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It's been a rough year for investors in MannKind's (MNKD +1.09%) stock, as long-term bulls who had high hopes for Afrezza, the company's recently launched inhaled insulin used to manage diabetes, have had the wind knocked out of them. MannKind's marketing partner Sanofi (SNY +0.80%) managed to sell only $2.2 million worth of Afrezza in the second quarter, which is an incredibly disappointing number for investors who were banking on the drug's ability to reach blockbuster status of $1 billion in annual sales.
MannKind's management team had a lot of information to share with investors on its most recent conference call about Afrezza, and here are five things that they want investors to know.
1. Don't freak out that Sanofi isn't talking up Afrezza
During its most recent conference call with investors Sanofi didn't discuss what was happening with Afrezza at all. MannKind investors are rightful asking management if they should interpret Sanofi's silence to mean that Afrezza's situation is starting to look hopeless.
MannKind's management team decided to address this topic right up front in its call. Here is what Matthew Pfeffer, MannKind's CFO, had to say about the issue:
It is essential to understand that this was not a surprise to MannKind, as Sanofi is a $35 billion-plus worldwide company, and the call is intended to address their global operations. The call should in no way be interpreted as any form of lack of support or a lack of belief in the product.
Sanofi is a monster pharmaceutical company with dozens of drugs on the market, so it does make sense that not every single drug's progress would be covered during the call. In fact, Sanofi's total second-quarter sales were 9,378 million euros, so Afrezza's 2 million-euro contribution to that total makes its contribution basically a rounding error.
2. Insurance coverage should be improving soon
While management is offering plenty of reasons for Afrezza's slow start, it believes that one of the biggest is that patients are having a lot of trouble getting drug reimbursement from payers. If it's not on an insurance company's formulary list, interested patients and providers often have to go through a lengthy and confusing "prior-authorization" process, which often requires sending additional paperwork to an insurer to justify why it should pay for the treatment.
As you can imagine, this process can really slow down adoption, as the last thing any busy physician's office needs is to be bombarded with additional paperwork requests. MannKind and Sanofi are aware of the issue and believe that getting on insurance formularies to help ease this burden is going to start very soon.
Here's what Hakan Edstrom, MannKind's CEO, had to say about the matter:
Permanent formulary placement decisions have not yet been made by most plans. These decisions are typically made six to 12 months following the launch. The good news is that we are now in that period, and Sanofi's discussions with managed care organizations are ongoing, and we expect the insurance coverage and patient access to improve.
3. Direct-to-consumer marketing is staring now
MannKind and Sanofi believe that most patients are not yet aware that Afrezza is available for sale and are betting big that once patients hear about the drug, they will start marching into their doctors' offices asking to get started.
So far, the company's marketing efforts have focused only on healthcare providers, but several direct-to-consumer campaigns are now in progress. Here's what CEO Edstrom had to say:
The direct-to-consumer advertising campaign is now under way, with featured print ads for Afrezza beginning in July in high-circulation media, including Time magazine, Diabetes Forecast, and other widely distributed media that reach our target audience, and there's plenty more on this horizon.
The company is also launching new Afrezza websites in an effort to get the word out, and Sanofi is increasing its sales force in an effort to help spur physician prescriptions. Only time will tell if these additional efforts bear fruit.
4. Spirometer access is less of a barrier now
In the first quarter's conference call, management made it known that the FDA's requirement for patients to get a lung function test from a device called a spirometer before they could use Afrezza was a big barrier to adoption. At the time, it estimated that only 30% of doctors who specialize in diabetes had a spirometer in-house.
The company believes it made excellent progress during the quarter addressing the spirometer access issue, although it should be noted that they didn't exactly give investors a lot of information to go on about about how that progress was achieved, which is certainly an explanation I was hoping to hear more about. Nonetheless, here is CEO Edstrom's comment on the matter:
Sanofi's made excellent moves to address the spirometry requirement, and our research shows that it's no longer a critical gating item.
5. Our stock's short interest is out of our control
Short sellers, or investors who look to profit from a stock's decline, have been piling into MannKind's stock recently. Currently, 45% of the shares available for trading are sold short, which is a massive number.
Management is aware of the situation and has been getting lots of questions recently from investors. But there isn't much it can do to fix the situation. Here's what CFO Pfeffer had to say about it:
If any non-employee shareholders are unhappy about the effect of shorting on MannKind's share price, I strongly encourage you to make sure you are not enabling the practice. Talk to your broker and make sure your shares are held in an account that doesn't support lending.
I've listened to a lot of conference calls in my day, but this is the first time I can remember a management team talking about its short interest during its prepared remarks. However, there isn't much the management team can do to address the situation.
Now what?
With MannKind's stock now trading near a 52-week low, it can be tempting to want to jump in, especially with the stock's low-single-digit share price. However, I would suggest that investors continue to approach MannKind with a huge amount of caution. While the excuses given about Afrezza's slow start appear to be valid, there's still a good chance patients and providers just aren't interested enough. Inhaled insulin was launched years ago and failed miserably, and while I think MannKind certainly has a better chance of success than Pfizer did, outright failure is still an option.
If the barriers to Afrezza's adoption start to disappear and sales of Afrezza take off, I'd be happy to change my tune, but until we see real evidence, I'm going to continue to keep my investment dollars far away from this stock.
