MannKind: Even Yogi Could See This One Coming!

| About: MannKind Corporation (MNKD)

Summary

I will address the myths that surround this company!

My article highlights the conflicting comments made by MannKind executives.

I will update with latest conflicting comments made on April 26th conference call.

A few decades ago, on a class trip to Washington, DC, I talked our chaperones into let me and other members of our high school baseball team take the train to Baltimore. It was there I saw my first major league baseball game, in the old Memorial Stadium. The Orioles played the New York Yankees in this game. I hated the Yankees, because I was a Braves fan. However, I did have one exception! I loved Yogi Berra. Dale Crandall, the Braves' catcher should have been my favorite catcher, but he couldn't hit a curve ball. Yogi could hit anything that came close to the plate! As I began thinking about the topic and objective for this article, I thought about Yogi and his famous quotes:"You can observe a lot by just watching." "It's like déjà vu all over again."

The MannKind (NASDAQ:MNKD) story has been unfolding as rolling sequels to the movie, Groundhog Day. Previous versions at least kept the story fresh by introducing new story lines to explain away the never ending trammels for their success. However, with the current version they are now merely reverting to blaming their benefactors and repeating stories from their past. Even Yogi would be able to observe the duplicity that now permeates the story line promises from a host of those who opted for touting the stock. I fully realize that for those individuals they will never consider anything that questions their assertion about success being around the corner. Therefore, my warnings will fall on deaf ears and blind eyes. But for those being enticed to purchase stock in this company, this is my homage for them where I give another side to this unfolding déjà vu story and prevailing myths that encircles this company.

MYTH #1: Afrezza Sales Are Growing

On January 13th, 2016, MannKind's CEO made the following public comment:

"So that's my first point I want to make and we're had great user experience. The trends in sales are rising, albeit much slower than we had hoped …"

Afrezza Weekly Data for 2016"

Week:

Date:

Nrx:

Up/Down

Trx:

Up/Down

1

1/1/2016

216

0

300

0

2

1/8/2016

199

-8%

239

-20%

3

1/15/2016

160

-20%

236

-1%

4

1/22/2016

209

31%

228

-3%

5

1/29/2016

210

0%

194

-15%

6

2/5/2016

159

-24%

211

9%

7

2/12/2016

174

9%

212

0%

8

2/19/2016

174

0%

206

-3%

9

2/26/2016

143

-18%

216

5%

10

3/4/2016

153

7%

203

-6%

11

3/11/2016

149

-3%

221

9%

12

3/18/2016

140

-6%

239

8%

13

25-Mar

127

-9%

209

-13%

14

4/1/2016

134

6%

178

-15%

15

4/8/2016

132

-1%

200

12%

16

4/15/2016

125

-5%

230

15%

Click to enlarge

Contending that sales trends were rising in January, 2016, such a proclamation was blatantly false information considering on 10/23/2015, the weekly report showed that Afrezza sales totaled 421. That represented the largest weekly new prescription number achieved for Afrezza sales. In the interim 11 weekly before the CEO made his claim about sales trends were rising, the reality is that sales had dropped by a cumulative 35%. Now looking at the above data, since the all-time high weekly total Afrezza weekly sales, this numbers has dropped by 70%.

Some of the more prolific pundits touting MannKind's stock, when actual sales didn't materialize they switched their story by claiming that sales at that point didn't actually matter. However, any marketing expert would tell you, the day that sales for a product claimed to have the blockbuster potential of multi-billion dollars, and the sales plateau within in weeks of launch and then proceed to plummet by 70%, those touting the stock are burying their head in the sand. At most they are denying reality!

From the very beginning it was a well-known fact based on doctor's previous negative experience with inhaled insulin, it was going to be a difficult task for changing this perception. Considering they had their investment hedged, Sanofi opted to launch the product in late February, 2015. The following chart tells you what Sanofi and MannKind began to see in the marketing data that tracked Afrezza sales.

Afrezza Sales Based on 12Week/90Day Supplies:

NRxs

Weekly Averages

%Growth

Week1

to

Week12

1727

144

Week13

to

Week24

3499

291

102%

Week25

to

Week36

4027

335

15%

Week37

to

Week48

3356

305

-9.50%

Week49

to

Week60

2086

174

-42.80%

Click to enlarge

Now look at what MannKind tells you on Page 89 of their 2015 Annual Report released in March, 2016. For the data at the end December, 2014, it shows Raw Material ($4,856,000.00) Work-in-Progress ($4,719,000.00) Finished Goods ($95,000.00) Current Inventory ($9,670,000.00) The same data entry for the 2015 Annual Report shows there is no Raw Material, No Work-in-Progress, No Finished Goods and No Current Inventory.

