MannKind's Afrezza Approved but Will Doctors Prescribe It?

With MannKind (NASDAQ: MNKD  ) having finally gained Food and Drug Administration approval for its inhaled insulin Afrezza, you'd think the hard part was behind the company.

It's not.

Now that it's approved, MannKind has to convince doctors to prescribe Afrezza.

Black box warning
It's not as bad as it sounds. There's no skull and crossbones.

Source: MannKind.

Having the first two bullet points on the label shouldn't affect sales of Afrezza because doctors of patients with lung diseases probably wouldn't prescribe inhaled insulin even if the warning wasn't on the label.

The third point about getting a lung test, spiromentry, before starting on the drug is a bit of a barrier, since it's an added step that doctors don't have to do if they prescribe injected meal-time insulins, Novo Nordisk's (NYSE: NVO  ) Novolog and Eli Lilly's (NYSE: LLY  ) Humalog.

And unfortunately the lung test isn't a one-time thing. If you dig deeper into the Warnings and Precautions section, it advises doctors to follow-up with a lung test "after the first 6 months of therapy, and annually thereafter, even in the absence of pulmonary symptoms." The tests aren't a deal breaker, but lazy doctors aren't going to like the added steps and neither are doctors that are safety conscious, considering the "even in the absence of pulmonary symptoms" the FDA threw in there.

Diving deeper
On the efficacy side, there weren't any surprises. Afrezza was approved for both type 1 and type 2 diabetics. For type 1 diabetics switching from Novo Nordisk's and Eli Lilly's insulins, the company had to go back to the four-to-one conversion, but that doesn't seem to be that big of a deal since it was the conversion used in the clinical trials. It was pretty clear the FDA wasn't happy with the proposed change.

In type 1 diabetes, the label says that Afrezza is non-inferior to Novolog. Unfortunately it also points out that the patients taking Novolog saw their HbA1c -- a measure of long-term blood glucose levels -- drop more than patients taking Afrezza: 0.4 points versus 0.21 points. More patients in the Novolog group also reached the goal levels of HbA1c than in the Afrezza group: 27.1% versus 13.8%.

Surprisingly absent from the efficacy section is mention of how Afrezza causes fewer hypoglycemia events than Novolog. In the phase 3 trial, there were 8.9 hypoglycemia events per subject-month in patients taking Afrezza compared to 13.97 for those taking Novolog. MannKind argues that Afrezza causes fewer events because the drug leaves the blood stream quicker, but it's hard to know for sure since the drops in HbA1c levels weren't equivalent .

Source: MannKind

Beyond the convenience of inhaling versus injecting, the main selling point of Afrezza is its profile, which better mimics the natural insulin levels during meals of non-diabetics. A lack of differentiation on the label is going to make it a harder sell for type 1 diabetics.

The efficacy data for the type 2 diabetes is cleaner, pointing out that Afrezza beat placebo in both overall HbA1c decline and the goal-reaching measurement. While it's only a comparison to placebo and not an active comparator, the data are appropriate for the market that Afrezza should have the easiest time going into: type 2 diabetics that aren't at their HbA1c goal on oral diabetes medicines, but who have resisted going on insulin because they don't want to inject themselves.

Launch expectations
With a market cap of $4.2 billion -- higher if you include options and warrants -- there are more than $800 million in annual sales already baked into the valuation if you assume a price-to-sales ratio of five. If sales are fast growing, you cloud see justifying a P/S ratio of 10, so if MannKind can ramp up to $400 million in sales quickly, its valuation is reasonable.

Given the large market, capturing $400 million in sales seems achievable, but investors shouldn't count on it happening quickly. The initial adopters are likely to be mainly new-to-insulin type 2 diabetics, a small subset of total diabetics. As doctors gain experience with the drug, Afrezza could get expanded into patients already on insulin, but that's going to take time; given the potential lung issues, doctors will be cautious about prescribing it for a large number of patients until they have real-life experience with Afrezza.

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Read/Post Comments (11) | Recommend This Article (5)

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 2:08 PM, SyDVooh wrote:

    The question is will insurance companies, HMOs, Medicare, Medicaid pay for it? It doesn't completely replace injections, so you still need injections. Is the extra cost justified for it? This isn't the first inhaler for insulin approved and marketed, with way more advertising and distribution, than Mannkind can afford. It failed. As much as diabetics like the idea of an inhaler, that "like" stops well short of reaching into their own pockets to pay for it themselves.

  • Report this Comment On June 30, 2014, at 3:00 PM, WordDog wrote:

    Although Afrezza doesn't completely replace injections for most patients, it can eliminate meal-time injections. And it acts in a manner that greatly reduces the probability of hypoglycemic events relative to meal-time injections. Mannkind has indicated that Afrezza will be priced competitively, so insurance coverage should not be an issue.

