Inhaled Insulin: Eli Lilly On Its 'Last Breath'?

First, Pfizer (PFE) gave up on its inhaled insulin Exubera, then NovoNordisk (NVO) threw in the towel, and now it looks like Lilly is going to bow out. Alkermes (ALKS), which is working on a palm-sized product called, "AIR Insulin," put out a press release Friday saying it expects its partner on the device, Lilly (LLY), to decide next week that it will exit the deal. ALKS shares hit a new low on the news.

I've left a few messages for a couple of Lilly PR people asking if the company has a comment on the Alkermes announcement. So far, no calls back. But when I interviewed COO and CEO-designate John Lechleiter two months ago at the JPMorgan Healthcare Conference and asked him about the inhalable insulin he replied: "We're certainly trying to understand what was behind Pfizer's decision, but at this point in time we remain undaunted in our quest to bring the first inhaled form of insulin to the market in concert with Alkermes. We think it has an application."

Since then I guess they must've come to a greater understanding of what was behind Pfizer's decision. At the Pfizer analyst meeting this week, one executive said the company underestimated the "demands" and "burden" Exubera would put on doctors trying to teach patients to properly use the device. He added that Pfizer also hadn't factored in the potential risk to some patients' lung function. "The market (for insulin products) evolved and passed us by," he said candidly.

That leaves MannKind (MNKD), which also fell to a new intra-day low, as the last man standing in inhalable insulin development. I interviewed the 82-year-old billionaire MNKD Chairman Alfred Mann at JPM as well. He is staking a big chunk of his personal fortune on the "Technosphere" product. But at the end of the interview I apparently underreported the value of his other companies that he'd previously sold.

And Mr. Mann wrote me a letter to set the record straight: "Just for your information, the sale price to Medtronic of MiniMed and its MRG affiliate exceeded $4 billion, not $3 billion. The sale of Advanced Bionics to Boston Scientific was in a 9.6 year earn out that would have exceeded $4 billion. The $742 million (at which I had pegged the value) was just the down payment. With the acquisition of Guidant, BSC (Boston Scientific) needed a change. We resolved this with payment to the Bionics stockholders a total of $2.6 billion plus $250 million plus a return to accredited stockholders of two of the four business platforms."

Whether he can follow all that up with a sale of MannKind will likely be determined by crucial late-stage data on Technosphere which are expected later this year.

But David Kliff, the editor of "The Diabetic Investor" newsletter, writes in a note to subscribers Friday: "As for the future of inhaled insulin there is no future. Exubera cost Pfizer billions, Novo terminated their project and now Lilly is betting their diabetes future on LAR (once-a-week Byetta). Without a partner it's difficult seeing MannKind succeeding on their own no matter how good their insulin works. Frankly it's difficult seeing MannKind surviving as their inhaled insulin product is all they really have."

UPDATE: Late Friday Lilly issued this press release confirming the Alkermes announcement and adding that it will take a five to seven cent per share charge to get out from under the deal.