Is This the End of MannKind?


Biopharmaceutical company MannKind (NAS: MNKD) is seeking FDA approval for its inhalable insulin drug, Afrezza. A decision in 2013 is expected, and the company hopes to get this drug to market as soon as possible.

But is FDA approval all that MannKind needs to flourish?

I previously discussed three reasons to invest in this company, but it has several short- and long-term weaknesses that can't be ignored. I'll look at the flip side of the coin in this article and conclude with my personal opinion on the future of MannKind.

Haunted by Exubera
Afrezza is fundamentally different from the injectable insulin products that diabetics use today. To convert patients from established drugs like Eli Lilly's (NYS: LLY) Humalog or Novo Nordisk's (NYS: NVO) NovoLog , MannKind will have to mount an enormous marketing campaign: Doctors have to be convinced of Afrezza's safety, patients will have to be trained to use the inhaler, and any benefits of switching from injected to inhalable insulin will have to be clinically proven.

MannKind has almost no in-house marketing or sales capabilities and will probably have to partner with a larger pharmaceutical company to get Afrezza off the ground. That should be simple enough, right?

Not quite.

Pfizer (NYS: PFE) brought the Nektar (NAS: NKTR) developed inhalable insulin drug Exubera to market in 2006 and ended up losing $2.8 billion in the process. The reasons for Exubera's failure are debatable, but Pfizer's huge loss caused Novo Nordisk and Eli Lilly to quickly cancel their own inhalable insulin programs in 2008. The largest pharmaceutical companies, which coincidentally also have the sales force and marketing expertise that MannKind would need to launch Afrezza, probably have cold feet when it comes to this type of product.

Just Dance
While the largest pharmaceutical companies may have no interest in inhalable insulin, MannKind faces competition from a joint partnership between Dance Pharmaceuticals and Aerogen. The companies announced plans to produce their own drug in January 2011, and even if this competing product is years away from completing clinical trials, there are two causes for concern here.

First, MannKind has had so many delays during the FDA approval process that its inhaler technology may be outdated compared to Dance's device by the time Afrezza hits the market. Second, Dance's founder and CEO, John S. Patton, was a part of the Exubera development team at Nektar. His prior experience will undoubtedly help Dance to navigate the FDA approval process, develop a second generation drug that is more convenient to use than Exubera, and avoid the same marketing mistakes that caused Exubera's downfall.

Burn, baby, burn!
MannKind's greatest weakness is its precarious financial situation. Based on the financial statements of the most recent quarter, the company is burning through $10.9 million each month and has $57 million in cash, cash equivalents, and short-term investments. At this rate, MannKind will only be able to operate for another five months.

The company has already tried to cut down on expenses through job cuts last year and may have to undergo another round of layoffs soon, but it still has to spend millions of dollars to complete its ongoing clinical studies.

MannKind has more than $210 million in long-term debt and will either have to dilute its shares to raise more money or get more cash from its billionaire CEO Alfred Mann, who has already poured $925 million into the company and purchased an additional $77.2 million worth of stock this year through The Mann Group, which is his subsidiary. However, he has indicated in the past that he may not be able to continue to fund MannKind, and he may cut his losses if the drug is rejected next year.

Running out of breath
As a scientist, I would love MannKind to succeed. Afrezza is an innovative drug, and inhalable insulin has the potential to improve the lives of many diabetics. However, as an investor, this company is way too risky for my portfolio. Even if Afrezza is FDA approved, I think MannKind will face a long-term uphill battle to find a marketing partner, and the company is struggling to find enough operating cash for the next year. I'm rooting for better diabetes treatments, but I've made an "underperform" call for MannKind on my CAPS page.

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Fool contributorMax Macalusoholds no position in any company mentioned.Motley Fool newsletter serviceshave recommended buying shares of Pfizer. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.

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