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A newbie guide to Mannkind corp

|Includes: MannKind Corporation (MNKD)

This post is directed more towards newbie who is hearing Mannkind corp for the first time.

What does Mannkind corp do?
Mannkind is a biopharmaceutical company, focuses on the discovery, development, and commercialization of therapeutic products for diabetes and cancer. Its lead product candidate, AFREZZA, a rapid-acting insulin that has completed Phase III clinical trials for the treatment of diabetes in the United States, Europe, and Japan.

Who is running Mannkind?
Alfred E. Mann. If you don't know jewelry, then know the jeweler. Al Mann is a pioneer in the field of medical devices and diabetes with a long list of accomplishments. He is a billionaire octogenarian philanthropist, who has the compassion of Mother Theresa and business acumen of Warren Buffett. His goal in life is to help improve people lives and the unintended consequence is that he always makes money for those who invested with him.

Who are the competitors?
The mealtime insulin market is dominated by three players. Eli Lilly (Lispro- marketed as Humalog with sales of  $2 Billion), Novo Nordisk (Aspart- marketed as Novolog with sales of $7 Billion) and Sanofi Aventis (Glulisine marketed as Apidra with sales of 0.75 Billion). All sales figures are for worldwide in $.

What is insulin?
Insulin is a hormone produced by the pancreas that regulates the level of glucose, a simple sugar that provides energy, in the blood. In type 1 diabetes, the pancreas stops producing insulin; in type 2 diabetes, the body becomes resistant to the insulin the pancreas produces.

Why would anyone use Afrezza?
Afrezza is an inhaled form of insulin that is given during meal time. Afrezza works better than the existing meal time insulins because it closely mimics the natural insulin that is secreted by the body during meal time. In the trials, Afrezza has shown superiority over existing meal time insulin in the market. It has the potential to eliminate at least 3 injections per day as Afrezza is inhaled. The industry leaders opine that Afrezza can reduce long term complications from Diabetes due to its unique quality.

The trial participants love Afrezza. Mannkind has done numerous surveys to assess the market potential.

Pfizer's inhaled insulin Exubera failed. Why would Afrezza succeed?
This is an oft-repeated argument against Afrezza. Exubera failed due to many reasons. Exubera had a bong-sized inhaler, Exubera's insulin was very expensive and didn't offer any advantages over existing meal time insulin. Pfizer did a poor job of marketing Exubera and most insurance companies refused to pay.

Afrezza's inhaler is whistle sized, it costs are comparable to other meal time insulin and has established superiority in trials.

Am I late to the party?
The party hasn't started yet. If you buy the stock today (Oct 15th 2010), you are paying less than what Mr. Mann paid to acquire shares from market, secondary offerings etc. The company has spent around $1.5 billion developing this product and is valued currently at half of the money spent. Diabetes is a growing epidemic. Just look at Novo Nordisk's market cap to see the potential.

What's the upside?
The market research indicates that Afrezza is a billion dollar opportunity. If you assume that Afrezza will reach a billion dollar of sales, you can easily value it at a sales multiple of 5. Al Mann's previous venture Minimed got sold to Medtronic and the stock holders who bought at IPO made 100 times return. The upside is huge if Afrezza's technology (called technosphere) becomes a platform for inhaled drugs. There are also two phase 2 cancer drugs in the pipeline. 

FDA will decide Afrezza's fate on 12/29/2010 (called PDUFA date).  

What are the risks?
This stock may not be suitable for widows and orphans.The stock hasn't priced in Afrezza's potential. FDA already gave feedback for the first submission and had asked for no new trials. The FDA also has allowed pediatric study (for children ages 4 and above). The chances of rejection are negligible. A delay of few months is possible. The carrier molecule of Afrezza is FDKP and it has been tested extensively for safety.

What is the symbol of Mannkind?

What about financing?
Mannkind has completed most of the trials and the cash burn is reducing in recent quarters. Mannkind completed a $100 million convertible offering with Bank of America, signed up an offering to sell shares through Seaside (in the same deal, the debt Mannkind owes to Al Mann gets converted to equity). Mannkind also has a line of credit of $300 million with Al Mann. You can read CFO's comments in this sec link. Their cash on hand should last little beyond 2011. Any partnership should alleviate any cash concerns.

Who is the partner for Mannkind?
Mannkind is in advanced negotiations to get a marketing partner. Mannkind owns manufacturing plants to make Afrezza, it owns insulin for $15 billion of sales. You may see Mannkind sign up a partner in the next few months.

Where can I go for more information?
A great place to start is Mannkind's website. Also checkout my blog for more information.

Disclosure: Long MNKD

Disclosure: MNKD