This was pivotal year for MannKind (MNKD 0.12%) in which it gained Food and Drug Administration approval for inhaled insulin Afrezza after multiple attempts. The biotech even signed up a stellar partner, Sanofi (SNY 5.62%), to market the drug.
But that will all be for naught if the launch, scheduled to begin in the first quarter of the coming year, doesn't go smoothly; 2015 will set the tone for MannKind's long-term future.
Expectations
If MannKind's shares are to soar in 2015, sales will have to exceed expectations. Fortunately for shareholders, it appears expectations are fairly low. MannKind's enterprise value stands at about $2.5 billion if you use the fully diluted share count and add in debt and subtract its cash.
Using the current valuation and figuring a price-to-sales value of five, about $500 million in Afrezza sales are priced into MannKind's valuation. MannKind only owns 35% of Afrezza, having given up the other 65% in the deal with Sanofi, so you could argue MannKind does not really deserve a P/S value of five; however, investors are usually willing to expand a P/S ratio for fast-growing companies. If Afrezza exceeds $500 million in its first year of sales, it seems likely the stock will increase substantially.
What that will take
The only thing we have to go on is the only previous inhaled insulin device, Exubera, but it isn't much help in determining Afrezza's potential.
Pfizer (PFE -3.41%) managed just $12 million in sales of Exubera during its first nine months on the market back in 2007. The pharma giant eventually handed back rights to developer Nektar Therapeutics (NKTR -3.99%), which subsequently pulled the drug from the market.
Afrezza inhaler. Source: MannKind.
While that is not encouraging, Afrezza is a much better product than Exubera was. Afrezza looks like an inhaler for asthmatics, while Exubera was substantially larger and looked like a bong for smoking marijuana. Who wants to bust one of those out in the middle of a restaurant?
Afrezza is also theoretically a better drug than Exubera, since it is designed to be a rapid-acting insulin that comes on and off quicker than Exubera or injected insulins. The quick off should decrease the likelihood of hypoglycemia, dangerously low blood sugar levels, triggered by insulin stimulating cells to take up the blood sugar.
Unfortunately, the FDA did not include any information about lower incidence of hypoglycemia on the label, so doctors won't see the information unless they dig into the clinical trial data. And even if they do, doctors are likely to determine that the case for lower hypoglycemia is inconclusive, just as the FDA did.
Changing the standard of care
Even without being touted as a better insulin, Afrezza is still more convenient than injected insulins, so you'd think it would be readily adopted. Unfortunately, Sanofi faces an uphill battle in convincing doctors to change their standard of care.
According to the FDA label, patients need to have their lung function checked before starting Afrezza, after six months, and annually after that. While the test is only a minor inconvenience, the FDA's concern about the potential for Afrezza to harm the lungs will likely make some doctors pause before prescribing the inhaled insulin. Also, Exubera was linked -- albeit never conclusively -- with lung cancer, adding to the worry.
If there were no other options, doctors would overlook Afrezza's potential issues, but they are comfortable with the injected insulins and will likely take a wait and see approach with Afrezza.
Long term, assuming none of the FDA's worries materialize, I think Afrezza can gain traction, but asking for MannKind stock to soar in 2015 might be asking for too much, too soon.
