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  • Revolutionary Diabetes Treatment is Almost a Reality. 9 comments
    Dec 15, 2009 12:41 PM | about stocks: MNKD, PFE, GSK
    Diabetes is one of the largest and fastest growing epidemics in the US, Europe and in developing nations around the world. There are 23.7 million people in the US suffering from diabetes today and that is expected to double to 44.1 million by 2034*. The cost in the United States to treat diabetes is estimated to rise from $113B in 2009 to a scary $336B in 2034*. It is estimated that healthcare costs for diabetes in all of Europe will be $152B in 2009. China had 70M diabetics in 2008 with a 10.8% morbidity rate and the number of people afflicted with the disease is growing at an alarming rate as they continue to develop as a nation.
     
    For over 80 years, Insulin therapy has been the standard of care for treating diabetes in addition to lifestyle modifications. Human Insulin and Insulin Analogs are the two types of insulin prescribed for treatment. Insulin preparations are classified based upon the timing of the treatment such as rapid-acting, short-acting and long-acting. Insulin is injected via a syringe or a needle pen.     Big Pharma has been trying for years to come out with an inhalable insulin to make it easier for patients to take their Insulin treatment. These efforts have been met with failure after failure for various reasons. The most recent flop in the race for inhalable insulin was Pfizer’s (NYSE:PFE) Exubera.   Exubera was an inhaled insulin product approved by the FDA in 2006 with projections of over $2B in annual sales when Pfizer brought it to market. It was pulled from the market by Pfizer due to its lackluster sales and not because of any safety concerns. Why did it fail? Exubera’s insulin worked the same as insulin taken via injection and therefore it had the same side effects. There was no medical benefit to it whatsoever. In addition, Exubera was a large, bulky device with complex dosing. It is actually easier to carry an Insulin Pen rather than a large inhaler so the only real market were for those diabetics with severe fear of needles.
     
    Outside of differentiation around devices for administering it, insulin can be viewed as a commodity in the market. All of the approved insulin therapies available have serious side effects no matter whose insulin a patient uses. The two most common side effects are weight gain and hypoglycemia. Weight gain is particularly concerning because the number one factor is becoming a diabetic is being overweight to begin with. Knowing that one is likely to gain weight also makes a patient more likely to avoid starting therapy. Hypoglycemia is a common side effect of insulin therapy, which can be fairly mild or quite severe in nature. The symptoms of hypoglycemia include sweating, dizziness, sleepiness, confusion, difficulty speaking, anxiety, weakness, hunger, shakiness and nervousness. Unfortunately, diabetics have been accustomed to having to live with hypoglycemia as a necessary evil.
     
    A new type of Insulin: The most rapid-acting mealtime Insulin treatments peak at 2-3 hours after injection and stay active for 4-8 hours. What would happen if you could take a dose of insulin when you need it that would hit the blood stream in 12-14 minutes and dissipate within 3 hours, closely mimicking the insulin levels in a patient with normal pancreatic function? It should in theory prevent hypoglycemia and weight gain. That is exactly what MannKind Corporation (NASDAQ:MNKD) has done with its soon to be approved AFRESA. MannKind’s Chairman is Al Mann, the serial Billionaire entrepreneur whose MiniMed created the first insulin pump. Al Mann has invested close to $1B of his own fortune on MannKind and believes it could be the most valuable drug ever created. He might be right. MannKind has created a microparticle formulation of Insulin that acts like endogenous insulin. AFRESA uses MannKind’s patented Technosphere platform to deliver the drug quickly to the bloodstream through an inhaler the size of a whistle. The Technosphere platform can be used for a number of other therapies in the future where the timing of drug delivery is just as important as the drug itself and is likely to be licensed to other pharmaceutical companies. What is exciting about AFRESA is that it is a BETTER type of insulin that comes with basically no side effects.   It just also happens to be taken via a neat little inhaler the size of a whistle that can be kept in a pocket or purse. MannKind has delivered where others have failed on two fronts. First, creating a better form of insulin as the Standard of Care that minimizes the risk of hypoglycemia and also does not cause weight gain and may actually result in weight loss. Secondly, they have done it through an inhalable form that makes treatment more convenient with less of a stigma attached to it. It is so effective, that MannKind claims it causes no hypoglycemia when taken on a zero carb diet. That is unheard of for the current insulin therapies available. It appears that AFRESA may also stop the progression of diabetes, which is a bold claim that will need to be backed up through future long term studies by MannKind and their future partner. Because of the low risk of side effects and other health benefits, it can be given to just about all diabetics and prescribed as a much earlier therapy. AFRESA’s PDUFA date is January 16th and the company is discussing the label with the FDA this week. The FDA did not require a Panel review of AFRESA, has approved AFRESA’s use for patients who were on the discontinued Pfizer drug Exubera, and have had no concerning questions submitted to MannKind which indicates that it should be approved without delay.
     