If one had merely been watching the raw material, work-in-progress, and finished goods numbers, being reflected in each quarterly results, they could see that by late summer, basically the Danbury plants was practically sitting idle and no finished product was being created. MannKind clearly was telling you this as on September 30, 2015; the Danbury Times ran a report that MannKind had cut employees at the facility for the third time in 2015. If this information isn't sobering enough for describing how dire the situation is for MannKind, consider the fact that at the end of December, 2014, they carried their property and equipment on their books with a valuation of $192,127,000.00. For this same property and equipment on their 2015 annual report this same property and equipment is carried on their books with a valuation of $48,749,000.00, a drop in valuation of about 75%. (Read Annual Report-Page 90-Item 5)

This isn't rocket science material when it comes to the reality that basically MannKind projects the Danbury facility has no value going forward. And one thinks they can move forward with no money and create a market plan that involves spending money they don't have! Even Yogi could observe this lot by just watching!

Myth #2: MannKind's management has devised a marketing plan that is different from Sanofi's (NYSE:SNY) failed plan.

And what is this plan and how does it differ from the Sanofi marketing plan? For the rudimentary elements of this new devised effort-we can read what the new CEO outlined for us on April 6th, 2016.

( Medical Marketing Media-April 6th, 2016 by Jaimy Lee) -I have highlighted the key content:

"MannKind, which developed the inhaled insulin Afrezza, is building a endocrinology sales force and hiring a new advertising agency after buying back the rights to therapy, which has struggled to generate substantial sales since its launch. -" We think we know what went wrong in Sanofi's hands, and we think we can fix that," said Matthew Pfeffer, MannKind's CEO."---Still, Pfeffer viewed Sanofi's strategy as flawed and said it failed to include potential patient populations. " They ignored segments, like type 1," he said. "We think that was a mistake." --- Pfeffer said the company plans to use direct-to-consumer advertising to promote Afrezza, but noted that the effort will be more focused and more cost-effective than the one launched by Sanofi. "What form that takes is still being determined," he said. " That needs to be a little more targeted."

Let me assign numbers for what MannKind's CEO identified as flaws in Sanofi's marketing plan and what he plans to incorporate in his better marketing agenda for Afrezza:

1) Building an endocrinology sales force.

2) Knowing that Sanofi ignored the endocrinologist-he can fix that.

3) Sanofi failed to include potential patient populations by ignoring type 1.

4) MannKind's CEO is going to be more "focused" but admits he needs to be a little more targeted.

So there shouldn't be any question as for the clarity and plan MannKind will implement, where they would move away for the disaster and conspiracy that Sanofi had for destroying Afrezza. The CEO was very clear---not working with endocrinologist, ignoring type 1 and not being focused with their marketing efforts.

Now go back and read the numerous times in previous article where I mentioned that MannKind's CEO isn't doing his cause any good when he comes out and makes public statements. Statements and claim where he hasn't thought through what he would be saying. For MannKind's new mode of operation -- come out, open mouth and insert foot seems to be the modus operandi!

With the April 6th comments clearly delineated for those who think that MannKind has the answers for marketing Afrezza, let us go back to June 3rd, 2015:

June 3rd, 2015-(Matthew Pfeffer)- I have highlighted the key content:

"So Sanofi's launch was as we always said a focused and targeted launch initially with the idea that it would be extended outward over time and that's exactly what happened. Initially we start with an early launch focused to the general very much on the kind of thought leaders in the areas, the endocrinologist, with the idea that ultimately it would expand increasingly practitioner market and with things like DTC advertising which I think is uniquely well suited to a product like this"

Amazing! MannKind is now blaming Sanofi for a flawed plan that wasn't focused on the 'thought leaders' in diabetic patient care, the endocrinologist doctors. So other than now wanting to throwing Sanofi's marketing efforts under the bus, what are the things the CEO is focused for his less expensive marketing efforts? None other than repeating what Sanofi was doing by first working with the thought leaders of diabetic care, where their position in the hierarchy of diabetic care would spread increasingly to the general practitioner doctors. Remember the CEO stated "we always said a focused and targeted launch!" The "we" in this partnership was only MannKind and Sanofi! Déjà vu!

Yogi was right about observing by watching. He would have a field day watching MannKind's executive implement the identical plan that Sanofi had. A marketing plan that flopped miserably-but with no money MannKind is going to repeat the same strategies and make them work this time! Déjà vu, Yogi!

The CEO couldn't stop placing his foot in his mouth about the glowing marketing efforts that Sanofi had in 2015. Only now the conspiracy believers think it was a lack of effort by Sanofi. So how can the conspiracy's advocates now explain why MannKind is implementing the identical marketing plan that Sanofi had used----and failed miserably!

