My previous article looked at the five largest global Big Pharma companies, ranked by revenues, to see if any of them might be the partner MannKind (NASDAQ:MNKD) needs to market and distribute its just-approved, novel, ultra-fast acting, inhaled insulin, Afrezza.
But there are several other, slightly smaller Big Pharma players that have a strong presence in the diabetes care market, who might also make excellent partners for MNKD.
The ideal partner would be one with a large sales force that is knowledgeable about diabetes and already has strong connections with the endocrinologists and PCPs who treat people with diabetes. You would expect to find such a sales force working for companies that are currently selling successful diabetes drugs.
But the disruptive nature of Afrezza introduces a factor into any partnership considerations that must make MNKD's management cautious about potential partners. That's because Afrezza has the potential to displace several currently very profitable existing insulin formulations. This would make its acquisition a zero sum prospect for the companies whose drugs would be displaced.
The challenge Afrezza poses to profitable existing drugs extends beyond insulin. A significant part of Afrezza's unique selling proposition is that it is inhaled, rather than injected, so companies whose bestselling diabetes drugs right now are injected GLP-1 receptor agonists may be loathe to pursue any advertising campaign that harps on the awfulness of injections.
It is quite possible that in the future, the Technosphere technology that MNKD uses to make insulin inhalable could be applied to these other injected drugs, mitigating that problem. But it would be years before inhaled versions of these drugs could be approved, and in the meantime, Afrezza might erode the market for these drugs now, when they are still very much under patent.
So those at MNKD who want to see Afrezza become the blockbuster drug it could be must be very careful not to give rights to Afrezza and/or the Technosphere technology to a company that might market Afrezza poorly in order to keep its other drug(s) profitable, or who might want the Technosphere technology mainly to use it to extend patent protection to other currently profitable drugs whose injected forms will be going off patent in a few years.
There is also another problem with pairing GLP-1 receptor agonists with Afrezza: For a long time, doctors were told not to prescribe these drugs along with insulin. Though this may be changing, it is questionable whether it would be safe to use GLP-1 receptor agonists with an ultra-fast-acting insulin like Afrezza, due to the potential for hypos in patients who respond strongly to the GLP-1 receptor agonist.
So, because Afrezza is marketed mainly for the same people with Type 2 diabetes as these other drugs, doctors may choose to prescribe only one, replacing sales of injected GLP-1 receptor agonist drugs with those of Afrezza. This could be an undesirable outcome for a company already profiting from the GLP-1 drugs.
With that in mind, let's look at five more global Big Pharma companies that currently have a significant presence in the diabetes marketplace and who could be considered as potential partners for MNKD.
Merck & Co. (NYSE:MRK)
Merck, an American company, is the 6th-largest global Big Pharma company, with revenues in 2013 of $44 billion. (This is about two-thirds as much profit as was earned by the number one Big Pharma company, Johnson & Johnson.) MRK's profits are under pressure due to patent expirations of several of its top-selling drugs, including Singulair, Propecia, Clarinex, and Cozaar.
However, MRK currently has one very profitable diabetes drug on the market, Januvia. Januvia, a DPP-4 inhibitor, comes in pill form, and is also sold as Janumet, where it is found in combination with the generic drug metformin. Januvia was the first DPP-4 inhibitor to be approved and was, at one time, the single-highest grossing non-psychiatric medication on the market. But Januvia's sales have been under pressure since the introduction of a very similar drug, Onglyza, now owned by AstraZeneca as a result of its recent acquisition of Bristol-Myers Squibb's (NYSE:BMY) diabetes business.
Januvia is under patent until at least 2022. After that, Merck hopes to protect its DPP-4 inhibitor franchise by gaining approval of a new, long-acting DPP-4 inhibitor pill, omarigliptin, which is currently undergoing Phase III trials. However, unlike several of the other companies we will be looking at, Merck does not sell any of the injected drugs in the GLP-1 receptor agonist family, nor does it have any in its pipeline.
To beef up its diabetes product line, Merck is also hoping to get FDA approval for ertugliflozin, an SGLT-2 inhibitor, developed in partnership with Pfizer (NYSE:PFE). But the partners have run into trouble getting this drug approved in USA. That gives the edge to the two already approved drugs of that class, Johnson & Johnson's (NYSE:JNJ) Invokana and AstraZeneca's Farxiga. The health concerns delaying ertugliflozin's approval make it unlikely to be a significant player in that space, should it finally become approved.
Merck has no insulins on the market right now and only one insulin product under development, a long-acting insulin which is a formulation of insulin glargine, which is better known as Lantus, and which is also Sanofi's (NYSE:SNY) current blockbuster. Sanofi's patent on Lantus expires in 2015.