    Regarding the article itself: (1) Spirometric testing is quick, easy, and cheap. It's not going to be an impediment in the treatment of a disease as complex as diabetes is anyway. (2) The author must not have talked to any diabetics, many of whom have expressed strong interest in Afrezza. Uptake will by no means be limited to new users. (3) There is no indication of "potential lung issues" except possibly for people who already have such issues. This is a red herring. Doctors already prescribe plenty of inhaled medications; they're not going to be automatically uncomfortable with this one. The drug offers significant benefits to a wide range of diabetics, which is a large and growing population. Hard to see how it will not be very successful in the market.

  • Report this Comment On June 30, 2014, at 4:44 PM, mankind wrote:

    As if it wasn't bad enough to hear from you once already today. I don't know where you find the time to write all these articles between your daily gynecologist and perm appointments…you look like the strange author of a children's book.

  • Report this Comment On June 30, 2014, at 4:55 PM, etbob1 wrote:

    MF aka Cover for the Short Sellers. Pretty much says it all!

  • Report this Comment On June 30, 2014, at 5:10 PM, sprice61 wrote:

    Its amazing how all of these authors skim over the fact that they were wrong about adcom, approval and now they want us to value their opinion on potential sales?

  • Report this Comment On June 30, 2014, at 5:47 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 June 30, 2014, at 5:59 PM, Topdoginvesting1 wrote:

    There are not already $800 million in sales baked into the Valuation..... 2012, 29.1 million Americans, or 9.3% of the population, had diabetes.

    In 2010 the figures were 25.8 million and 8.3%. The prevalence rate for adults age 20 and older in 2012 was 12.3%, compared to 11.3% in 2010.

    - See more at: http://bit.ly/1nYLZfX...

    19% Of Adults smoke in the U.S. and the number is steady or in a slight decline. 25 million people in the U.S. have Asthma. Chronic Obstructive Pulmonary Disease effects around 12.7 million Americans. Diabetes effects over 29 million Americans and hundreds of millions world wide..Nobody knows the number of Diabetics with lung disease or that smoke and to suggest a real number would be misleading. Allot of Asthma and Copd patients already use an Steroid inhaler. So if you add up the Smokers, the Asthma, and the Copd patients this would roughly be around 95 million people. Divide that number by 9 and roughly 10 million people are affected by the Label. Take away the Smokers and roughly 4.1 million people are affected by the Label, or 14% of Diabetics in America, this isn't counting the world. With Diabetics growing by the thousands on a Daily Basis, and smokers on the decline, Afrezza will become more popular everyday in America and the World. After all, who wouldn't want to inhale rather than poke. Buy MNKD right now and you will be rewarded sooner rather than later. Mr. Mann is 89, and this Drug is what he and his Employees have worked so hard to get out to the Diabetic Community. Some are going to be Skeptical because it is the first of it's kind. Don't Be, buyout or Partnership is right around the corner..

  • Report this Comment On June 30, 2014, at 6:55 PM, WCoastGuynCA wrote:

    Who will pay the $1,500-$2,300 for the first three tests?

    Pulmonary Function Test (PFT)

    High Deductible Insurance $458

    Uninsured $771

    https://www.mdsave.com/procedures/pulmonary-function-test-pf...

  • Report this Comment On June 30, 2014, at 7:14 PM, b4unewme2 wrote:

    Insurance companies will gladly pay for the tests, reasoning that tight glucose control reduces diabetes complications like kidney failure, blindness, and amputations. How does $1,500 compare to the cost of dialysis.

  • Report this Comment On June 30, 2014, at 11:42 PM, etbob1 wrote:

    If you want to read the truth, read the LA Times article. If you want to read a slanted biased negative hit piece rely on the fool

  • Report this Comment On July 01, 2014, at 12:51 PM, kevingt wrote:

    WCoastGuynCA is either delusional or misinformed. They won't need a Pulmonary Function Test - which is a battery of tests including spirometry, body plethysmograph, and diffusion capacity. They only need a spirometry test which is quick, easy, painless, and cheap - costing less than $100. The patient blows into a spirometer and it measures the airflow rate and amount of air their lungs can hold. It's done in less than a minute. Easy, breezy. If one needs a Pulmonary Function Test, that is more complicated and more entailed and totally not necessary to prescribe Afrezza. Any doctor with a spirometer can perform a spirometry test quickly and easily. Did the warning label say "Pulmonary Function Test"? Nope! It said spirometry test. Get your facts straight, shorty.

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