What does the MannKind CEO do? He continues to dig his hole ---deeper and deeper:

"People often ask about doctor interests and sample packs. So there is only one specific figure I can give you is we now have produced and delivered 54,000 sample packs, which is a bunch, representing 1.6 million cartridges. Typically, we do sampling with this product, it may not seem intuitive but we tend to give out 10-day sample packs to the doctors, so when they give you a prescription you get the 10 days' supply to get you started and give you time to get to the pharmacy and so forth.

So we view that as something of a leading indicator very much as, for example Sanofi has a discount card program, some of you may be aware of, a prescription pharmacy discount card. So to the extent those were the questions and so forth tends to be leading indicators of future sales for us as well.

Other new news there is increasingly, and this is not public information pre-se, but sometimes it's hard to find, increasing programs that have been done by doctors around the country by Sanofi and this is doctors talking to doctors. So it's very helpful especially given reactions from the doctors we keep hearing about, having talked to their peers and their experiences."

Let's number all of these superlative marketing strategies that the CEO outlines were in Sanofi's marketing plan. And best of all the CEO knew they were working!

1) 54,000 sample packs.

2)1.6 million Afrezza cartridges.

3)10 day samples for patients where this was the game plan

4)A Sanofi created marketing strategy for giving patients a $30.00 co-pay card.

5)The CEO stated all of these things were leading indicators for future sales.

And the most amazing thing, the CEO was letting investors in on a big non-public secret. The MannKind and Sanofi developed strategy for focusing on the leaders-aka-endocrinologist, the information about Afrezza was filtering out where doctors were talking to doctor----Eureka! The original marketing strategy was fantastic and working as planned, and none other than MannKind's CEO was confirming this being the case!

Only now we know all this blustering about how well Afrezza was garnering a growing market share, we know that the launch wasn't going well. For those following the "real" results, they were seeing a disaster in the making. All of those exuberant prescribing doctors were curtailing their writing of new prescriptions. And those "early adopters', were failing to renew their prescriptions. And guess who also was seeing this collapse in Afrezza sales. The answer is buried in the recently released 2015 Annual Report.

Myth #3: MannKind Has a New Policy of Openness with Shareholders

As reported in the previous section, MannKind's top executive shared non-public information where he pointed out how well the focused marketing plan was working. The same executive on January 13th, 2016, 1st Quarter of 2016, publicly stated that sales were trending higher. Let me repeat- "sales were trending higher!"

However, it appears that the same executive knew at the time he made his sales trending higher comment he also knew in fact that it wasn't the truth. Once again, always look at what is said in public comments, but more importantly watch what is said in legally binding document shared with the SEC. Merely read what is clearly stated on Page 49, well embedded in the 2015 Annual Report-

"In connection with our quarterly assessment of impairment indicators, we evaluated the continued lower than expected sales of AFREZZA as reported by Sanofi throughout the fourth quarter of 2015, revised forecasts for sales of AFREZZA provided by Sanofi in the fourth quarter of 2015 and level of commercial production in the fourth quarter of 2015, as well as the uncertainty associated with Sanofi's announcement during the fourth quarter of their intent to reorganize their diabetes business. These factors indicated potentially significant changes in the timing and extent of cash flows, and we therefore determined that an impairment indicator existed in the fourth quarter of 2015."

The MannKind executive clearly knew there was a continued lower than expected sales of Afrezza. He tells you that Sanofi was reporting this to him in the 4th quarter of 2015... Sanofi was also reporting to him that they had revised the forecasts for sales in the fourth quarter of 2015. But the clincher is that this executive knew MannKind had lowered the commercial production of Afrezza because of these factors. When combined, these three warnings instigated the process for determining there were impairment indicators that existed and they needed to be incorporated into their financial disclosures. And just what did he opt ---basically writing off the manufacturing plant in Danbury, and also writing off the supply of insulin in that facility. So going forward, what does this portend for the future of Afrezza when you devalue your manufacturing facility for Afrezza and more importantly the major component of Afrezza-the insulin supply? Having these conditions of impairment fully known to him and knowing these were not positive events for solvency of the company, how could he go before the public on January 15th, 2016, and say that sales of Afrezza were trending higher? Should there be any question why the list of pending lawsuits is growing here in the United States, plus at least two civil cases being filed in Israeli courts, against MannKind? Cases where the plaintiffs contend they had been misled by the company executives, and there is public records that confirm this fact-IMO!

Myth #4-Technosphere will become the leading delivery system for a vast number of future drug products.

This myth about MannKind has so many trammels around it; one would be hard pressed to find one that wasn't laughable. With now twenty years in their effort for marketing Technosphere they have never earned one penny of reported revenue, nor profits, for their efforts-and that includes the use of the product with Afrezza. As if this mystification of this product isn't farfetched enough for the believers, should they bother reading the recent filed 2015 Annual Report (Page 27), MannKind clearly tells them that until they can raise additional cash, further development of Technosphere will be on hold.

