MannKind Gets Smacked by Big Brother's Bad News

Whenever bad news hits one drug in a class of therapies, its effects often ripple onto other compounds in the same class.

That's what happened to MannKind (Nasdaq: MNKD  ) last week after Pfizer (NYSE: PFE  ) announced that its inhaled insulin, Exubera, was linked to a higher than average incidence of lung cancer in patients treated with it. It is no longer on the market.

There are still too few cases of lung cancer to say definitively whether the cancers were a result of Exubera, or whether it was an unfortunate correlation based on statistical randomness, but that hasn't stopped investors from taking MannKind's shares down more than 60% on the bad news.

In the past few months, MannKind's representatives have placed a renewed effort on differentiating its inhaled insulin, Technosphere, and its treatment effects and product profile from the other inhaled insulins. In its latest press release on Thursday, MannKind noted that there have been "no indications" that Technosphere alone may have caused lung cancer in its clinical trials to date or in its animal studies. 

Immediately following the bad news last week, Exubera developer Nektar Therapeutics (Nasdaq: NKTR  ) halted its search for a new Exubera partner. MannKind also decided to suspend its search for a partner for Technosphere, which it may have had to do anyway, considering the market's previous lack of enthusiasm for any diabetes therapies administered via the pulmonary route. After all, Novo Nordisk (NYSE: NVO  ) or Eli Lilly (NYSE: LLY  ) could have tried to out-license their inhaled insulin compounds rather than axing their respective programs if a suitable buyer could have been found.

The FDA and some doctors have long been concerned about the possibility that inhaled insulins increase the rate of lung cancer in patients. As far back as 2005, during an Exubera advisory panel hearing, the panel discussed how "insulin is associated with growth factor properties and there is a concern about tumor formation" with its administration via the lungs.

Even then, Exubera was associated with a higher rate of lung neoplasms versus placebo, although not a rate higher than expected in the population of patients treated with the drug. MannKind did highlight the fact that there was no indication in its studies that Technosphere insulin caused any "cellular proliferation" in lungs.

When I wrote about MannKind last month, I said that 2008 would make or break MannKind -- but I expected MannKind's own study results, not its competitors', to be the major determinant of its future. In the coming months, MannKind will release two-year results from a phase 3 safety study of Technosphere, but some of Technosphere's longer-term safety in humans will still be unknown, considering the short duration of the study.

Either way, MannKind shares are now trading well below the combined value of its $186 million value in net cash and $163 million in hard assets, mainly its property and equipment. If we ignore shutdown costs, the market is officially ascribing negative(or very little value to Technosphere and MannKind's other development programs, in spite of the pivotal efficacy and safety data from Technosphere's three important phase 3 studies coming in the third quarter.


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