MannKind Corporation's (NASDAQ:MNKD) past has been a roller-coaster ride for investors. But what about the biotech's future?

I spoke with MannKind CEO Michael Castagna recently in a wide-ranging conversation about what's going on with the company. Our discussion about MannKind's past and present challenges was featured in a previous article. Following is our conversation about what the future might hold for MannKind. Comments were lightly edited for clarity, flow, and length. 

MannKind CEO Michael Castagna

Image source: MannKind on Twitter.

Relationships with managed-care organizations

Keith Speights: One of the ways, at least from an outsider looking in, that you've been more effective than Sanofi is in the effort to win over managed-care companies. But you mentioned, I think in the last conference call, that this is still something of an uphill battle. Why is that the case? Why aren't these managed-care companies recognizing the value for Afrezza to patients and being more willing to work with you?

Michael Castagna: Maybe because the healthcare system in the U.S. is disconnected from the medical claims in the U.S. What I mean by that is two PBMs [pharmacy benefit managers], Express Scripts (NASDAQ: ESRX) and CVS Health (NYSE:CVS), make up 70% of the prescriptions in the entire U.S. market. Now, they're not responsible for the medical costs. So when it comes to, for example, we think we have lower rates of hypoglycemia. They don't care about that. They don't measure that. They don't look for that. It's not their responsibility for costs. But their responsibility is for drug costs. And so when you're managing only one edge of the sword, right, they're not responsible for managing insulin pumps -- they don't care if people are on insulin pumps or not.

On the PBM side, with CVS and Express Scripts, you've got to remember two things about them. They make money off the higher-volume drugs. And they make money off drugs that increase prices frequently. Because as a PBM, they get an administration fee. If you're making 5% off of a $100 versus 5% off $500, which drug would you rather have on formulary -- the one that's going to give $25, not $5, right? So then if you're getting $25 a year, and the price is going to go up, you're going to get a raise of 20% a year, that gives you a $5 raise every single year. You don't have to do anything, other than block competition.

So today, our competition says in order to get our discount, you need to block every drug in the class, including Afrezza, and every patient must fail our drug to get to Afrezza, in order to get our rebates. So that's what happens. Novo Nordisk (NYSE:NVO) basically blocks patient access to our product. And so, if you're CVS, and you want those rebates, and you want that admin fee, and you don't want to do any work, the easier thing to do is just to say, "Sorry, I'm doing good cost of care, because Novo is giving me all these rebates for blocking everybody." And then if you say, "Well, add us to the formulary," they say, "You don't have any market share." Then we say, "We don't have any market share, because you block everything!" So how can I get market share? It's a circular argument. This is how they protect their monopoly. This is why you have all these lawsuits going on with insulin.

Speights: So how do you overcome that hurdle?

Castagna: You know, you work with them. So, for example, with Express Scripts we have open coverage. We have no prior authorizations. With Aetna, we have a minor PA [prior authorization], but we have coverage. [With] Anthem, we have coverage. So you work with them over time. You explain to them the benefits of the drug. You put discount programs in place. Because payers can go back to a company like Novo Nordisk and say, "Hey, we want to add Afrezza. We don't believe it's the same drug. We want to separate out the class. This is ridiculous." And they can do that. So that's up to them to negotiate. If they want to do it, that's a whole different story. It just takes time.

If you're curing cancer, that's one thing. But if you're just bringing down sugars, which have long-term complications, not short-term complications unless you're talking about hypoglycemia, they're not responsible for the medical care. So they're in no rush. I get very frustrated when I sit with a payer and they say, "Well, we'll review the class next year for 2019." And I'm like, "Yeah, but there are 23 million Americans sitting here today who are losing their eyesight and their kidneys and their limbs because their sugars are out of control. And they're fighting to get our drug. Why are you waiting a year to give that patient better care?" If they're going to take their drug and they're fighting and asking for it, they probably want better care than what they're doing. We know that one out of five people just intentionally miss doses of insulin because they don't carry the pen on them. If people are asking for our drug, it's because they want better care.

So I get very frustrated with the payers on some days. There's a lot of greed out there.

What happened when the drug got approved, in the label, we went head-to-head against analog insulin. And it said, just because you get in the body faster, you don't work any faster. So that really restricted us from saying a lot of the data in the clinical trials. Now we can say, "It does get in the body faster, and it does work faster. And by the way, here's our data package." So that's why it's a new conversation with the payers. And I can tell you they are opening up the dialog more and more. It's not going to happen overnight, but it will continue to get better. I don't see it getting worse.

Future sales for Afrezza

Speights: What do you think a realistic view of Afrezza sales over the next three years or five years?

