In the short and medium terms, MannKind (NASDAQ:MNKD) is dependent on a decent launch of the company's inhaled insulin drug/device Afrezza; if the launch fails to deliver, the share price is sure to sink.
Only time will tell whether Afrezza will succeed or flop, but investors should be well aware of the potential pitfalls of the drug/device before investing.
Lack of superiority
Beating injected mealtime insulins, Eli Lilly's (NYSE:LLY) Humalog and Novo Nordisk's (NYSE:NVO) NovoLog, would be nearly impossible they're all made from the same active ingredient, just delivered differently. MannKind's trial in type 1 diabetics only proved that Afrezza was non-inferior -- the scientific term for "not worse than" -- NovoLog.
Even being equal, Afrezza could have had a clinical advantage over the injected insulins if it had fewer side effects. In theory, Afrezza is a better insulin because going through the lungs allows the drug to reduce blood sugar levels quickly and then exit the body quickly. Injected meal-time insulins can stick around for longer, leading to hypoglycemia, or low blood sugar levels.
In the latest phase 3 trial testing Afrezza against NovoLog, the total number of hypoglycemia events was lower, but the FDA didn't include the difference on the label, presumably because Afrezza didn't lower blood sugar levels as much as NovoLog.
In the category of severe hypoglycemia events, Afrezza was numerically superior, but the difference wasn't statistically significant, so the FDA didn't put it on the label either.
The FDA label recommends patients be tested for lung capacity before being prescribed Afrezza. Patients who don't have sufficient lung capacity shouldn't take the drug.
The test isn't going to eliminate that many patients, and isn't all that burdensome by itself, but the FDA recommends the test be repeated after six months, and every year after that even if no lung issues are seen.
Doctors are busy. The added step isn't going deter prescriptions for patients who really need Afrezza because they're struggling with injections, but for doctors on the fence, the added step might push them onto the side of injected insulins.
The recommendation that the lung test be repeatedly administered will also deter some doctors, since it suggests the FDA still has questions about the long-term administration of insulin through the lungs. Inhaled insulin has been linked -- though not conclusively -- with lung cancer.
Sanofi backs out
MannKind signed up Sanofi (NASDAQ:SNY) in a marketing deal that gives Sanofi 65% of the profits from selling Afrezza. But it also means Sanofi is responsible for 65% of the losses if selling Afrezza isn't profitable. And it has to cover the first $175 million of MannKind's 35% of the losses under a loan agreement.
The deal allows Sanofi to back out in 2016 if "Sanofi determines in good faith that the commercialization of Afrezza is no longer economically viable in the United States." That's a pretty broad definition of how Sanofi can break the contract.
Clearly, if we're at the point in 2016 (or later) that Sanofi has given up hope in marketing Afrezza -- after giving MannKind $150 million upfront -- the launch clearly won't have gone according to plan. Losing Sanofi will be a final blow, but depending on how much shares have fallen already at that point, the loss could be the final blow to MannKind.