Is This the End of MannKind?

Biopharmaceutical company MannKind (Nasdaq: MNKD  ) is seeking FDA approval for its inhalable insulin drug, Afrezza. A decision in 2013 is expected, and the company hopes to get this drug to market as soon as possible.

But is FDA approval all that MannKind needs to flourish?

I previously discussed three reasons to invest in this company, but it has several short- and long-term weaknesses that can't be ignored. I'll look at the flip side of the coin in this article and conclude with my personal opinion on the future of MannKind.

Haunted by Exubera
Afrezza is fundamentally different from the injectable insulin products that diabetics use today. To convert patients from established drugs like Eli Lilly's (NYSE: LLY  ) Humalog or Novo Nordisk's (NYSE: NVO  ) NovoLog , MannKind will have to mount an enormous marketing campaign: Doctors have to be convinced of Afrezza's safety, patients will have to be trained to use the inhaler, and any benefits of switching from injected to inhalable insulin will have to be clinically proven.

MannKind has almost no in-house marketing or sales capabilities and will probably have to partner with a larger pharmaceutical company to get Afrezza off the ground. That should be simple enough, right?

Not quite.

Pfizer (NYSE: PFE  ) brought the Nektar (Nasdaq: NKTR  ) developed inhalable insulin drug Exubera to market in 2006 and ended up losing $2.8 billion in the process. The reasons for Exubera's failure are debatable, but Pfizer's huge loss caused Novo Nordisk and Eli Lilly to quickly cancel their own inhalable insulin programs in 2008. The largest pharmaceutical companies, which coincidentally also have the sales force and marketing expertise that MannKind would need to launch Afrezza, probably have cold feet when it comes to this type of product.

Just Dance
While the largest pharmaceutical companies may have no interest in inhalable insulin, MannKind faces competition from a joint partnership between Dance Pharmaceuticals and Aerogen. The companies announced plans to produce their own drug in January 2011, and even if this competing product is years away from completing clinical trials, there are two causes for concern here.

First, MannKind has had so many delays during the FDA approval process that its inhaler technology may be outdated compared to Dance's device by the time Afrezza hits the market. Second, Dance's founder and CEO, John S. Patton, was a part of the Exubera development team at Nektar. His prior experience will undoubtedly help Dance to navigate the FDA approval process, develop a second generation drug that is more convenient to use than Exubera, and avoid the same marketing mistakes that caused Exubera's downfall.

Burn, baby, burn!
MannKind's greatest weakness is its precarious financial situation. Based on the financial statements of the most recent quarter, the company is burning through $10.9 million each month and has $57 million in cash, cash equivalents, and short-term investments. At this rate, MannKind will only be able to operate for another five months.

The company has already tried to cut down on expenses through job cuts last year and may have to undergo another round of layoffs soon, but it still has to spend millions of dollars to complete its ongoing clinical studies.

MannKind has more than $210 million in long-term debt and will either have to dilute its shares to raise more money or get more cash from its billionaire CEO Alfred Mann, who has already poured $925 million into the company and purchased an additional $77.2 million worth of stock this year through The Mann Group, which is his subsidiary. However, he has indicated in the past that he may not be able to continue to fund MannKind, and he may cut his losses if the drug is rejected next year.

Running out of breath
As a scientist, I would love MannKind to succeed. Afrezza is an innovative drug, and inhalable insulin has the potential to improve the lives of many diabetics. However, as an investor, this company is way too risky for my portfolio. Even if Afrezza is FDA approved, I think MannKind will face a long-term uphill battle to find a marketing partner, and the company is struggling to find enough operating cash for the next year. I'm rooting for better diabetes treatments, but I've made an "underperform" call for MannKind on my CAPS page.

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Fool contributor Max Macaluso holds no position in any company mentioned. Motley Fool newsletter services have recommended buying shares of Pfizer. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (10)

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  • Report this Comment On July 29, 2012, at 8:01 PM, buytzoo wrote:

    You article is very miss informed. Here is a question and answer response from dance pharma. As you see dance pharma is rooting for Mannkind to succeed. If you notice this product is going to work with the same profile as Lilly and Novo. I am not even going to go into detail and explain what that means. Lets just say its not even the same product. I wont even waste time here explaining to you how Afrezza starts working in your bloodstream in 5 minutes an clears out in 90 minutes. Have you spoken to any diabetics who have had crashes hours later or in the middle of the night? You make silly comments about patients having to be trained on the Afrezza inhaler. Let me ask you a question...Have you spoken to anyone on Afrezza? How long does it take to show someone how to use a whistle? It takes about the same time to learn how to use Afrezza and the new inhaler. Its interesting how one sided this article is slamming MNKD and pushing Dance when in fact they do not even have the funds in place nor do they have a final product.