A long-acting form of Lantus, should it be successful, would be a product that would be marketed along with, rather than in competition with, the fast-acting insulin, Afrezza. Fast-acting insulins only cover the blood sugar spikes that caused by the carbohydrates digested during meals. Afrezza does not significantly affect the fasting insulin levels that are lowered by long-acting insulins.
So Merck looks like it could be a decent partner for MNKD. It has the sales force needed to reach endocrinologists and PCPs treating patients with diabetes. It does not have any current or pipeline products that compete directly with Afrezza. It can market Afrezza's ability to replace injections without harming any existing product.
The sole issue making MRK a less-than-ideal partner is that its lack of any fast-acting insulin product means that its sales force is unlikely to understand the complexities of dosing a fast-acting insulin, and would need significant training before they could educate doctors in the proper way to use an innovative, new, fast-acting insulin like Afrezza.
GlaxoSmithKline, a UK company, is the 7th-largest global Big Pharma company, with revenues in 2013 of $43.9 billion, almost identical to those of MRK. GSK's diabetes blockbuster drug used to be Avandia, though the controversy surrounding research that suggested it might be causing heart disease, and the unsavory stories about the heavy handed threats the company used to suppress publication of academic research that would have alerted doctors to this issue years before it became public have taken much of the shine out of that drug. Its patent expiration has been extended a few times, but it is no longer heavily prescribed, with doctors who continue to prescribe drugs in its class (TZDs) preferring to prescribe Takeda's Actos.
GSK has only two other entries into the diabetes care market. One is a long-acting injected GLP-1 receptor agonist, albiglutide, currently awaiting approval. This drug would compete with AstraZeneca's currently approved first-in-class drug of this kind, Bydureon. It is an injected drug, and one that probably should not be combined with a super-fast-acting insulin like Afrezza. GSK's other new diabetes drug, which is currently undergoing Phase II trials, is a member of a new and currently unapproved class of drugs for Type 2 diabetes, that of ileal bile acid transport inhibitors.
While it is not impossible that GSK might be interested in a partnership with MNKD, its tepid involvement in the diabetes care niche now and its investment in a new GLP-1 receptor agonist make it less likely that it would have much interest in such a partnership or make a particularly good partner.
AstraZeneca, another UK company, is the 10th-largest global Big Pharma company, with revenues in 2013 of $25.7 billion. (I have skipped over several larger Big Pharma companies, as they don't have a significant presence in the diabetes care marketplace.)
We have already mentioned AZN several times in this article, which is not surprising, as over the past decade, it has made itself into a major power in the diabetes care niche. It owns bestselling drugs in all three of the newer Type 2 diabetes drug classes. These include a DPP-4 inhibitor (Onglyza/Komboglyze), a successful GLP-1 receptor agonist (Byetta, and its long-lasting form, Bydureon), and an SGLT2 inhibitor (Farxiga, which is branded as Forxiga in Europe). It also sells an injected, non-insulin drug for people with Type 1 diabetes, Symlin. That drug is used to enhance the activity of injected insulin. AZN does not have any insulins in its product line, nor does it have any other diabetes drugs coming from its pipeline.
Though AZN has a sales force that could sell Afrezza, its lack of insulins means its sale force would have to play catch-up to those of other companies already marketing insulins. In addition, it is very possible that it might see Afrezza as competing with its Byetta/Bydureon blockbuster injected products for Type 2 diabetes.
Eli Lilly & Co. (NYSE:LLY)
Eli Lilly & Co., an American company, is the 11th-largest global Big Pharma company, with revenues in 2013 of $23.1 billion. There was a time when the words "Insulin" and "Lilly" were almost synonymous. But that time was long ago. LLY's strength back then lay in developing variants of regular human insulin that were longer lasting than unmodified regular human insulin. Since other companies introduced much more effective long-acting analog insulins, LLY has discontinued all of its regular human insulin products, save for the very slow "fast-acting" Humulin version of unmodified regular human insulin and the longer-lasting, but unpredictable NPH.
Though LLY developed the first fast-acting analog insulin, Humalog, two newer entries in that class, Novo Nordisk's (NYSE:NVO) Novolog and Sanofi's Apidra, have eroded Lilly's market for fast-acting insulin. Humalog should be losing US patent protection very shortly, and though the company campaigns tirelessly to keep generic biosimilars from the market, the need for such biosimilars in the developing world will eventually result in cheaper generic forms of this drug (or drugs very similar to it) coming onto the market.
Meanwhile, SNY's Lantus and NVO's Levimir have eroded the market for LLY's sole basal insulin, the cheaply priced NPH. NPH is now used mainly by those who lack insurance or whose cheapskate insurers care more about cutting costs than cutting down on the dangerous hypos NPH is famous for.
