MannKind Finally Comes Clean And Faces Reality

| About: MannKind Corporation (MNKD)

Summary

MannKind made some key admissions in its recent quarterly report.

The current plan to resolve the company's issues might be on the wrong track.

Myths don't offer sound business practices for investors.

Click to enlarge

MannKind (NASDAQ:MNKD) executives create a dark-sky scenario in their third-quarter report...

... But MannKind's retail investors only see a blue sky, ignoring the facts shared with them.

Premise:

MannKind just concluded a most revealing quarterly report and conference call. Over the years, I've listened to many corporation's quarterly reports. However, I've never listened nor read such a bizarre and convoluted mish-mash of details as revealed in MannKind's most recent 3 rd Quarter, 2016, results. When the corporate lawyers start dictating the required disclosures in the quarterly reports and conference calls, investors should pay heed to the facts being disclosed. Especially facts that have been suppressed by MannKind in previous disclosures. As expected, the true-believers in MannKind's stock think it will be their vehicle for financial enrichment. With this article, I will discuss the details of the information presented. Details proving the former dire situation now is being reflected in what MannKind's executives are publicly confirming, where MannKind's loyal internet bloggers and investors merely close their mind to the reality of the situation.

Finally, Some Good News — But Tainted with the Bad News of Reality

I will concede the scope and unexpected Sanofi conclusion for the partnership was on the surface a positive dissolvement for this misguided and one sided arrangement. In the recent history of biotech partnerships with big pharma this one will go down as a case study. The spectra of any remaining alliance opportunities between MannKind and Sanofi is now ancient history as there are no vestiges of any further association between the two corporations. At this point, there are no safety nets waiting to catch any stumbles in MannKind's operation - at least from Sanofi.

The final divorce could have been perceived as being positive for MannKind. But now having time to look at the reality of the situation, one can see the short term euphoric response by the bastion of "true-believers", things really aren't very promising. Once again, they are overlooking the key components revealed in the recent conference call. They opt to ignore the critical issues as they celebrate the mundane hyperbole. Especially the albatross issues that have brought them to the brink of inevitable bankruptcy. MannKind's stock is a penny stock for a reason. MannKind's executives have just explained why their stock is trading for a meager $0.55 a share, and is going lower, in my opinion.

The CEO began the conference call with great fanfare and much ballyhooing the concluding results with the Sanofi partnership's final dissolvement. However, when the CC was turned over to the CCO, his opening comments were the most critical and revealing. He went directly to the task of identifying the source of MannKind's elephant in the room issues. The very same issue I've written about in previous articles. The latest being in the most recent article where I concluded my comments by detailing the flaws that investors want to ignore and what MannKind never wanted to discuss with investors. This is a link to my article where I addressed it to the CCO with this warning title for my concluding remarks: "Always Read the Fine Print — Especially MannKind's Fine Print." Notice the times I mention the word-efficacy-in relation to the major obstacle facing Afrezza. The CCO at least grasped the fact that no longer could MannKind ignore the fact that efficacy issues for Afrezza have been known for many years. November 9 th, 2016, the CCO told investors in a public forum the predominant reason why initial users of Afrezza stop using the drug. A simple explanation with no qualifiers for any other explanations for the severity of the situation — end of story. End of debate. But not the denial from some.

I would never be so presumptuous in thinking I forced MannKind's executive into finally admitting what I've been stating for the last two years. I do find it ironic they take a vestige of good news about the Sanofi windfall and then turn around and confirm what I had stated in my direct comments to the CCO. Apparently, MannKind's lawyers arrived at the point of realizing that with the CCO going public with his rebuttal to my SA articles, they no longer can deny ignorance over the issue when I publicly shared their data that proved the FACT there has always been an issue with EFFICACY benefits for those using Afrezza.

Myth #1

Quoting Michael Castagna from the 3rd Quarter 2016 Conference Call:

Couple things I will share with you before I go into details is, we have learned that patients dropped off Afrezza for two reasons, one was because of cost and two was because of efficacy. And there are other reasons they dropped out, but the two predominant reasons are based on these two factors.