    What are the benefits of switching to Afrezza? If you do not know already you really should not be writing these articles. You really do not understand what it means to be able to check your blood sugar at 10:00pm at night and be able to make an adjustment late at night without worries that at 2 or 3am your blood sugar is suddenly so low that you cannot get out of bad to make it to the fridge or lift up a cup of orange juice to your mouth. Lets talk a1c levels and fasting blood sugars!!! The data will speak for themselves.

    Q and A with DANCE PHARMA:

    "Let’s talk competition for a moment. How does your product stack up againstMannKind’s Afrezza?

    JP) We’re definitely rooting very heavily for those guys to succeed!

    Ours is going to be different, in the sense that ours is the same profile that Lilly, Novo, and Pfizer developed, and we think it very well matches the natural secretion of the pancreas in response to a meal.

    MannKind’s got an ultra-fast insulin that would be absorbed and cleared faster than ours. And they feel that’s an advantage to the patient. That’s not our strategy.

    Wait, how is slower insulin better?

    JP) We want to match what the body does physiologically, naturally. If you look in the literature, there’s a lot of published studies on the body’s response to a normal meal — with protein, fat and carbohydrate. Our profile matches that well, so that’s our goal, is to maintain that."

  • Report this Comment On July 29, 2012, at 8:29 PM, buytzoo wrote:

    I would like to know why you are even comparing Afrezza to Dance when Dance admits their insulin is not any faster than Novolog or Humolog. Would you care to explain how would this displace Afrezza even if Dance ever comes up with a workable final product?

  • Report this Comment On July 30, 2012, at 10:41 AM, WCoastGuynCA wrote:

    With the short interest currently in the 30,000,000 share range and Al Mann stating that the company will be funded through approval I suggest you cover your short position before non-dilutive funding or a partnership is announced.

  • Report this Comment On July 30, 2012, at 11:04 AM, WCoastGuynCA wrote:

    Any reader that wants more information about Afrezza will find the following article informative and factual:

    http://onlinelibrary.wiley.com/doi/10.1002/fps.90/pdf

  • Report this Comment On July 30, 2012, at 10:56 PM, TMFMassimo wrote:

    Thanks for the comments, I’m happy to expand on these points.

    The “Diabetes Mine” interview with Dance’s CEO that you refer to states that Dance is developing a mealtime insulin drug. MannKind’s Afrezza is also a mealtime insulin drug. Both would have to be used along with a basal insulin for late stage diabetes patients.

    Dance is planning on delivering liquid insulin to the lungs via a nebulizer, while Afrezza uses dry powder insulin and the Dreamboat inhaler. The drugs use different delivery systems and will undoubtedly have different pharmacokinetic profiles, but both serve the same therapeutic purpose. Dance, which is a private company, will have to get its drug into clinical studies before we can determine which is more effective. It is also important to note that MannKind mentions the Dance/Aerogen partnership in the "Competition" section of its 2011 10-K.

    Afrezza was designed to be user-friendly, but patients will have to make sure that the insulin is fully inhaled into the lungs. Improper use of the inhaler might result in the insulin being ingested or partially lost in the mouth. There will be some level of training required if patients start using Afrezza, and marketing will also play a big role in the product's success.

    I discussed three strengths of MannKind in a previous article entitled "Is There Hope for MannKind," so I do believe that there is a potential upside here. However, after looking at both sides of the coin, there is too much uncertainty here for my taste.

    Max Macaluso

  • Report this Comment On July 31, 2012, at 11:00 AM, WCoastGuynCA wrote:

    In regards to Al Mann funding the company you wrote, "However, he has indicated in the past that he may not be able to continue to fund MannKind, and he may cut his losses if the drug is rejected next year." This is far from the truth.

    In fact this is his comment from the first quarter 2012 earnings call on May 9,2012:

    "Last year in response to a question about my willingness to continue to invest in MannKind, I gave an answer that was based on the liquidity of my portfolio. That remark was misconstrued by some as an unwillingness on my part to put more money into MannKind. Nothing could be further from the truth. I'm selling off some of my other ventures. One such sale was closed just last month. However, I don't want MannKind financing strategy to rest solely at my exits from other ventures."

    "As Matt described, MannKind did place an equity offering in February that netted us about $80 million as a bridge while we work to put in place additional financing that should fund our capital needs through this critical period. We are continuing to pursue and evaluate some potentially non-dilutive and minimally dilutive financings in order to preserve shareholder value. It is wise that I not comment further on these opportunities until we can make a definitive report."

    Note: Al Mann did receive an estimated $300,000,000 from the sale of Stelllar Micro Electronics in April of this year.

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