MannKind's Next Catalyst

It's been a long wait, but MannKind (NASDAQ: MNKD  ) is finally on the home stretch toward gaining Food and Drug Administration approval for its inhaled insulin Afrezza.

Again.

Afrezza was first submitted for FDA more than four years ago, but the agency rejected the drug, asking for more information on its clinical utility in early 2010. MannKind figured if it had to resubmit, it might as well get approval for its smaller inhaler, dubbed Dreamboat, but the FDA balked, asking for a couple of studies that proved the Dreamboat inhaler was the same as the older MedTone inhaler. While it was at it, the FDA also suggested MannKind test Afrezza in type 2 diabetics.

Dreamboat inhaler. Source: MannKind.

Both studies turned out fine enough to gain approval. The biotech submitted the studies earlier this month. Given the large amount of data, the FDA classified it as a class 2 response, as expected, giving the agency six months to review the data. MannKind should hear about the approval on or before April 15.

While I think it's likely the FDA will approve Afrezza, it's not a 100% guarantee. There's always some chance the FDA could find something new to complain about. Assuming investors are factoring in that risk, shares should increase after an approval.

The bigger binary event
Signing up a marketing partner, on the other hand, is a bigger unknown and therefore has the potential to increase MannKind's value more than an approval will.

The addressable market for Afezza is huge. Sales of Eli Lilly's (NYSE: LLY  ) Humalog were more than $600 million in the third quarter alone. Novo Nordisk (NYSE: NVO  ) brought in about $750 million in sales of NovoLog in the third quarter.

And Afrezza is arguably a better product than Eli Lilly and Novo Nordisk's rapid acting insulins because it's removed from the body quickly, better mimicking what happens in people without diabetes. Not sticking around reduces the incidence of low blood sugar, a dangerous side effect of taking insulin.

And yet, despite having huge potential, MannKind hasn't struck a deal with a partner yet. It's hard to know exactly why, but my guess is that big pharma partners are hesitant to take on the large task of changing the paradigm of how insulin is delivered. Delivering drugs via the lung introduces potential unknown safety issues that aren't present when insulin is injected. And new advances in insulin delivery, including injection pens, have simplified the process substantially. Doctors will prescribe Afrezza to some patients that ask for it, but it's going to take a lot of work to convince them to switch patients in droves. Both Eli Lilly and Novo Nordisk dropped their inhaled insulin programs a few years ago, presumably because of the marketing risk.

The NovoPen -- not for writing but almost as simple to use. Source: Novo Nordisk.

Any pharma that's willing to jump in and help MannKind will probably want a substantial amount of the profits. To get a deal done, MannKind may have to accept a low royalty rate with huge milestone payments tied to sales thresholds; for example, if Afrezza hits $1 billion in sales in a year, MannKind gets a one-time $100 million payment.

Having a back-end deal keeps the risk of failure squarely on the shoulders of MannKind's investors. Since the largest one, CEO Al Mann, is such a strong proponent of the drug, he should be willing to accept that kind of structure, but it may not be in the best interest of other investors.

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Read/Post Comments (4) | Recommend This Article (2)

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  • Report this Comment On October 31, 2013, at 3:53 PM, kruk73 wrote:

    Dr. Orelli,

    Thanks for spending the time. Maybe you could confirm what was discussed at the Jefferson University Hospital Diabetes Conference this month.

    Dr.'s David Nathan and Richard Wender, a general practitioner, both I believe of Boston, and two of the world's foremost experts on Diabetes both as trial clinitians and actually treating patients in their large practices Agreed:

    They were NO longer comfortable prescribing most of the new oral drugs for Type II diabetics, such as Sulfonylureas, GLP1s, DPP4s, Gilts, TDZs...These products represent 10 Billion dollars in US business alone, not including Metformin and all other insulins, short acting or long acting.

    The known and unknown complications were the reasons given, and they both acknowledged that this was not popular with the many Drug companies sponsoring the conference.

    Do you Agree? A super rapid acting insulin seemed to be something that the experts were interested in for Type II patients.

    Why is this not represented in the current stock price other than the fact that Mr. Mann is not going to give away the company or its marketing rights and thereby making a multi billion dollar deal difficult prior to FDA go ahead.

  • Report this Comment On October 31, 2013, at 7:10 PM, wgreystone wrote:

    Totally agreed with Kruk73's comment. Type 2 diabetics should start insulin therapy as early as possible. It just doesn't make sense to milk the pancreas harder with oral drugs while the pancreas in diabetics are already weaken.

    As for partner negotiation, it's hard for it to materialize before FDA approval. Al won't sell it for cheap, and big pharm won't throw out billion of dollars before the drug is approved. However, once FDA approves it, I don't see any reason that Al can't find a good partner to market the drug.

  • Report this Comment On October 31, 2013, at 7:58 PM, sayhey44 wrote:

    I think you totally missed the mark with the comment "Any pharma that's willing to jump in and help MannKind will probably want a substantial amount of the profits". It should read "Any pharma which MNKD is willing to help with their paradigm shifting treatment". It has been very clear for 13 years that Al Mann is not looking for help he is just waiting for the right partner who is both dedicated and willing to invest at the right price.

    With Nov 1 now here it should be best and final time. Who Greenhill/Mannkind have selected should be forthcoming.

  • Report this Comment On November 01, 2013, at 7:01 AM, Larry0716 wrote:

    Let's be real honest: there was no logical reason for the FDA to withhold approval of Afrezza the last time. The change in delivery device is a separate issue from approval of the drug. All the FDA would have needed to do is approve Afrezza with the old inhaler and require testing of the new inhaler to ensure that it consistently delivered accurate dosages. This may have delayed Mannkind's ability to begin selling Afrezza until they could get the new inhaler approved also.

    The new inhaler excuse was a smoke screen used by the FDA to achieve some politically motivated objective (pressure from somewhere) - but it was not a logical step. There is something really wrong inside the FDA that needs to be addressed.

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