One thing I'll share with you as we continue to improve formulary access, we will see less drop out to the cost, but the efficacy part is important one that you will hear from why we are talking about today. We need to continue to reinforce appropriate titration early on in treatment and as we solve that we'll continue to see increase in retention of our patients. Since we have launched we believe that continues to get better than it has been in the history.

It is very easy to see the magnitude of this dropout rate being so pervasive for the limited number of patients trying Afrezza. During the clinical trial patients were dropping out in massive numbers. These were patients getting a free product, constant medical service and training with medical doctors and staff working directly with each clinical trial user about how the product was to be correctly used. So, prelaunch of the drug, there was massive amounts of data showing this issue. Now jump to the launch where Sanofi had large numbers of sales representatives and in-house staff working with doctors and patients in how to use Afrezza properly. But now with a diminishing marketing staff, that is currently all of 42 individuals, MannKind puts forth they can change the trajectory of this problem. A problem they have known about for at least 10 years prelaunch, and soon to be two years of launching Afrezza into the market place. So sure, 42 people and a Twitter account, are going to keep patients using Afrezza after MannKind's CCO tells you there is an efficacy issue for those using the product.

More time, More time. The only thing coming from the executives who have instigated two announced reductions in personnel in the last few months, while the former CEO is still on the payroll and they are cashing their bi-weekly paychecks, begging for more time. Even Pepe Le Pew couldn't stink up this situation any worse for the retail investors who are hoping they will get rich from holding onto this penny stock, while the shrewd investors abandoned the sinking ship a long, long time ago.

Conclusion

The CCO for MannKind openly admits that patients using Afrezza are not achieving meaningful efficacy when they use the product. So why did he then offer you Myth #2?

Myth #2

The CCO of MannKind propagates an astounding claim that since relaunching Afrezza they are maintaining initial users better than in the history of marketing the product.

This is an unmitigated distortion of the 'history' of Afrezza being marketed. The last week (12/31/15) of Sanofi actively being involved with Afrezza, they achieved a historical high water mark for refills. The week's refill came in at 300. Now when you compare the refills starting the 3 rd Quarter, 2016, and totaling through the reporting of 11/18/16, we see a cumulative total of 2,823 refills. This number shows the 20 weeks during this period MannKind's efforts were averaging 141 weekly refills. Now when you compare this retention to Sanofi's effort, it's plain and simple math — - the CCO's distortion of the facts is a mere 53% shortage from reality and history

Conclusion

For a more revealing number where the failure rated is clearly demonstrated, consider that as of the 11/18/2016 (Week 95) the weekly refill rate is running at 0.00767% of the cumulative number of New Prescriptions that have been filled. (Historical NRxs-19,152 vs. 147 Refills @Week 95) The CCO gets high marks for finally admitting there is an efficacy issue with Afrezza. He gets a Pinocchio for misrepresenting the actual numbers that prove he was only correct with his first admission about efficacy.

Myth #3

Instead of offering a solid game plan for how they are going to solve the horrendous dropout rate due to lack of efficacy, MannKind's executive move to another ludicrous solution for their financial woes and limited operating budget. A solution where there is not one scintilla of historical evidence that gives them a glimmer of hope for generating any operating profits.

Raymond Urbanski's 3rd Quarter 2016 statements:

When you take all this data around the dosing and titration of Afrezza, it helps to inform us as after the proposed pediatric protocol changes that we will need in the Phase 3 trial, which we believe will substantially improve study recruitment and retention, and thereby, expediting our filing dates. We are planning for study execution to begin in the first quarter of 2017.

