Tuesday, August 31, 2010

Why Afrezza will win over Humalog & Novolog?


      Mannkind Corporation’s Afrezza has the potential to change the way diabetes is treated and could significantly reduce the complications and costs of diabetes.

      Diabetes is now widely treated at an extremely high fasting glucose level of the order of around 170-220 mg/dl. This is done to counteract the extreme lows that follow today's insulin therapy so as to avoid serious hypo events. With rapid acting analogs (RAA’s) like Humalog & Novolog, the insulin takes 1 to 1.5 hours to peak and stays in the body for 5 to 7 hours. This is a reason people snack all day to avoid the hypos and they gain so much weight over time.

       With current RAA's people need to calculate how many carbs they are going to eat even 30-60 minutes before they eat. That dictates the amount of insulin they need (this is called titration). Afrezza can lower the fasting level to around 100-110 mg/dl and maybe even lower with additional data. This is much closer to normal body function. Afrezza peaks in 12-14 minutes and exits the body within about three hours. With Afrezza, there are no huge lows so there is no need to snack all day. In addition with a normal meal, there is always no need for careful titration.

       Afrezza mimics normal pancreatic early release and controls meal time glucose levels much better than RAA's or any other current therapy. It shuts down gluconeogenesis and some opinion leaders suggest that it may slow or even halt the progression of the disease.

       Why do the FDA and prescribing doctors put so much value in HbA1c? HbA1c is approximately the average blood sugar level over about a three month period. It is recognized as a good measure of overall glucose control but it is not an independent measure of mealtime control alone. However, the FDA requires comparison testing of new drugs for non-inferiority in HbA1c to RAA's. The huge highs and the huge lows with the present insulins balance each other so the HbA1c for the present insulins for the most part seems good, when actually the huge swings are the crux of the problem with today's therapies. A huge high followed by a huge low is the major problem, not offsetting as the three month HbA1c would suggest.

       There would be a huge advantage for an insulin that peaked in 10-20 minutes and leaves the body in just a couple hours that would mimic what is seen for a normal person without diabetes – without the highs and definitely with no huge lows.

       Mannkind's Afrezza is a novel insulin that should replace RAA's so we can start eliminating the dangerous complications of diabetes. If the kinetics of this insulin therapy were better understood, this therapy would probably already have been approved.

Monday, August 30, 2010

How can Afrezza help to reverse the progression of Diabetes in Type 2 patients


       There are many pharmaceutical companies that are in search of the holy grail of diabetes therapy. A therapy that restores the health of the pancreas or at the minimum a therapy that stops or slows down the progression of diabetes. The pancreas transplant is outside the reach of most diabetics. Certainly Mannkind corporation is a leading contender for the therapy that stops or slows down the progression of diabetes in Type 2 patients. Let’s explore it further.

       I consulted some leading endocrinologists to understand how Afrezza can be a game changer, particularly for patients having Type 2 diabetes. The names have been withheld to protect their privacy.

      The attached slide shows the progression of Type 2 diabetes. The lower graph (beta cell function %) illustrates the increase in insulin resistance during the early stages of the disease. During this period the pancreas has increasing difficulty in controlling post meal hyperglycemia, as seen in the upper graph. The increasing stress on the pancreas ultimately leads to wearing out of the capability to provide sufficient insulin and as the capacity declines, fasting glucose begins to rise. Finally the pancreas is unable to provide a meaningful supply of insulin. Even years before that, the person would have to start complete basal/bolus insulin therapy to avoid serious short term as well as long term complications.

natural history of type 2 diabetes

        Afrezza mimics the early insulin release seen in a healthy individual in response to a meal. It is the first exogenous insulin that turns off gluconeogenesis in the liver, further relieving the demands on the pancreas. By providing insulin monomers with better kinetics, Afrezza can relieve pancreatic stress. Dr. Jay Skyler, a leading diabetologist has opined that Afrezza may therefore slow and perhaps can stop pancreatic burn-out and thus may slow or stop the progression of type 2 diabetes. Several other key opinion leaders agree, although it will require larger trials over many years to prove this.

