On Nov. 28, 2017, shares of MannKind Corporation (NASDAQ:NASDAQ:MNKD), a firm that specializes in the innovation and commercialization of therapeutics to service diabetes increased by $0.27 to trade at 3.16 as of 3:09 PM ET (for 9.72% profits). The upbeat trading was due to the optimistic FDA report issued by Commissioner Scott Gottlieb, MD. Under the new guidance, Dr. Gottlieb indicated that there will be less stringent approval requirements for EpiPen’s rivals. The aforementioned blockbuster (EpiPen) is manufactured by Mylan (NASDAQ:MYL) and is sold at a premium price. In Aug. 2016, Mylan also introduced the generic version of the EpiPen at half the price to alleviate the heat from regulatory pressure. In addition, there are other generics on the market like Adrenaclick that is commercialized by Impax Laboratories (NASDAQ:IPXL).
Figure 1: MannKind stock chart. (Source: StockCharts)
The aforesaid FDA guidance has critical implications to MannKind’s developing pipeline, notably Technosphere Epinephrine (a potential indication for anaphylaxis). In this report, we’ll go over such implications, and how they can potentially improve MannKind’s prospects.
Of note, what we particularly like about the MannKind investors is their due diligence. It is not far from the truth that, as a group, these poised investors are usually abreast of most corporate developments. According to the comment from the Seeking Alpha reader (under the pen name, Rattle of A Simple Investor),
Dr. Tran, were you as surprised, as I assumed the management team was, regarding today's FDA directive on the EpiPen generic protocols? What an incredible plus for MannKind, as we are already at the forefront of a new delivery system that could be used for a myriad of drugs! Any thoughts on the FDA’s move?
Encouraged to lower the price of branded therapeutics (a push by President Donald Trump), Dr. Gottlieb is implementing changes to lower the entry barriers for generic drugs. Priced at a fraction of branded therapeutics, the ease of generics approval would lower drug pricing (and ultimately reducing healthcare costs). In order to obtain an abbreviated new drug application (“aNDA”) - a commercial license for biosimilars - a firm needs to conduct the bioequivalence study. Of note, the FDA considers two products bioequivalent if the 90% confidence interval of the relative mean Cmax, AUC(0-t) and AUC(0-infinity) of the test to reference are within 80% to 125% in the fasting state. Notably, the use of BE study for approval reduces cost, time, and clinical complexity. Per Dr. Gottlieb,
Under this guidance, so long as the generic applicant is able to demonstrate with data, where appropriate, that differences in design of the generic product do not affect the clinical effect or safety profile when the generic is substituted for the branded product, the generic product can be approved as a competitor to the branded drug where all other requirements for generic approval are met.
Investors need to keep in mind that Technosphere Epinephrine (“TE”) is not considered generic: it will be developed as a new molecular entity (to be marketed as a branded med). Similar to the Technosphere Insulin (Afrezza), TE is designed with epinephrine being made into the powder (lyophilized) form. Leveraging on the lung’s arterial pH, fumaryl diketopiperazine carries epinephrine to the lungs (and rapidly unloads the active drug upon its entry into the bloodstream. Interestingly, the potentially fatal condition (anaphylaxis) requires rapid drug administration (which makes Technosphere's mode of delivery advantageous). It is more rapid than the conventional subcutaneous injections. With this edge, we estimated that TE can procure over $500M in peak sales.
Despite that TE would be developed as a branded competitor of the EpiPen, it can be argued that the less stringent FDA-regulations for generics also lower the hurdle for TE.
Potential Risks
For a small cap bioscience, the primary risk is whether the lead molecule will pass the clinical trial. If the drug failed to post positive data, the stock can tumble over 50%. Conversely, if the data report is positive, investors can expect the stock to catapult to the new high by similar (or greater) magnitudes. With that being said, the main risk for TE is if it’ll post positive data results in its future trials. Given that Technosphere Insulin (Afrezza) demonstrated the stellar efficacy and safety, the risks for TE is substantially mitigated. Nonetheless, drug delivery via the lungs (if not properly inhaled by the patients) can cause dosing imprecision. In the case of anaphylaxis, that can translate into the difference between life and death. Consequently, this can deter prescription (even if TE is approved in the future).
That aside, it has been almost two years (since Jan. 2016) that MannKind mentioned about the development of TE (and other pipeline prospects). And yet, TE is still in its Pre-Investigational New Drug stage. Hence, the elephant in the room is whether the management can walk the talks, in executing TE innovation. Be as it may, perhaps the company is diverting its resources into launching Afrezza. It can arguably be a wise strategy to ensure the success of one medicine prior to developing another. That way, the cash flow won’t be constrained. TE asides, the other concern (at this point) is how the management executes strategies to ramp up sales for the stellar mealtime insulin, Afrezza.
Conclusion
We recommend MannKind Corporation as a buy (and raised its prospects from 3 to 3.5 out of 5 stars rating due to the favorable FDA development). In the prior research, we detailed the hindrance to Afrezza sales (and solicited as well as provided potential solutions). There are highly insightful responses from the readers. We’ll wait for more feedback and then compile a letter to send to the management, in hopes that they would expedite the removal of barriers to enable Afrezza delivery to countless patients (and to unlock value for shareholders).
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