    Where’s the partner? MNKD ran to over $12 in September on the expectations of a pending partnership announcement. When partnership discussions fell through, MNKD stock was punished, falling to $5 in less than 30 days. It has since recovered to trade above $8. The partnership talks with a global big pharma fell through due to differences in the valuation of AFRESA. MannKind agreed to a US baseline value of $2B a year based on the partner's analysis but each company could not agree on a percentage split if those projections were exceeded. The companies parted amicably and agreed to resume talks after the label was finalized. A label that makes claims such as “may cause weight loss, or may prevent the progression of diabetes” is much more valuable than a label that doesn’t carry that language. MannKind has stated that they are in discussions with a number of potential partners and their intention is to partner once AFRESA is approved. However, because of Al Mann’s deep pockets, they could choose to also go it alone if they can’t come to agreement on terms.
     
    What is the value? It is always hard to value a drug that has the potential to create a new standard of care. The most recent example of such valuation can be seen with Human Genome Sciences’ (HGSI) Benlysta. Benlysta rocketed HGSI stock on positive Phase III results that showed it is an effective treatment for Lupus and the first new drug that could be approved for that disease in 50 years. The market for Lupus treatment is estimated to be in the range of $2B a year. HGSI is partnered with GSK on Benlysta and will receive 50% of revenues. HGSI’s market cap is $4.7B with analyst price targets much higher than the current $28 stock price. MannKind’s AFRESA is at least a $2B drug in the US alone with 100% of the revenue stream before partnering. Based on the market’s valuation of Benlysta, AFRESA should be valued at least $4B and could go much higher. If MNKD is successful in changing the way diabetes is treated, it could grow to be a $10B a year drug by 2015.  MNKD’s market cap today is less than $1B making it a possible 4-bagger in the next 60 days after FDA approval and partnership announcement.
     
    *Dr. Elbert Huang – University of Chicago, December 2009 issue of the journal Diabetes Care


    Disclosure: Long MNKD and HGSI
    Themes: diabetes, insulin Stocks: MNKD, PFE, GSK
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Comments (9)
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  • Dreggy
    , contributor
    Comments (5) | Send Message
     
    Excellent article, however could you correct the spelling of the drug. It is AFRESA.
    15 Dec 2009, 10:11 PM Reply Like
  • KLLJ Investments
    , contributor
    Comments (172) | Send Message
     
    Author’s reply » Thank you. I have corrected the typo.
    15 Dec 2009, 11:36 PM Reply Like
  • c3353582009
    , contributor
    Comments (2) | Send Message
     
    China's Type II diabetes is to more then Triple by 2012!
    Global Diabetes cost is projected to be $490 Billion by 2025
    While your article about Afresa was more accurate then most I have seen, the value of Mannkind is off by orders of Magnitude. Why? Because the Technosphere opportunities to load peptides, proteins, and small molecules which has a global market by 2013 of $140Billion. Also, the MKC1106 line of cancer vaccines has past phase I showing promise in many advanced cancers. For example, in Prostate cancer where all other conventional treatment failed including hormone therapy the MKC1106-PP was affective 60%! If you were to ask me and I might be wrong here, but I believe DNDN's Provenge is only 22% affective, and if all other treatment had failed prior to MNKD's cancer vaccine trial, could you assume that means Provenge was tried and failed before the MKC1106-PP trial?
    Lastly, DNDN is over $30 for just Provenge, and MNKD has several cancer vaccines that are showing promise at 40% affective and 60% affective for advanced cancers. I guess I am asking why is there only a value on MNKD for Afresa and not including the Technosphere in your value? or the Cancer vaccines that appear promising, and are already through phase I? With all the major pharmas losing their drugs to the generic market, wouldn't make sense that they would want to reformulate onto a superior delivery system that can stabilize what is otherwise unstable and with an ultra rapid delivery making it more potent, and affective?

     

    Thank you in advance, and again, it was nice to see a Dr. write about Afresa
    which Mannkind has a monopoly on inhaled insulins for at least the next 5 to 10 years in my opinion, and uses Monomeric insulin in a stable form on an inert Technosphere particle. But you had me at Zero Hypo's on a Zero Carb diet! Halting progression, and expanded use to the prediabetes and type II as a first line therapy is interesting as well. I guess up to about 70% of Type II's, and 100% of prediabetes patients could just use Afresa alone without titration or carb counting if the Agency approves it.