If one looks at the development and clinical history of Afrezza, we can note a few critical events:

  1. Three NDA filings with the FDA before Afrezza was approved.
  2. Nearly $3 billion in cumulative debt incurred for a drug that now MannKind admits has efficacy issues.
  3. The above was done with several thousand clinical trial patients and a little more than 19,000 commercial users of Afrezza. All of this with the critical component that has involved to this point, in clinical use and commercial use, individuals that ranged from the age of 18 to fully mature and elderly adults. And during all this time, and even today, MannKind keeps clamoring they need more time to train doctors and patients how the drug should be used. MannKind's clinical data shows that Afrezza was not clinically superior to standard insulin products and now they publicly state that the efficacy issue still prevails in the market place.

For those who can't see the looming fiasco for spending money on a pediatric trial with young children: How will these clinical trials using a five-year-old child with a dreaded disease like diabetes, and you think the results will be different for these young children when compared to adults that can't use the drug properly?

The following statement is taken from one clinical study's background:

Inhaled asthma medications are the mainstay of treatment for chronic asthma. However, nonadherence rates for long-term inhaler therapy among adults are estimated to exceed 50%. Nonadherence is associated with unfavorable clinical outcomes and diminished quality of life. Research suggests that adherence is associated with patients' satisfaction with their treatment regimen and other factors, such as concomitant allergic rhinitis and tobacco use.

Not trying to be redundant, but let me repeat the data that I shared in an earlier article on SA. Bear in mind this clinical data is based on adults, not children.

The clinical data and ongoing revelations from many using Afrezza are being forced into utilizing more and more dosing in their attempt to gain any degree of efficacy. For some insight on this subject, read the fine print in MannKind's dosing and instructional insert. There you will find the following information taken from Page 7 on the Afrezza insert:

Carrier Particles Clinical pharmacology studies showed that carrier particles are not metabolized and are eliminated unchanged in the urine following the lung absorption. Following oral inhalation of AFREZZA, a mean of 39% of the inhaled dose of carrier particles was distributed to the lungs and a mean of 7% of the dose was swallowed. The swallowed fraction was not absorbed from the GI tract and was eliminated unchanged in the feces.

Afrezza users get one 'huff' per cartridge. Anything left in the cartridge is wasted insulin and offers no medical benefit for the user. Each dose of Afrezza, when inhaled, the mean of the dosing reaching the lungs and metabolized is 39%. This simply means that 61% of the insulin is then eliminated unchanged in one's urine. The data also indicates that when inhaled, 7% of the dosage is simply swallowed and not absorbed by one's GI tract and then is eliminated "unchanged' in one's feces."

Conclusion

Publicly admitting that adults have not been able to master the proper use of MannKind's inhaled drug, they have confirmed historical data for such a product. Now MannKind thinks that by asking parents for their permission to use a drug on their child, and who thinks this will not be a waste of a dwindling money supply? One can take it to the bank-if adults can't master how to use an inhaler, it would be absurd to think a young fragile and uncoordinated five year old child can master this complex undertaking. One misstep and one cartridge of Afrezza is wasted — resulting in what MannKind has just told you about the lack of efficacy for ADULTS using the product.

Myth #4

If there are those who think the pediatric study will bear positive results for MannKind, then what do you think about the proposed entry into the inhaled epinephrine market?

Raymond Urbanski, Chief Medical Officer, on the Q3 2016 conference call:

Our current candidate is our inhaled epinephrine for the treatment of type 1 hypersensitivity reactions. We believe that by utilizing MannKind's innovative inhalation technology, we cannot only deliver effective plasma concentrations, but the addition of the direct effect on the pulmonary system will lead to improve clinical outcomes, an inhaled epinephrine in this setting offer several other advantages over the currently available epinephrine oral injectors. This will also provide patients and healthcare providers with another option that offers benefits related to convenience, ease of use and costs.

Let's look at the number of beliefs that Dr. Urbanski has for this new MannKind candidate:

  1. Deliver effective plasma concentrations. (Data for Afrezza shows this isn't the case, so why would epinephrine be different?)
  2. Direct effect on the pulmonary system to improve clinical outcomes (Read the data from the Afrezza trials, so why would epinephrine be any different.)
  3. Convenience, ease of use, and costs. (Ease of use and cost — and this is the company begging for more time to train doctors and patients how to USE their inhalers, plus the investors have complained that the price of Afrezza is too costly for patients.)

