Talk to MannKind (NASDAQ:56400P706) bulls, and you'll hear two reasons why its insulin Afrezza is the best thing since sliced bread.

  1. The drug more closely mimics how the body secretes insulin after a meal to lower blood sugar, doing its job and leaving the bloodstream quickly. Since it doesn't stick around as long as injected fast-acting insulins such as Eli Lilly's (NYSE:LLY) Humalog or Novo Nordisk's (NYSE:NVO) NovoLog, there's less of a risk of hypoglycemia, or low blood sugar levels.
  2. Afrezza is inhaled rather than injected, allowing patients to avoid needles.

The first point is completely valid. Severe hypoglycemia is very dangerous. Even removing mild hypoglycemia events can be beneficial because it alleviates the need for snacking between meals, which can lead to weight gain.

The second point is where I think the bulls miss the target. Injecting insulin isn't nearly as bad as MannKind bulls want it to be. Both Humalog and NovoLog are available as pen injectors, which makes the injecting insulin fairly simple and discreet.

And convenience is at the end of a long list of things doctors look at when deciding whether to prescribe a drug. Safety trumps convenience. Always.

While I haven't seen any red flags when it comes to Afrezza's safety, the drug hasn't been tested on nearly as many patients as have taken injected insulin. In general, doctors don't like exposing the lungs to drugs that don't treat lung diseases, so doctors are bound to be more comfortable with known side effects of injected insulin compared to the unknown side effects of Afrezza that might pop up once the drug is on the market.

The best of both worlds
(NASDAQ:ALBO) is testing an ultra-rapid-acting insulin called BIOD-123 that has the potential to have the same positive characteristics as Afrezza -- quick on and quick off -- but it's injected rather than being inhaled, reducing the potential pushback from doctors.

The biotech already tried once before to gain Food and Drug Administration approval for an ultra-rapid-acting insulin, but the agency turned down the marketing application for Linjeta, citing problems with the way its clinical trials were run.

Biodel went back to the drawing board, reformulating the Linjeta into BIOD-123. The biotech has guided for data release from a phase 2 trial in the third quarter, so we don't have to wait too much longer to see if the new formulation can reduce blood sugar levels while avoiding hypoglycemia events.

With a sub-$100 million market cap, investors don't seem to be giving the company much credit. Given the company's history with Linjeta, I can't blame them. At this valuation, Biodel looks tempting, but it's a bit of a crapshoot whether the new formulation will produce positive results given the limited data to date.

A positive phase 2 proof-of-concept trial would be a blow to MannKind, Eli Lilly, and Novo Nordisk, but certainly not a knockout punch. BIOD-123 still has to go through phase 3 trials, putting it a couple of years away from getting on the market (assuming the data could be repeated). The Linjeta phase 2 data looked good, too.