Friday, August 20, 2010

Bank of America update aug 2010


Rating BUY

Approval scenario is most likely: stock could double
Our review of MannKind's recently completed Afrezza efficacy studies, inhaler device bioequivalence analyses, absence of cancer signals, modest pulmonary impact, lack of weight gain, and significant clinical benefits should address issues in FDA's Complete Response Letter from March and position the product for approval near its Dec. 29, 2010 PDUFA date. This would lead MNKD to secure a global partner and we believe the shares could double.

Delay scenario is less likely: stock could halve
We are not expecting FDA to ask for additional trials from MNKD, but given concerns about pulmonary impacts, FDA could request more data. The recently completed 117 study demonstrated non-inferiority to Humalog, but employed an earlier inhaler device. The bioequivalence studies were intended to provide the link between the pivotal trials and the new device, but FDA could require further trials. One of the post marketing trials that MNKD intends to initiate could serve this purpose. FDA could also require additional but unforeseen safety studies.

Rejection scenario is unlikely: stock could drop to zero
An FDA rejection or a requirement for a long-term study would effectively eviscerate the stock, a possible but unlikely scenario in our view. This response would require the FDA to conclude that the benefits do not outweigh the risks, or that the diabetes market does not need another insulin therapy. Unknown safety risks do not warrant rejection but we believe long-term monitoring will be needed.

Financing provides a hedge on approval delay
While a convertible debt offering one week after an equity offering has clearly spooked investors, our fundamental view on the outlook for this product is unchanged. MNKD needs to build cash position ahead of the PDUFA as a delay could terminate the Seaside equity offering and render a debt offering as doubtful. Our risk-adjusted PO is $9.

Thursday, August 19, 2010

Wells Fargo update - Aug 2010

MannKind Corporation (MNKD-NASDAQ)--Outperform (1) / V


* Summary: MNKD to offer $100MM in senior convertible notes. Expect offering to help fund operations into Q1 2012. Lowering 2010E EPS to $0.05 (from $0.07) and raising 2011E loss to $0.98 (from $0.93) per share on incremental interest expense. In our view, offering reduces liquidity risk and improves bargaining position with potential partner. Long-term thesis intact; maintain Outperform rating.

* MNKD to offer $100MM in senior convertible notes. Notes due August 15, 2015, semiannual coupon at 5.75%, conversion rate: 147.0859 sh/$1000 face. MNKD can redeem early if share price equals/exceeds 150% of conversion price (~$6.80) for 20 of 30 preceding trading days. Offering includes 13-day provision for $10MM in additional notes to cover overallotments, if any. Expected offering date: August 24, 2010.

* By our estimates, the offering should help fund operations into Q1 2012. MNKD intends to use offering proceeds to fund clinical trials, R&D, manufacturing expansion, and general purposes. Given the Q2 2010 cash burn rate of about $37.8MM per quarter, we estimate the offering, combined with current available resources, could fund operations until Q1 2012.

* Lowering 2010E EPS to $0.05 (from $0.07) and raising 2011E loss per share to $0.98 (from $0.93). By our model, the offering will add interest expense of $5.8MM per year. On higher interest expense and conversion at 2015 maturity, we also lowering our 2012-15 estimates as shown in Exhibit 1. Our model assumes notes are held to maturity (2015). On the other hand, if notes conversion occurs in 2014, our 2015E EPS would be $2.14 (versus $2.28) all else being equal.

* Previously announced share sales (of up to 36.4MM shares) could further bolster MNKD's cash but would add to dilution. See August 11 note for details. The 10-day VWAP for MNKD would have to rebound to $6.50 for the share sales to take place. With shares trading at roughly $6, and no near-term catalyst expected ahead of the September 22 commencement, we think the first several scheduled sales are unlikely to occur. If MNKD partners for Afrezza, we think the company could cancel the share sales altogether. Given uncertainty about timing and occurrence of the sales, we are not modeling the impact.

