Since its founding more than two decades ago, biopharmaceutical company MannKind (NASDAQ:56400P706) and its shareholders have been waiting for the Food and Drug Administration to approve a developed drug from its pipeline. That wish came true in 2014.
MannKind nets its first approval
In June, the FDA approved Afrezza, an inhalable dry powder to treat both type 1 and type 2 diabetics. Within the United States, according to the Centers for Disease Control and Prevention, there are some 29.1 million people with diabetes, most with the type 2 variety. It's a disease that gets a lot of attention, but not enough people realize how serious it can actually be. Diabetes can cause a long list of complications that can lead to lower quality of life and premature death.
Before Afrezza, the common solution for diabetics was to inject themselves with insulin. The downside to this method, other than being potentially painful, is that insulin can take quite a bit of time to kick in and it doesn't leave the body as quickly as physicians would like. If insulin users aren't careful with their medication, it's possible they could wind up in an equally dangerous scenario in which they become hypoglycemic (i.e., they have low blood sugar).
Thus enters Afrezza, which provides a method for diabetics to put the needle down and get a rapidly acting insulin dose that'll leave the body more quickly and should reduce possible instances of hypoglycemia. Both MannKind and its licensing partner Sanofi announced earlier this month that they had begun selling the drug within the United States.
One thing's for sure: MannKind's cash crunch is no longer a concern. Following a $150 million upfront payment from Sanofi, and an additional $175 million advance from Sanofi that fulfilled its portion of the collaboration expenses, MannKind is sitting on a very healthy cash pile.
Three questions every MannKind shareholder needs to ask
But that doesn't mean there aren't critical questions that shareholders should be asking we head into the post-launch period for Afrezza. Here are three questions that I believe shareholders should be focused on.
No. 1: Will physicians prescribe, and consumers buy, Afrezza?
The first question here is probably the most critical to MannKind's success: Will Afrezza actually sell?
Two decades ago, getting FDA approval for a drug pretty much meant instant success, but that's not the case anymore. Now drug developers have to worry about whether pharmacy-benefit managers, or PBMs, and insurers will cover their drug, whether physicians will prescribe it, and whether consumers will request it or pick up the prescription at the pharmacy. Consumers are very fickle (and rightly so) when it comes to out-of-pocket costs, so any significant premium to Afrezza relative to other common diabetes medications could sway consumers and/or physicians away from it. For the most part, PBMs have been pretty lock-tight when it comes to divulging Afrezza's price compared with alternative diabetes medicines.
Very early indications (and I want to emphasize that these are very early) from Adnan Butt, the RBC Capital analyst who's been covering Afrezza's launch, shows a slow uptake. Two weeks following its launch, MannKind has brought in just 19 and 34 scripts. Yes, that is a near doubling on a week-over-week basis, but just 34 scripts? To me that's a bit disappointing, even this early in the game.
Put plainly, the prescriptions written will need to pick up quickly if MannKind hopes to hold its year-to-date gains.
No. 2: Will MannKind lose direction without Alfred Mann at the helm?
Next, investors are going to have to take a long look at MannKind and decide whether Hakan Edstrom, the previous president of MannKind, is the right person to lead the company to success.
In January, MannKind announced that its founder and chief executive officer, Alfred Mann, is stepping down as CEO to transition to his new role as executive chairman. Mann will remain involved in the company he founded, but it also means that the face of the company is transitioning to Edstrom as the new CEO. With that transition come new risks, as well as benefits.
On one hand, the transition could be good news for longtime investors in MannKind. Since its founding in 1991, and through the end of the third quarter as of Sept. 30, 2014, MannKind had an accumulated net loss of $2.48 billion. That's a lot of money spent to eventually develop a single drug, and seeing the CEO behind those losses step aside could be a good thing for investors.
On the flipside, transitioning to a new CEO can be a scary thing, especially when you take into consideration that Sanofi's CEO was ousted within the past few months. Two new leaders launching a potentially game-changing drug certainly clouds what may have been a clearer path for Afrezza following its approval and the announcement of the Sanofi deal.
No. 3: Does MannKind have any plans beyond Afrezza?
Lastly, investors need to decide whether MannKind has any future plans beyond Afrezza. This isn't to say Afrezza will or won't go on to be a success, but shareholder returns from single-drug companies can be very sketchy.
MannKind certainly has enough cash in its coffers to consider developing another drug or creating two separate companies in which one holds the rights to Afrezza and the second is wholly developmental. What shareholders need to do is pay close attention to new CEO Edstrom to see what MannKind's plans are moving forward. We obviously know it'll center on the success and promotion of Afrezza, but I'd like to think the company is at least brainstorming about pipeline additions or product acquisitions.
Making the call right now
It's very early in the launch process for Afrezza, so making a call on MannKind here could easily go either way. I prefer to take the cautious approach here and stick to the sidelines.
For starters, if RBC Capital's launch data is correct, I'm far from impressed. I'd like to think MannKind and Sanofi had more than ample time to educate physicians and the public about the new inhaled diabetes option available. Second, MannKind's still losing money. Even though it's now at least generating revenue, it could be years before its cash outflow turns into an inflow. With that in mind, we have to factor in what cash burn could do to MannKind's valuation over the next two or three years. Finally, I do have concerns about the CEO transitions at MannKind and Sanofi. There are just far too many uncertainties here for my taste at the moment, and I'd suggest investors wait this one out.
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