MannKind's Next Catalyst


It's been a long wait, but MannKind is finally on the home stretch toward gaining Food and Drug Administration approval for its inhaled insulin Afrezza.


Afrezza was first submitted for FDA more than four years ago, but the agency rejected the drug, asking for more information on its clinical utility in early 2010. MannKind figured if it had to resubmit, it might as well get approval for its smaller inhaler, dubbed Dreamboat, but the FDA balked, asking for a couple of studies that proved the Dreamboat inhaler was the same as the older MedTone inhaler. While it was at it, the FDA also suggested MannKind test Afrezza in type 2 diabetics.

Dreamboat inhaler. Source: MannKind.

Both studies turned out fine enough to gain approval. The biotech submitted the studies earlier this month. Given the large amount of data, the FDA classified it as a class 2 response, as expected, giving the agency six months to review the data. MannKind should hear about the approval on or before April 15.

While I think it's likely the FDA will approve Afrezza, it's not a 100% guarantee. There's always some chance the FDA could find something new to complain about. Assuming investors are factoring in that risk, shares should increase after an approval.

The bigger binary event
Signing up a marketing partner, on the other hand, is a bigger unknown and therefore has the potential to increase MannKind's value more than an approval will.

The addressable market for Afezza is huge. Sales of Eli Lilly's Humalog were more than $600 million in the third quarter alone. Novo Nordisk brought in about $750 million in sales of NovoLog in the third quarter.

And Afrezza is arguably a better product than Eli Lilly and Novo Nordisk's rapid acting insulins because it's removed from the body quickly, better mimicking what happens in people without diabetes. Not sticking around reduces the incidence of low blood sugar, a dangerous side effect of taking insulin.

And yet, despite having huge potential, MannKind hasn't struck a deal with a partner yet. It's hard to know exactly why, but my guess is that big pharma partners are hesitant to take on the large task of changing the paradigm of how insulin is delivered. Delivering drugs via the lung introduces potential unknown safety issues that aren't present when insulin is injected. And new advances in insulin delivery, including injection pens, have simplified the process substantially. Doctors will prescribe Afrezza to some patients that ask for it, but it's going to take a lot of work to convince them to switch patients in droves. Both Eli Lilly and Novo Nordisk dropped their inhaled insulin programs a few years ago, presumably because of the marketing risk.

The NovoPen -- not for writing but almost as simple to use. Source: Novo Nordisk.

Any pharma that's willing to jump in and help MannKind will probably want a substantial amount of the profits. To get a deal done, MannKind may have to accept a low royalty rate with huge milestone payments tied to sales thresholds; for example, if Afrezza hits $1 billion in sales in a year, MannKind gets a one-time $100 million payment.

Having a back-end deal keeps the risk of failure squarely on the shoulders of MannKind's investors. Since the largest one, CEO Al Mann, is such a strong proponent of the drug, he should be willing to accept that kind of structure, but it may not be in the best interest of other investors.

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