LLY has both a long-acting GLP-1 receptor agonist and an SGLT2 inhibitor (empagliflozin) awaiting review. (Yes, Virginia, there are a lot of "me-too" drugs in the diabetes care marketplace right now.) LLY's one novel drug for Type 2 diabetes, a glucagon receptor antagonist, which would represent a brand new class of diabetes drugs and one that could be very useful, is currently only in stage II trials.
LLY would have one great advantage if it were to partner with MNKD in the marketing of Afrezza, in that it manufactures the regular human insulin that is the main ingredient in Afrezza. This would make it possible for a MNKD-LLY partnership to cut the cost of making Afrezza once MNKD's stockpile of regular human insulin, which it bought from Pfizer after the failure of Exubera, is used up. And of course, LLY's sales force has the needed expertise in the use of fast-acting insulin.
But the company's lackluster performance in the diabetes arena and its long history of chasing advances in diabetes care made by others, rather than leading, makes it a less appealing partner than the two other companies who make insulins, Sanofi and Novo Nordisk.
Novo Nordisk, a Danish company, is the 19th-largest global Big Pharma company, with revenues in 2013 of $15.4 billion. (Note that we are now looking at much smaller companies in terms of revenue than those we started off with in this article.) However, I include it here, after skipping over several other companies that have little or no presence in the diabetes care niche, because unlike most other Big Pharma companies, NVO's product and research focus is almost entirely on diabetes.
Like LLY, NVO manufactures regular human insulins. (These exact copies of the human insulin molecule are not patented.) So, as we described when discussing LLY, a partnership with NVO would cut the costs of manufacturing Afrezza in the future.
NVO also sells an excellent long-acting insulin, Levemir, which is supposed to cause less weight gain than its competitor, Lantus. NVO markets an excellent fast-acting insulin, Novolog (called Novorapid outside of the US), which many people find easier to use than Humalog. It, too, owns an injected GLP-1 receptor agonist, Victoza, which has taken some market share from AZN's older Byetta.
Novo's insulins are dispensed by a line of pens it manufactures, both disposable pens that dispense one-unit doses and permanent pens that take cartridges and keep track of how much insulin was dispensed. These pens can dispense the smaller half-unit doses required by children and adults with Type 1 diabetes, who have high insulin sensitivity.
NVO's diabetes pipeline includes an ultra-long basal insulin, Tresiba, already submitted for approval, which the FDA recently sent back for more testing, and a longer-acting formulation of Victoza which is in Phase III trials. It also is working on a pill version of a GLP-1 receptor agonist, which would replace the current injected drug in this class. This drug is currently in Phase II trials. Whether this pill formulation could also be adapted for use with insulins is an interesting question. If nothing else, it shows just how good NVO is at staying ahead of its competitors, none of whom have anything like this in their pipelines.
Unfortunately for those who might like to see a NVO-MNKD partnership, NVO is also well into Phase III trials of an ultra-fast formulation of Novolog. Depending on how well that formulation performs, NVO might see no reason to abort it by introducing another non-injected, ultra-fast insulin. An injected ultra-fast insulin would have the advantage that its dose could be very tightly titrated to the patient's exact requirements. This might make it superior to Afrezza in terms of the quality of blood sugar control it provides.
While NVO could market Afrezza very successfully and make it cheaper to manufacture, it is questionable whether it would make sense to NVO to do so, given how profitable and successful its current fast-acting insulin is. Afrezza would likely cannibalize existing sales for that fast-acting insulin and for NVO's cartridge pens.
Also, given NVO's profitable business selling injected insulins and the strength of its injected Victoza product, it's hard to see NVO beating the drum for a product whose strongest appeal is that it doesn't have to be injected. NVO is hardly about to harp on the awfulness of injection -- an issue that, as I have stated in several previous articles, looms much larger in the minds of people who have never used insulin than it does for those who do. And with an ultra-fast acting insulin in Phase III, NVO also has an answer to the other main selling proposition of Afrezza, which is the benefits of a shorter activity curve.
Still, one has to wonder why the ADCOM for Afrezza included a non-voting representative from Novo Nordisk. If the company is interested in adding Afrezza to its insulin offerings, to better serve the population of people with Type 2 who refuse to inject or whose doctors don't think they need the more controllable dosing that pens make possible, the company might be a good partner for MNKD.
Though it is tempting to seek a partnership with one of the big powers in the fast-acting insulin business, Lilly or the more successful Novo Nordisk, it is questionable whether these companies would see much benefit in partnering with MNKD to market Afrezza.
The company in this group that stands out as benefiting the most from a partnership to market Afrezza is Merck. It has the sales force needed to reach the doctors who treat the people who would benefit the most from Afrezza. At the same time, Merck's inventory of diabetes drugs lacks any competing drugs, either on the market or close to approval, while the presence of such drugs may limit the appeal of Afrezza to the other strong companies in the diabetes care arena.
Disclosure: The author is long MNKD. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.