But let us recall some of the more cogent "promises' made about Technosphere, over the last 20 years. One of the more recent examples is the Torrey Pines Institute, located in southern Florida. With great fanfare they promised they would be taking a MannKind based product into FDA clinical trials-that was about three years ago. Now there is silence from Torrey Pines, and even MannKind, about this promised pain medication using Technosphere. Then there was the Minkata Foundation and their application of the Technosphere system with their world-wide needed maternity drug. Once again-the silence from this promise isn't even a whisper of it happening. There was even MannKind's internal effort having a Technosphere based product (MKC253) in FDA phase clinical trials. That was around 2009-----now only silence and there are no longer any FDA clinical trials being pursued by MannKind. Also, there was MannKind's proposed product-MKC180 in preclinical work. The silence is so great for this one it's reported you can hear a pin drop in the MannKind research facility where all this lack of work is taking place.

Then in January of 2016, in need of something to divert investors from the reality of Sanofi dropping them, there was a mystery company -- Receptor Life Sciences -- that offered no investment funds being deposited with MannKind, but they wanted to pursue using Technosphere. A mystery company---no physical address of where they are located, no phone number that one could call and verify anything---and now as we approach the 5th month since this mystery company became associated with MannKind we merely have the same website that was created days before the announcement. The website is one static page and links to a page where YOU can give some unknown entity your personal information. Mystery or Myth #5?

The Reality of Events:

MannKind has become a story stock. In many ways their story has all the attributes of a Shakespearian tragedy genre. Meaning simply there is a continuing effort to merely sell more stock where we know how this romance will end. This isn't uncommon in the stock market. Giving credit where credit is due, MannKind executives have been great strivers in their work and efforts. Since January, 2016, MannKind stock has traded about 560,000,000 shares. (Per Yahoo Data). This means that over just the last few months, the stock turn-over is more than the number of shares outstanding. This is what the market makers consider as being a money maker-for them! Just figuring a half cent earned on each share they can move, the market makers have already grossed about $2,800,000.00 in 2016, just by shuffling numbers on ledger sheets. The market could careless for the underlying fundamentals of a particular stock-they just want a vehicle where they can get the volume that allows them the opportunity for making money. Just as Sanofi hedged every penny of their investment in MannKind, those conducting this game of Three Card Monte have their positions hedged while they merely shuffle the deck over and over again. I'm not faulting them for what they are doing. If there are investors that want to put their money in the game - so be it! Just remember, the casinos will pay your way to Las Vegas, put you up in a suite, feed you, and ply you with liquor. But always know that at the end of the day, they will have your money and the bright neon lights are always on - showing you the way there! And if you are there and have your bus ticket money they will direct you out of town when the myths turn into disappointing reality! But then as Yogi mentioned - "It's like déjà vu all over again."

Update: My article was written before the CC held on April 26th, 2016. The quick take-away is that their financial situation, where they need operating cash, they didn't mention it during the CC that they had resorted to an at-the-market stock offering. This shows they had been unable to find any firm that would underwrite an offering at a set price. This make the last two stock offerings being failures--remember the Israeli fiasco where the TASE refused subscribing for the stock offering. The "at-the-market" offering was the only way they 'might' be able to raise cash. Such action will only add to the down-ward pressure on the stock. This was clearly the case in the after-hour trading. The other take away was the admission that part of the problem for the high-dropout rate of the initial users was that the Afrezza results failed to achieve the level of their previous results obtained with the original treatment method. So much for the claims that "early adopters" were having a huge success by using Afrezza. The other point made in the CC was that the prescribing doctors stopped prescribing Afrezza when they heard in January that Sanofi had dropped their partnership. This conflicts with the fact that MannKind had admitted in the Annual Report that new prescription started dropping at the beginning of the 4th Q. Also, please note the previous mention of the huge volume of shares being traded YTD. With the after-hours trading tonight, the stock is back at the level the stock started 2016. The cash register is still ringing up the money the market makers are bringing into their till. Those who bought at the top for this latest run-up, they are now holding about a 35% loss on their gamble.

I sincerely wish and hope that Afrezza remains available for those patients needing options for their medical condition.

Good luck with your investing decisions!

All of the above comments are expressions of my personal opinion. However, instead of merely offering my conjecture without any supporting public records, I have attempted in all cases giving links to the document (Page # the information can be found), media articles and other public statements made by the parties that I reference in my article. I would welcome anyone with a differing opinion, please don't hesitate with your response here on Seeking Alpha. However, I would request that you not merely offer your personal conjecture where you offer no verifiable information. Please provide links to any documentation that supports your position and recommendation for MannKind's stock.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.