems Afrezza has suffered in the marketplace; few doctors have been willing to offer it to their patients. Specialized Diabetes Care Centers with Real Time Diabetes Management Powered by Afrezza will potentially give diabetics a one stop shop for their insulin needs where healthcare professionals educated and trained in the use of Afrezza will meet patients and provide them with information about Afrezza. Additionally, for patients interested in using Afrezza, there will be immediate spirometry testing available, on site prescriptions written, and possibly, on site health care insurance filers. The patient can walk out, conceivably, in less than an hour from start to finish.
The diabetes care centers will operate under the oversight of an endocrinologist and will be staffed with other healthcare professionals who understand Afrezza. Best of all, these diabetes care centers will be owned and operated by a third party company with no expense to MannKind. This could be the most potentially positive idea which Pfeffer spoke about as it could create an end run around reluctant endocrinology offices where few Afrezza prescriptions are being written. Ultimately, however, success of the diabetes care centers will be determined upon whether diabetics really want to use inhaled insulin for all or part of their meal time insulin needs. The first pilot centers are scheduled to open within weeks in New Jersey.
Pfeffer went on to say that the key thing is that MannKind will be in charge of Afrezza and marketing it in the near term.
"We think we can move some of the barriers and take advantage of some of the learning that we have from our experience with Sanofi to change how we go about this; make the patient experiences better and remove some of the insurance obstacles."
To this end, MannKind will have to lower the cost of Afrezza and make it competitive with other premium priced insulins in the marketplace. If Afrezza can meet or come in lower than the cost of insulin injection pens, insurance companies may find Afrezza a reasonable alternative for diabetics who want a break from needle based insulins. MannKind has a large production facility, currently underutilized, where a high volume of Afrezza cartridges could be produced. Perhaps, taking advantage of their production capacity is one of the barriers Pfeffer has in mind regarding removing insurance obstacles.
In addition, before the Sanofi partnership, MannKind had been in discussions with interested parties in foreign jurisdictions. Pfeffer stated that those talks have been reopened. While not providing any further details, there is a possibility of one or more distribution arrangements with distributors who could be selling Afrezza sometime in the next year or two in foreign countries. The production facility in Danbury could be employed to supply those foreign accounts.
"We have our huge facility in Danbury equipped to make massive economies of this product. It's kind of a burden for us right now with the sales volume we have. Getting those volumes up will have a very nice impact on our margins anywhere in the world, including the United States."
Along this line, it is conceivable that Afrezza could be affordable and selling in China, for example, in higher volumes than it will sell in the Unites States, next year. And, when one considers that China has one of the lowest rates of use of injection insulin in the world, inhaled insulin could be a way around the social stigma of using needles for the Chinese diabetic community, a population of 114 million diabetics and almost five times larger than that of the diabetic population of the United States.
What does this mean for investors:
Pfeffer's first steps at the recent J.P. Morgan Healthcare Conference were a success. He outlined new methods of marketing Afrezza which may be cost effective and successful, he let investors know that the company was not defeated and that management was working diligently at developing new applications for the Technosphere platform, and that the company had reopened discussions for the sale of Afrezza in foreign markets. Pfeffer was strong and powerful, present in a way investors needed to hear and feel at a time when the company is at its lowest point.
Clearly, MannKind's share price has been driven down by those who either believe that Afrezza is destined to fail or that it is in their best interests to see that Afrezza does fail. Either way, the reality now is that MannKind is a penny stock trading under one dollar. However, reality also includes factors other than the current share price and the success that early adopters have had with Afrezza is powerful proof in the quality and potential of Afrezza as a game changing insulin in a multi billion dollar market.
Sanofi's termination of their agreement with MannKind could have more to do with the fact that the agreement was part of Sanofi's former CEO's vision and the newer and current Sanofi CEO may never have had any real desire to invest and develop the inhaled insulin.
At this point, investing in MannKind may have more to do with how invested you are in Al Mann's vision of a world made easier for diabetics who currently have no other options other than needle based insulin or living a life tied to an insulin pump. If you still believe in Afrezza, then it may be easier for you to maintain or increase your investment position, especially if you think Sanofi never really shared Al Mann's vision.
If you think Matt Pfeffer is the person to carry the company forward and that Pfeffer's first conference call outlined a path towards profitability, then you may feel connected to the potential success that many investors felt back before the Sanofi partnership was consummated. If you feel this strongly, then know that others may also feel as you do. However, knowing this, know also that market forces have driven the share price of MannKind into a penny stock and that Goldman Sachs, the investment bank that seemingly initiated MannKind's share price demise back in March with their downgrade to $3, has just recently stated that they think MannKind is only worth 25 cents per share.
I believe Afrezza is a game changing insulin and that Pfeffer's plan for moving forward has the potential to succeed. I have not only kept my position in tact, I have also added to it over the last few months. Having done so, I only wish that we soon hear from Al Mann. I want to know that he still believes in his vision as much as I do.
Disclosure: I am/we are 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.
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