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MannKind Stock: Afrezza Approved at Last, But Will Sales Disappoint?

MannKind's (NASDAQ: MNKD  ) long and arduous path to FDA approval has finally reached a happy ending, with the company announcing late on Friday that the agency had approved Afrezza, the company's inhaled insulin product. Approval is a major event for MannKind, but the company still needs a commercial partner and the approved label for Afrezza doesn't do the product/company any particular favors.

Afrezza, in brief
For those who haven't been following the MannKind story, the company is headed by Al Mann, a well-respected serial entrepreneur who founded Spectrolab, Pacesetter Systems (acquired by St. Jude Medical), MiniMed (an insulin pump company acquired by Medtronic), and Advanced Bionics (once owned by Boston Scientific). MannKind was founded to develop inhaled insulin, a product type that has long been hoped could be a viable alternative to injected insulin, but has had numerous development difficulties over the years.

The FDA does not make it easy to get a new insulin on the market (as even market leader Novo Nordisk (NYSE: NVO  ) has experienced lately), and Afrezza had numerous issues in getting to market, including two prior FDA rejections. MannKind's last two major studies, Study 171 and Study 175, established non-inferiority to Novo Nordisk's NovoLog in Type 1 diabetics and superiority versus placebo in Type 2 diabetics (respectively), leading to the FDA's advisory panel to recommend approval for both indications (13-1 and 14-0).

Afrezza is a rapid-acting insulin administered with the Dreamboat inhaler device (a roughly thumb-sized device). As a rapid-acting insulin, it will compete with Novo Nordisk's NovoLog, Lilly's (NYSE: LLY  ) Humalog, and Sanofi's (NYSE: SNY  ) Apidra. The true benefits of Afrezza are a bit controversial (more on this in a moment), but the company has maintained that it is a faster-acting insulin with appealing weight gain and hypoglycemia profiles that also limits the need for injections (good for those with extreme needle anxiety and/or limited dexterity).

The label won't be a big help
The FDA did approve Afrezza for both Type 1 and Type 2 diabetics, and that was a minor victory as the Type 1 approval had been seen as a little riskier. More disappointing was that the FDA did not allow any efficacy benefits on the label (no advantages on hypoglycemia or weight gain). It was also disappointing for MannKind bulls that the FDA did not allow a label claim for Afrezza being a more rapid-acting insulin ("Despite the faster absorption of insulin (PK) from Afrezza, the onset of activity (PD) was comparable to insulin lispro"). By contrast, Humalog has a clear label claim with respect to being more rapid-acting.

On the negative side, there is a black box warning for patients with known lung disease. The label also requires patients to undergo pulmonary testing (spirometry) before starting Afrezza, six months after starting, and then once every year. This is not a painful test, but it does add to the burden of prescribing/using the insulin and it may discourage use to some extent. The label also mentions a somewhat vague risk of lung cancer, contraindicating for those with active lung cancer but stating "the benefits of Afrezza use should outweigh this potential risk" in patients with a history of lung cancer or elevated risks for lung cancer.

Now what?
MannKind still needs a commercial partner to get Afrezza on the market, and while a company with experience in diabetes would be most desirable, a sizable primary care operation would be the essential criteria. None of the three major insulin companies (Lilly, Sanofi, or Novo Nordisk) have shown much recent interest in inhaled insulin, but I wouldn't be shocked if Sanofi stepped up given its relatively weaker position in fast-acting insulin with Apidra. AstraZeneca could be another option, given its existing diabetes sales infrastructure and lack of any insulin product.

Whichever company takes on Afrezza, there will be work to do. No drug sells itself and retail investors tend to overestimate the significance of needle anxiety in therapies. Given the uncertainties about the real demand for inhaled insulin (and how payers will reimburse for it) and the significant upfront launch costs, MannKind may have to accept a back end-loaded deal structure.

It's also worth noting that there are post-marketing study requirements for Afrezza – the most significant of which could be the requirement for a study of the lung cancer risk (and whether the FDA will require a cheaper registry study or a more expensive clinical trial).