     

    WOW!!
    16 Dec 2009, 12:26 AM Reply Like
  • KLLJ Investments
    , contributor
    Comments (172) | Send Message
     
    Author’s reply » Thank you for your comments. I am not a medical doctor, just an experienced investor. Diabetes in China is already a problem but it will far surpass the rest of the developed nation as more people move to cities and adopt the bad eating habits of the rest of the world. At present, China has 100 cities with over 1M people in it and that number is expected to more than double in the next decade.

     

    I agree on your analysis of the Technospere platform. It can be used for numerous Peptides and Proteins for all sorts of drugs such as vaccines, oncology, cardiovascular treatments and immunization. I also didn't discuss their GLP-1 drug which is quite exciting. The oncology drugs look to be very promising as well but are still in the early stages. The intention of this discussion was to bring attention to AFRESA and how revolutionary the treatment should be. They could in fact gain an almost monopoly on insulin treatment for the next decade but with even a modest percentage, AFRESA will still be a blockbuster. There are many other factors that add to the value of MannKind which should be taken into consideration when doing your own valuation. The valuation I discuss above is based solely on AFRESA but there is an attractive pipeline with excellent patents that should further the interest of potential partners. Good Investing!
    "
    16 Dec 2009, 07:20 AM Reply Like
  • Logical Thought
    , contributor
    Comments (4812) | Send Message
     
    >>MNKD’s market cap today is less than $1B making it a possible 4-bagger in the next 60 days after FDA approval and partnership announcement.<<

     

    First of all, you need to get your math right. Inclusive off all warrants and options, but excluding the conversion of the convertible debt @ $22.47, the sharecount is around 123 million (sec.gov/Archives/e...), which means something over $1.1 billion of market cap based on Friday's close. On top of that, the company will wind up fully drawing on the "Al Mann credit line" of $350 million, has $112 million of convertible debt and by the end of this quarter will probably have very little net cash, so the current enterprise value is really close to $1.6 billion.

     

    Second, I think it's far from a slam dunk that this drug gets approved in January. The very concept of inhaled insulin-- rightly or wrongly-- is a controversial one, and the fact that the FDA did not convene an advisory panel at least as a "CYA" move means there's actually some chance it may have no intention of approving the drug at all right now, and may instead require several years of follow-up studies. I'm not saying that this is likely, but I think it's a real possibility.

     

    Third, if Afresa does get approved, it's unlikely to generate much, if any, revenue in 2010 as there's no partnership yet. So a very optimistic revenue scenario (keeping in mind that even the biggest drugs take a number of years to "ramp") would be revs of $300 million in 2011, $500 million in 2012, $1 billion in 2013, $1.5 billion in 2014 and $2 billion in 2015. If you put a 2x forward multiple on this (on the assumption that the drug is worth 4x but MNKD will only get half the money), you'd get a valuation of $4 billion at the beginning of 2015. You then have to discount this back at a high enough number to compensate for the fact that approval is not a slam dunk and the company has no partner despite the fact that a myriad of very sophisticated potential partners undoubtedly studied the hell out of Afresa under NDAs and yet none of them stepped forward to make a deal. In the face of this, I would say that the appropriate discount rate is 50%/year, because if I were to buy this now in the face of the risks involved, that's what I'd want to make here, and I'll bet that the average MNKD shareholder thinks he'll make AT LEAST 50%/year on his investment going forward. $4 billion in early 2015 discounted back to today at 50% would make this company worth somewhere between $500 and $550 million today, INCLUSIVE of $460+ million of debt, leaving the equity value at well under $1/share.

     

    I owned this in the $2s and made a lot of money on it (selling it months ago in the $8s, when there were fewer shares and less debt and I believed management when it said it would have a partner as soon as Q3, but no later than Q4); today, I would definitely be shorting it if there weren't already such a massive short interest already and, in fact, if it climbs a bit higher ahead of the FDA decision, I may short it anyway.
    20 Dec 2009, 10:16 PM Reply Like
  • daleplatt
    , contributor
    Comments (5) | Send Message
     
    Logicalthought,

     

    Mannkind has done the most thorough drug research in history. Just how much more do you, or anyone in the pharmaceutical field, expect a company to do. Everything was statistically significant. Exubera was approved for flimsy research.