Castagna: We haven't given guidance yet, so I can't give you much guidance on that. But I will say, it was supposed to originally be a $2 billion-plus product, and it's still capable of being very successful. I think the unmet need is there in the marketplace.

For 20 years, we've not moved A1Cs [a blood-glucose test] for people that are on insulin. I don't think we've improved people's outcomes on insulin. Despite the adoption of 500,000 people taking pumps, 200,000 people on Dexcom, we're not seeing a difference in the A1C outcomes. So we can keep doing the same thing of injecting insulin all day long, or we can try something different.

Maybe it still won't change. I don't know the answer. But when I see 70% of the people aren't at goal, then we might as well not have a goal. So we strive to get more people to goal. And the reason people don't get to goal is they're afraid of hypoglycemia, afraid of pushing the doses of insulin because of the way it works. It's great that you can measure sugar all day long, but if you don't have a tool in your bag that can adjust that sugar quickly, what's the purpose in measuring it? As these technologies get adopted, people are going to see they have a problem. I do believe we're the only tool in that toolbox that can adjust as quickly as we do. I think over time, as we do the studies we're doing and people see the results, they're going to jump on board.


Speights: You announced in June that you had engaged Lotus Walk to look for strategic partners on non-insulin pipeline candidates. Any progress?

Castagna: Nothing of significance that I want to speak to yet. I think it was good to go out and seek partners and to get some feedback on the pipeline. That helps me filter what I want to prioritize internally. I think the general comments I got back were they wanted to see a little bit more data. So I think that's a reasonable approach. We've tested 45 molecules; we know can make 43 of them. But in fairness to everybody, we've not put any of those compounds into human beings. So showing what a phase 1 study looks like for a PK/PD for $1 million will show that you have a real drug. I think if you want to get some good economic terms from partners, sometimes you have to spend a little bit of money to get better terms.

I went out on a fishing expedition. We weren't looking for bass or swordfish; we just said, "Hey, is there any interest in anything here sitting on the shelf?" If there's not, then what do we want to prioritize moving forward? That has staffing implications and everything else.

Speights: What about the rest of the pipeline?

Castagna: With Trepostinil -- we went to the FDA in June and we got phenomenal feedback on a very clear development pathway. So that's not that expensive and it's relatively straightforward. And what that means is that we'll be submitting our IND in January, and in the first six months of next year we'll be testing that. It will be our second drug ever put in patients. And sometime next year we'll know whether or not we have another molecule going forward into a larger phase 3 program. And that could be phenomenal. It's a huge category in need of dosing that we can believe we can dose higher levels in a more convenient administration method, so this will be another unmet need we're working on. So that's just something to watch out for.

A second part in the pipeline is a collaboration called Receptor Life Sciences. That market was focused on the cannabinoid medical-marijuana space, and they'll be looking at a strategy around the 505(b)s [a strategy for gaining approval based on previous clinical data from another entity] for an old product called Marinol. And really, looking at bringing out something going forward in that space for hopefully oncology is what I think the market focus is.

One Drop partnership

Castagna: We look to One Drop -- they've done a phenomenal job of building a patient-focused platform around self-directed care. So one of the things they have is an unlimited test strip membership model for $30 a month. And so we're looking to bolt on to their platform an insulin membership model. There's around $300 million in cash sales in this country where people are paying three to five hundred dollars a month for insulin. And so we look at that as a significant opportunity to help some of the people offset some of the high costs of insulin.

So it's very different business model and taking a little bit longer to get off the ground, because no one's ever done this in the pharmaceutical industry for a prescription-based product. So a lot more lawyers and pharmacy things we have to work through, but we're coming very close to getting that together and that'll be exciting to see. But that collaboration remains strong, and the people there are great. And so we'll continue to see how we integrate technology into coaching as well as getting better customer service to your doorstep on your prescription drugs.

Speights: Any idea how far in the future it will be before you get benefits?

Castagna: This is one where we don't know if it will take off right away. We know there's a large need. We don't know how price-sensitive people are going to be. So we're going to get it out the door, and we'll be prepared for a really good success. We'll be prepared for really low. But I think it's something that's scalable, so if it takes off faster than we think we can easily add more customer service people and things like that. So we watch this in a couple of categories like weight loss and others and we think, you know, it could be very interesting. So we'll continue to watch it. But this one has a very self-directed aspect to it.

International plans

Castagna: We filed in Brazil. We will file by ourselves in some markets like Canada. And we'll evaluate Europe and Australia. And then we'll partner in markets like China, the Middle East, and India and Japan. And so as you look out, those are some of the ways we continue to expect to bring in revenue and royalties in the future that will create more value for our shareholders.