The bottom line
MannKind committed itself to a difficult road and at long last has seen its efforts bear fruit. A commercial partner is the next major step for the company, but the company's valuation already seems to presuppose around $3 billion in sales within five years' time. While the label was not everything the company or its shareholders might have wanted, it is now in the hands of the company and its future commercial partner to start delivering on the long-discussed commercial potential for this new inhaled insulin.

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Read/Post Comments (7) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 30, 2014, at 2:29 PM, surfish wrote:


  • Report this Comment On June 30, 2014, at 2:41 PM, etbob1 wrote:

    How many obvious hit pieces can MF publish on the same stock? What is the hidden agenda here?

  • Report this Comment On June 30, 2014, at 2:48 PM, WordDog wrote:

    Spirometry is quick, easy, and cheap. The idea that this is some kind of actual impediment seems, umm, foolish. I'm not given to conspiracy theories, but I agree with etbob1 that it's passing strange MF is so relentlessly unenthusiastic to negative about a product that offers significant benefits for an enormous number of people. Mannkind does need a partner to sell Afrezza effectively, but that will come soon enough and most likely on pretty good terms for Mannkind.

  • Report this Comment On June 30, 2014, at 2:57 PM, ddbikessamsara wrote:

    What is the market for global prandial (mealtime) insulin use? There are an estimated 400 million diabetics globally, forecast to reach 600 million in the not distant future. Extrapolating 3 mealtime uses each day gives a POTENTIAL market of 1.8 BILLION uses per day. Obviously not all of that is going to be Afrezza but it illustrates the enormous potential that is there.

    We know from the trials and individual testimony that Afrezza yields a much smoother blood sugar curve with fewer highs and lows - trial participants reported feeling better with the best overall sugar control - EVER.

    The WORST side effect from healthy users was a mild cough and even that went away after becoming acclimated.

    People who don't have to stick themselves with needles 3 times a day and more are quick to say how minimal that is but they are not the one with bruises, scars, and psychological backlash from inflicting themselves with that every single day of their lives.

    Naysayers simply can't see the forest for the trees. It will be a word of mouth thing and as soon as the diabetic community discovers how much better their lives are with the ease and effectiveness of Afrezza it will not take long for the demand curve to kick into very high gear.

    I don't care what the Fool, Seeking Alpha, The Street and all the other blatherers blare day in and day out. To me it is simply a better product that has a gargantuan market just waiting to be tapped. The exact same thing happened with the Mini-Med insulin pump which Al Mann developed. Naysayers galore and it went on to be an incredibly successful product that has enriched the lives of millions and millions of patients - and enriched the portfolios of smart investors. The same thing will happen here - despite the Motley Tool's talking heads holding forth.

  • Report this Comment On June 30, 2014, at 3:46 PM, surfish wrote:

    The Fool, Seeking Alpha, The Street are all inveterate liars and cheats.

  • Report this Comment On June 30, 2014, at 6:00 PM, optionsmaster wrote:

    Afrezza will increase patient compliance which results in better glucose control and less diabetic complications later on. Pay now or pay later. I bet insurance companies would rather pay a little more now than a lot more later. Just my guess...

  • Report this Comment On July 01, 2014, at 12:31 PM, kevingt wrote:

    "On the negative side, there is a black box warning for patients with known lung disease. The label also requires patients to undergo pulmonary testing (spirometry) before starting Afrezza, six months after starting, and then once every year. This is not a painful test, but it does add to the burden of prescribing/using the insulin and it may discourage use to some extent."

    Really? Thank you Mr. Obvious! How many doctors would prescribe Afrezza for their patients who have COPD or any lung disease? ZERO! And a spiromentry test is quick and easy and cheap. It costs less than $100 and is done in seconds. You blow into a tube. Wow, how invasive - not! Add to the burden of prescribing?? Really?? How do you think patients get insulin now? They have to be prescribed it, genius. This does nothing to impair the prescription process. MF has gone overboard with the attack pieces.

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Stephen D.

I'm an ex-Wall Street sell-side and buy-side analyst who has spent most of the last 10 years writing on a wide range of industries and investment ideas.

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