Considering that the touting of massive number of applications and the host of potential adopters for the Technosphere technology, how many times have they made this promise? Over the last twenty years nothing has come close to be developed other than an inhaled insulin product they are now publicly admitting has efficacy issues, where convenience, ease of use and costs aren't exactly claims that have been the truth of the matter based on their prior claims.

It seems like only yesterday, but coming up shortly it will have been two years since the hyped restart developing such an epinephrine product. Remember the event where they went back to the board of directors to get their permission for this product-January, 2015. Two years to develop an epinephrine product and they apparently never looked at the massive clinical data for such a product. For starters one can look at the following time-line by Armstrong — note they started their interaction with the FDA in 2007. Now it will be 2017 in a matter of a few weeks, and as of today, (11/27/2016) the FDA has opted not to approve their inhaled epinephrine product for asthma. Now there are those who think MannKind will have a different result when dealing with a life or death situation with a child going into shock due to an allergic reaction. The delivery of epinephrine via a direct injection into a patient's thighs has no contraindication for using such a delivery method, so what doctor is going to be willing to prescribing an inhaled formulation and subject himself to a malpractice lawsuit? The following is an excerpt from this long saga, however, if you wish to read the full FDA documents.

"Armstrong began interacting with FDA regarding reformulation of epinephrine without CFCs in a pre-IND meeting in 2007 (IND 74,286), after publication of the proposed rule. The Agency provided extensive feedback to the sponsor throughout the development program, including multiple communications outside of traditional milestone meetings. Meetings included joint input from the Division of Pulmonary Allergy and Rheumatology Products and the Division of Nonprescription Clinical Evaluation."

But if Armstrong's travails aren't enough of an impediment for developing an inhaled epinephrine product, then one can look at numerous clinic research reports dealing with the shortcomings of such a product. For example, the following is an excerpt of a clinic trial where the results and conclusions are very clear:

Abstract

OBJECTIVE:

To determine the feasibility of administering an adequate epinephrine dose from a metered-dose inhaler in children at risk for anaphylaxis by assessing the rate and extent of epinephrine absorption after inhalation.

METHODS:

We performed a prospective, randomized, observer-blind, placebo-controlled, parallel-group study in 19 asymptomatic children with a history of anaphylaxis. Based on the child's weight, 10, 15, or 20 carefully supervised epinephrine or placebo inhalations were attempted. Before dosing, and at intervals from 5 to 180 minutes after dosing, we monitored plasma epinephrine concentrations, blood glucose, heart rate, blood pressure, and adverse effects.

RESULTS:

Eleven children (mean +/- standard error of the mean: 9 +/- 1 years and 33 +/- 3 kg) in the epinephrine group were able to inhale 11 +/- 2 (range: 3-20) puffs, equivalent to 74% +/- 7% of the precalculated dose or 0.078 +/- 0.009 mg/kg. They achieved a mean peak plasma epinephrine concentration of 1822 +/- 413 (range: 230-4518) pg/mL at 32.7 +/- 6.2 minutes. Eight children (10 +/- 1 years of age and 33 +/- 5 kg) in the placebo group were able to inhale 12 +/- 2 (range: 8-20) puffs, 89% +/- 3% of the precalculated dose, and had a peak endogenous plasma epinephrine concentration of 1316 +/- 247 (range: 522-2687) pg/mL at 44.4 +/- 16.7 minutes. In the children receiving epinephrine compared with those receiving placebo, mean plasma epinephrine concentrations were not significantly higher at any time, mean blood glucose concentrations were significantly higher from 10 to 30 minutes, mean heart rate was not significantly different at any time, and mean systolic and diastolic blood pressures were not significantly increased at most times. After the inhalations of epinephrine or placebo, the children complained of bad taste and many experienced cough or dizziness. After inhaling epinephrine, 1 child developed nausea, pallor, and muscle twitching.

