The commercial success or failure of a new drug is rarely the result of a single event. So, predicting how a drug will perform prior to launch is perhaps more guesswork than most experts will openly admit. For example, after an arduous back and forth with regulators to gain approval, the drug's clinical profile then needs to be understood by doctors, a task that can be extremely time-consuming, especially for novel products.

But getting doctors to prescribe the new medicine is far from the end of the line. Even if doctors are willing to write scripts, payers often deny reimbursement for newer drugs for a variety of reasons. GlaxoSmithKline's (NYSE:GSK) newly launched respiratory drug Anoro, for instance, is reportedly seeing almost a third of prescriptions being denied by payers, causing the drug to fall well short of its commercial potential. And in the name of curbing the ever-rising cost of healthcare, payers appear poised to take an even more active role in deciding which medicines patients ultimately put into their bodies.

MannKind Corporation's (NASDAQ:56400P706) inhaled insulin product, Afrezza, has attracted tremendous interest from retail investors because the drug is entering a market that presently sports multiple mega blockbusters, such as Eli Lilly's (NYSE:LLY) Humalog and Novo Nordisk's (NYSE:NVS) Novolog. Because Afrezza is inhaled, investors are also excited about the prospects of cutting deeply into the market share of these injected rapid-acting insulins. The basic idea is that diabetics will favor an inhaled product over an injected one, enabling Afrezza to gain the lion's share of this massive market. 

Afrezza's commercial potential could be vastly overestimated
Like most things in life, though, Afrezza's commercial performance is unlikely to be determined in such a simplistic manner. Now that Afrezza's label is public knowledge, experts and pundits alike have dissected it a million times over at this point, with the goal of answering whether or not doctors will prescribe it. As I alluded to above, the answer to this question is only part of the puzzle -- the other is whether payers will reimburse patients for Afrezza, and if so, at what level?

To answer this question, we have to consider how it will be viewed in terms of its clinical equivalence to other fast-acting insulins and any potential hang ups on the safety front. As a refresher, Afrezza was approved for both type 1 and 2 diabetics -- so we need to tackle these patient populations separately.

Afrezza's label for type 1 diabetics has this to say regarding the drug's efficacy:

AFREZZA provided less HbA1c reduction than insulin aspart in Type 1 diabetics, and the difference was statistically significant. More subjects in the insulin aspart group achieved the HbA1c target of ≤7%.

While it's certainly possible to argue about inefficient dosing regimens leading to this result, what matters is the current label. Point blank, Afrezza's label for type 1 probably won't gain it favor on the formulary over injected fast-acting insulins. Although the label does state that Afrezza is "non-inferior" compared to Novolog, I will venture to say that Afrezza may not be included on the list of medicines eligible for reimbursement for type 1 diabetics, meaning patients will have to pay out of pocket for it. 

Turning our attention toward type 2, the lack of an active comparator arm in the trials could severely limit the drug's chances for widespread reimbursement in this patient population. Specifically, the late-stage trial data only showed that Afrezza, taken along with oral anti-diabetic drugs, significantly reduced mean HbA1c when compared to patients on placebo. In short, this result may only translate into a favorable listing on the formulary for type 2 diabetics taking oral medicines, and that haven't yet begun using injected drugs. I don't see a compelling reason to believe Afrezza will be included in the list for patients already taking Novolog or Humalog, though. 

And then there's the safety issue...
Perhaps the greatest barrier to Afrezza's success is the uncertainty over its long-term safety profile. As a reminder, the Food and Drug Administration is requiring a lung function test prior to Afrezza's administration, and it recommends a six-month follow-up test as well. Payers are most definitely going to consider this added cost during their review. My take is that the drug's lack of a substantial clinical benefit, combined with the burden of a lung function test, won't play well in payers' collective eyes.

Foolish wrap-up
Investors hoping Afrezza becomes the next mega blockbuster diabetes drug appear to be in for a longer than expected wait. All new medicines face push-back from payers, at least to some degree. But at the end of the day, Afrezza's convenience factor over injected insulins may not be enough to convince payers it is worth the cost. That's why I am avoiding this risky biotech.