MannKind’s 10-year quest for insulin product Afrezza gets last-ditch chance; time to buy, or run?

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The News:

Last week, MannKind Corp. (Nasdaq:MNKD) led advancing stocks in the healthcare sector, soaring 151% to $5.03, after saying it won a labeling concession from the FDA on its Afrezza inhalable insulin product.

Essentially, the FDA has approved a new label that gives details on how to manage dose strengths depending on a patient’s current circumstances. Afrezza’s labels will now include data showing that the first measurable effects start within 12 minutes of use, with peak effects about 35 minutes to 45 minutes after. As a result, it is believed that this simple clarification will be far more useful to potential patients and will lead to more prescriptions.

The company’s sales representatives should now have the ammunition they need for both doctors and patients, and thus, more refills. It follows that those currently using injected insulin will now better understand how Afrezza is used and the effects of the inhaled treatment. All of which hasn’t been a successful effort in the past and should finally translate into stronger revenue for Valencia, CA-based MannKind.

Or at least that’s the argument being made to Wall Street.

Steve’s Take:

I have several friends who have type 1 or type 2 diabetes and take insulin by injection. The injection first became available way back in 1922. It may come as a surprise to many non-diabetics that here in the US, more than half of all insulin is still delivered via syringe.

Because I’ve had a connection through close friends and been tracking the advances in insulin treatments for decades, I distinctly recall last year when MannKind disclosed that it lost a key partner–French pharmaceutical giant Sanofi SA–which had agreed to market and distribute Afrezza but pulled out after a year of exceedingly slow sales.

For the company and billionaire founder Alfred Mann, Afrezza had been a 10-year quest, one plagued by delays, the LA Times reported. The FDA twice rejected the drug before finally approving it in 2014. Such delays are common for new drugs, but suddenly losing the Sanofi contract added a new and unexpected wrinkle to what’s been a troubled history for Afrezza. You see, MannKind had no marketing and sales capability of its own.

The MannKind drug, which hit the market in February 2016, was not the first inhalable insulin, coming years after Pfizer Inc. developed and then pulled a product called Exubera. That product–which like Afrezza took a decade to develop and saw slow sales in its first year–appeared to affect some patients’ lung function and came with an unwieldly inhaler that some likened to a bong.

But Mann, whom associates called stubborn and resolute, always maintained that Afrezza was a superior product, with a smaller inhaler and a better formulation of insulin than Exubera.

“I have never considered abandoning [Afrezza] because I firmly believe that Afrezza has the potential to bring significant benefits to the still growing and enormous population of people with diabetes,” Mann told The Times in 2014, shortly after the FDA approved the drug.

But the FDA approval was not the final hurdle for Afrezza, since it came with serious provisos attached. The agency said the drug could not be prescribed to patients with asthma and other serious lung diseases. It also was not recommended for smokers. And the FDA required doctors to perform a lung-function test on all patients before writing an Afrezza prescription–and at six-month intervals thereafter.

While the warning and tests the FDA required in 2014 might have been a turnoff for some potential users, some doctors and analysts suggested Afrezza’s struggles also were the result of a bungled roll-out by Sanofi, which reported selling about $5.5 million in the first nine months of last year.

Some analysts said Sanofi’s early educational and marketing efforts fell short, especially in teaching doctors how to do the FDA-mandated lung tests. Those are tests endocrinologists don’t typically perform. Sanofi offered a class, but no hands-on training with either lung-testing equipment or with the Afrezza inhalers themselves, according to The Times.

Further, many of the patients prescribed Afrezza ended up dropping it because it wasn’t covered by their insurance, The Times reported.

You still with me?

Fast-forwarding to this week, motivated by a stock price that tripled over the past 10 days and in real need for new cash, MannKind sold 10 million shares in an overnight stock offering priced at $6 per share. After fees, the sale nets the company just under $58 million. The money is meant to subsidize the marketing and sales effort and otherwise finance general operations through Q2 of 2018. That’s not a lot of time.

MannKind remains a failing business, says Adam Feuerstein for  Stat News, “with a bloated $700 million market valuation, so think of the new financing as a small bandage on a gaping wound.”

The company consumed $23 million in cash during the third quarter while managing to sell (on a net basis) just $1.8 million to $2.2 million of Afrezza, according to preliminary financial results disclosed Wednesday.

Bottom Line:

After some profit-taking following last week’s explosion, shares of MannKind were back on the upswing after an upgrade by H.C. Wainwright. The firm raised its 12-month price target for the stock to $12, implying a 219% upside potential from its closing price of $5.47 today (Oct. 12).

MannKind seems to be getting some respect from Wall Street analysts after the FDA revised the Afrezza label. Long story short, investors and a handful of analysts now seem to believe the FDA action and new stock offering may be just enough to spark the biotech’s rise from oblivion. MannKind, after all, appeared destined to disappear completely not that long ago.

Steve's Take: @MannKindCorp is a rational bet that rises just above a pure, speculative gamble Click To Tweet

When it’s all said and done, I see a reduced risk in the MannKind saga. For any insulin product, learning to manage the disease and learning about insulin use is key to effective management. The updated label includes an additional step to mealtime dose adjust with Afrezza as individual patients will have different insulin needs. Makes perfect sense.

The label revision simply translates into lower risk for the relaunch of Afrezza which drives a new price-target range of $7 to $12.

The Mann behind the Afrezza story

Alfred Mann passed away last year at age 90. He was known as a tenacious individual, one who didn’t back down even in the face of long odds. Mann also ran the company on an interim basis, all the way until early 2016, when Duane DeSisto, a former chief executive of insulin pump maker Insulet, replaced him.

Robert Greenberg, chairman of Mann-backed Second Sight Medical Products, which makes a retina implant that provides sight to the blind, said Mann saw huge problems as solvable ones.

“He’s unwilling to give up,” Greenberg told The Times in 2016.

That trait goes for his company, too.

With a staggering upside for the share price, but with a countervailing, huge downside risk pegged to the med’s past sales failures, I still rate the name a Buy. I could certainly be wrong, but Afrizza’s time has come. It’s a rational bet that rises just above a pure, speculative gamble. But this is only for the ultra-aggressive, high-risk portion of your portfolio.

Steve Walker has no position in any stocks mentioned. MedContent Inc. has no position in any stocks mentioned. MondayMorning.com has a disclosure policy.