CONCLUSIONS:

Despite expert coaching, because of the number of epinephrine inhalations required and the bad taste of the inhalations, most children were unable to inhale sufficient epinephrine to increase their plasma epinephrine concentrations promptly and significantly. Therefore, we urge caution in recommending epinephrine inhalation as a substitute for epinephrine injection for out-of-hospital treatment of anaphylaxis symptoms in children.

Dr. Urbanski is spinning a story about MannKind being able to deliver effective levels of plasma concentrations with epinephrine. However, the reality being, the only product on the market(Afrezza), they are not able to deliver with any accuracy for concentrations of insulin, resulting in lack of patient efficacy. And they publicly admit this fact. What parent is going to approve their child going into a clinical trial where their child's life is on the line? Especially, when an injected dose of epinephrine has no contraindications for its use. It would be unethical for any medical doctor placing one of their patients into such a situation, for MannKind or any other company.

Concluding Remarks:

MannKind is in full retrenchment mode as they try stretching their monetary funds in order to preserve their paychecks. Their current actions fully demonstrate the futility they see for the future of turning around the ongoing downward spiral. Investors can ignore this full-blown retrenchment, but I will delineate them one more time:

  1. As of 9/30/16, they show they have $2.666M of raw material(insulin). They further state they have $1.774M of work-in-progress. And finally, they reflect they have $684,000 of finished goods on hand. Thus, confirming they aren't building out finished goods to fulfill orders they have for Afrezza.
  2. The lack of production of Afrezza is confirmed in a circuitous explanation given in their 3rd Q report. They tell investors that as of December 15th, 2016, their third-party distributor(NYSE:ICS) for Afrezza will no longer take title (pay for) of MannKind's shipments to them. However, they will continue to distribute Afrezza to the wholesalers. In simple explanation-this means that MannKind is shipping out product to ICS on consignment terms. Obviously, ICS doesn't deem it worth the normal distribution model used by other biotech firms where they purchase product from the manufacture and pay for the purchase. Basically, it appears that ICS doesn't want to purchase inventory that sits on their shelves. Never forget, 3rd Quarter, 2016, generated a net revenue from Afrezza coming it less than $600,000 for MannKind — -and we can see that currently the 4th Q revenue is tracking to be on par with the 3rd Quarter.
  3. For additional confirmation on this issue, they tell you in the 3rd Q report they had recorded $2.0 in deferred revenue, of which $1.6 M represents product shipped to their third-party logistics provider and wholesale distributors, but hasn't been dispensed to patients as of 9/31/16. This implies that all the channel stuffing from the Sanofi purchases in 2015, this supply is still sitting on a warehouse shelf. As further shown by the fact in the 3rd Q, they sold a net of less than $600,000 of Afrezza.
  4. As shown in the facts above, there is obviously a lack of further production to meet demand. Confirming this is the fact they tell you they have obtained a waiver from their raw material supplier where they will not be required to purchase anymore raw insulin, until the 4th Quarter, 2017. This is classic proof confirming they have no anticipated pick-up in demand for Afrezza in the next twelve months.
  5. In the 3rd Q report they announced another 20% reduction in personnel, on top of a similar reduction done in late 2015. Further confirming there is no need for staffing based on expected revenue results.
  6. MannKind has now told you they have a problem: efficacy issues.They move forward to get a label change that deals with fast acting, which has no relevance to addressing their problem — efficacy. Fast acting on a label doesn't remove the self-admitted issue that due to the lack of proper distribution of Afrezza on the lungs, this results in patient having to constantly increase their dosing in their current futile efforts for efficacy. So a fast acting insulin that doesn't deliver efficacy for the patient's condition — what difference does this make for getting patients to continue using Afrezza?

It is my hope and desire that Afrezza will remain available for those patients who need options for addressing their medical needs. However, with their now admitting the efficacy issue the likelihood of this happening is diminished.

Good luck with your future investing decisions.

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.

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