     

    I pray to God you are very wrong about your illogical synopsis. America needs a great company, especially with all the low life analysts manipulating Wall Street. I hope the FDA sees fit to approve Afresa as close to January 16th as possible, because Alfred Mann and his professional staff deserve it.

     

    On Dec 20 10:16 PM logicalthought wrote:

     

    > >>MNKD’s market cap today is less than $1B making it a possible 4-bagger
    > in the next 60 days after FDA approval and partnership announcement.
    > <<
    >
    > First of all, you need to get your math right. Inclusive off all
    > warrants and options, but excluding the conversion of the convertible
    > debt @ $22.47, the sharecount is around 123 million (www.sec.gov/Archives/e...),
    > which means something over $1.1 billion of market cap based on Friday's
    > close. On top of that, the company will wind up fully drawing on
    > the "Al Mann credit line" of $350 million, has $112 million of convertible
    > debt and by the end of this quarter will probably have very little
    > net cash, so the current enterprise value is really close to $1.6
    > billion.
    >
    > Second, I think it's far from a slam dunk that this drug gets approved
    > in January. The very concept of inhaled insulin-- rightly or wrongly--
    > is a controversial one, and the fact that the FDA did not convene
    > an advisory panel at least as a "CYA" move means there's actually
    > some chance it may have no intention of approving the drug at all
    > right now, and may instead require several years of follow-up studies.
    > I'm not saying that this is likely, but I think it's a real possibility.
    >
    >
    > Third, if Afresa does get approved, it's unlikely to generate much,
    > if any, revenue in 2010 as there's no partnership yet. So a very
    > optimistic revenue scenario (keeping in mind that even the biggest
    > drugs take a number of years to "ramp") would be revs of $300 million
    > in 2011, $500 million in 2012, $1 billion in 2013, $1.5 billion in
    > 2014 and $2 billion in 2015. If you put a 2x forward multiple on
    > this (on the assumption that the drug is worth 4x but MNKD will only
    > get half the money), you'd get a valuation of $4 billion at the beginning
    > of 2015. You then have to discount this back at a high enough number
    > to compensate for the fact that approval is not a slam dunk and the
    > company has no partner despite the fact that a myriad of very sophisticated
    > potential partners undoubtedly studied the hell out of Afresa under
    > NDAs and yet none of them stepped forward to make a deal. In the
    > face of this, I would say that the appropriate discount rate is 50%/year,
    > because if I were to buy this now in the face of the risks involved,
    > that's what I'd want to make here, and I'll bet that the average
    > MNKD shareholder thinks he'll make AT LEAST 50%/year on his investment
    > going forward. $4 billion in early 2015 discounted back to today
    > at 50% would make this company worth somewhere between $500 and $550
    > million today, INCLUSIVE of $460+ million of debt, leaving the equity
    > value at well under $1/share.
    >
    > I owned this in the $2s and made a lot of money on it (selling it
    > months ago in the $8s, when there were fewer shares and less debt
    > and I believed management when it said it would have a partner as
    > soon as Q3, but no later than Q4); today, I would definitely be shorting
    > it if there weren't already such a massive short interest already
    > and, in fact, if it climbs a bit higher ahead of the FDA decision,
    > I may short it anyway.
    23 Dec 2009, 02:44 AM Reply Like
  • Dreggy
    , contributor
    Comments (5) | Send Message
     
    logicalthought,

     

    You put forth one of the most intelligent short arguments I have heard. I just happen to disagree with you. The trials MNKD has done are above and beyond what is generally accepted as approvable by the FDA, given the trial results. The revenues should be exponential given the benefits AFRESA has shown in the current trials, with the "superiority trial results" yet to come. Gestational diabetes alone could start us out at $300mm a year. Add the Type 1 and Type 2's that start using AFRESA to that. I would expect the truth to be somewhere in between your analysis and mine, giving me a heck of a profit in my holdings in 2010.

     

    Thanks for your input anyways, I always like all intelligent input, it makes me think!
    26 Dec 2009, 01:58 PM Reply Like
  • swmpsp
    , contributor
    Comments (15) | Send Message
     
    Any body knows the real reason why MNKD was rejected by FDA?
    Intelligent posts are welcomed.
    10 May 2010, 03:39 AM Reply Like
  • John Tucker
    , contributor
    Comments (396) | Send Message
     
    Does anybody know whatever happened with the lung cancer concerns that arose with Exubra? There were not too many, but it was a little unnerving how quickly they appeared, and insulin is known to have growth factor properties.
    24 Jul 2010, 08:07 PM Reply Like
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