5 Questions for MannKind

The inhaled insulin drugmaker faces an FDA review in April, but when will AstraZeneca, Merck or one of the other major drugmakers step up and license Afrezza?

Feb 19, 2014 at 7:47PM

MannKind (NASDAQ:MNKD) was rather mum on its fourth quarter conference call Tuesday. That's somewhat understandable, with the upcoming Food and Drug Administration advisory committee meeting on April 1 reviewing Afrezza and hopefully a decision from the agency by April 15. Nevertheless, here are five questions that investors need to know the answers to and quotes from the prepared remarks (somewhat) answering the questions.

When are you going to have a partner for Afrezza?
"I will only say at this time that we are pleased with support from Greenhill & Co., and with the progress that we made toward securing a partnership," MannKind President and COO Hakan Edstrom said.


Source: MannKind

Six months ago, MannKind said it hired Greenhill to help it find a partner for its inhaled insulin product Afrezza. I realize these things take time, but with every passing month, it's looking more and more like partners are going to wait for the FDA decision before signing on the dotted line.

I thought the diabetes joint venture between AstraZeneca (NYSE:AZN) and Bristol-Myers Squibb (NYSE:BMY) might be interested in licensing Afrezza, but since AstraZeneca bought out Bristol-Myers, that seems less likely as it would spread AstraZeneca awfully thin. With Afrezza competing directly with injected insulin from Eli Lilly and Novo Nordisk, those two diabetes specialists might be out. The best fit at this point is probably Merck (NYSE:MRK), which sells megablockbuster diabetes drug Jaunvia. Merck signed a partnership with Pfizer to market diabetes drugs from the pharma giant, so it's clearly interested in expanding its diabetes franchise.

A pre-approval partnership with a sizable upfront payment would give investors additional confidence that Afrezza would be approved since the partner would presumably get to see detailed data from the phase 3 trials that support the current FDA application. Investors only got top-line results last August.

About that data, can we see it before the advisory committee meeting in April?
"That ADA session will be the first scientific meeting at which we will publicly present the full data from our recent Phase III studies," said Alfred Mann, founder, chairman, and CEO of MannKind.

Unfortunately, the American Diabetes Association meeting is in the middle of June, well after the advisory committee meeting. If the company releases the full data before that, the ADA won't accept it for presentation, so I understand the need to wait, but it means investors are going to have to go into the advisory committee meeting with limited information.

Why is the FDA even having an advisory committee meeting?
Alfred Mann: "There's actually FDA guidance which states that first-in-class medical products should be referred to an advisory committee, and we are asking the FDA to approve something that we believe will be the first -- the very first ultra fast-acting insulin."

Of course, that was true when MannKind asked for approval the first two times, and the FDA didn't schedule an advisory committee meeting. There has been a change in leadership of the division that's reviewing Afrezza, so that could be the reason. Considering the drug was rejected the last two times without an advisory committee meeting, it's hard to see scheduling a meeting as a bad sign.

How much cash do you have on hand?
"Our cash and cash equivalents at the end of the year totaled $70.8 million," said MannKind CFO, principal accounting officer, and corporate VP Matthew Pfeffer.

And how much have you been burning through?
Pfeffer again: "Our cash burn during 2013 fluctuated, being $33.5 million in the first quarter, $27.3 million in the second quarter, $33.5 million in the third quarter and $39.2 million in the fourth quarter of 2013. We expect to maintain and potentially accelerate some of the spending in 2014 as we prepare for commercialization of Afrezza."

At least investors could get straight answers to the last two questions; unfortunately, the numbers aren't particularly comforting. MannKind has less than two quarters worth of cash in the bank, although it does have a line of credit with its founder Alfred Mann, which should get the company "into the third quarter of 2014," according to Pfeffer's calculations.

If Afrezza is approved on April 15, MannKind will be just fine. It shouldn't take too long to do a deal with one of the potential partners it's been talking with. A partnership will presumably come with some upfront cash and lower the burn rate as a partner takes over some or all of the cost for launch activities. Worst-case scenario, the company has to raise cash through a secondary, but with an approved drug, MannKind's shares will presumably be worth more, making the dilution more tolerable.

Of course the FDA could delay its April 15 decision. There's only two weeks between the advisory committee meeting and the PDUFA date, so it's entirely possible the FDA might issue a three month extension, especially if the meeting of outside experts isn't straight forward. A thee-month delay would push a decision into mid July, in the third quarter where MannKind has said it'll run out of money.

Considering how many shares he owns, Mann obviously isn't going to let the company go bankrupt with an FDA decision pending, but another loan from the Bank of Al isn't an ideal situation for investors.

The third possibility is that the FDA rejects Afrezza again, which would leave the company in a predicament, potentially having to run more studies with no partner and no money.

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