Afrezza – A Mannhattan project


Yes, that wasn’t a typo in the title. It is no surprise that Al Mann’s project has turned into a “one man” Manhattan project given the FDA’s risk averse policy and the general climate for inhaled insulin. I generally never like to comment on the stock price, but at a time when shareholders are expecting bonanzas (partnerships, approvals), the multiple offerings to boost capital have only left some frayed nerves.

Leaving aside the dilutions and drop in stock price, what investors should be focusing on is the FDA approval, partnership and sales. Only these three dictate the fate of Mannkind. A 10% or 15% dilutions here or there is only a blip in the long run. You can always buy back shares when the times are good.

The sales is a binary event, it is either 1 or 0. If everything goes normal, we’ll know by Q1 of 2011. Let us see if Al Mann’s vision or some sell side analyst’s $1 scenario plays out. My bet is on Al Mann.

The money spent on Afrezza is only commensurate with the potential. And a large amount of money has been spent, some $1.6 billion and counting. If you compare Mannkind with other biotech investors favorite Dendreon, Dendreon spent a total of $750 million USD and now boasts a market capitalization of $5+ billion. Mannkind having spent all the money is hovering around $650Million. What gives? well FDA approval, pricing in of future sales etc.

The current investors of Mannkind should note that hardly 10% of future conservative sales is priced into the stock. In a world of instant gratification, it is always painful to hold a company’s stock that shows so much potential but gets little appreciation from the market.

Let me end with a quote from Ben Graham, the father of security analysis, “Many shall be restored that are now fallen and many Shall fall that are now in honor.”

Tuesday, August 17, 2010

Hapoalim & Oppenheimer comments after financing deals – aug 2010


OPPENHEIMER                       August 17, 2010

MannKind Corp.                     UNDERPERFORM

$100M Convertible Debt Offering Introduces Additional Potential Dilution

On 8/16, MNKD announced the proposed offering of $100M of senior convertible notes, with a $15M over-allotment option.

1) The 8M shares offered in connection with this deal were issued to allow owners of the convertible debt to hedge positions.
2) While deal terms will not be available until the convert prices, we estimate additional dilution at ~5-10% upon conversion to equity.
3) We believe investors may view this deal negatively, sending MNKD below $6.50 and potentially preventing additional equity investment from Seaside 88, LP.
4) Absent the $100M convert, but including cash on the balance sheet and ~$100M remaining on an existing loan agreement, we estimate MNKD has cash through 2Q11.



MannKind Serves Up a Happy Meal

MannKind announced plans to offer $100 million in convertible debt and also plans to loan up to 8 million shares of common stock so that the purchasers of the convertible debt can hedge the risk. Because the market rate to borrow MannKind shares is extremely high, the share loan is a massive subsidy to the true cost of capital for MannKind to raise additional funds. If a partnership were imminent, in our view, there would be little reason to do a financing now, considering the discounts being offered. We reiterate our SELL rating and $1 Price Target.

Creative Financing Du Jour MannKind plans to offer $100 million in convertible notes and also plans to loan up to 8 million shares of common stock so that the purchasers of the debt can hedge the risk. Because the market rate to borrow and short MannKind shares is extremely high, the share loan is a massive subsidy to the true cost of capital for MannKind to raise additional funds. In our view, the company is planning for the potential of an extended approval process and the recent financing activity suggests to us that a partnership for Afrezza may not come until after the drug is approved by the FDA. If the company felt that a partnership were imminent, we think there would be little reason to do a financing now, with such steep discounts.

Seaside 88 Deal is Also Unique On August 11, MannKind announced that it entered into an agreement with Seaside 88 for the sale of 700,000 shares of common stock at an 8% discount, every two weeks for a year, beginning September 22. Purchases will only occur if the average share price is above $6.50. Al Mann, will purchase a matching number of shares at no discount to the market. In our view, while Seaside 88 is not allowed to short MannKind shares during the term of the purchase agreement, it might have been possible to short MannKind shares ahead of the agreement, potentially creating the ability to repurchase shorted shares at an 8% discount if the price rises, with no requirement to buy shares if the price falls.

The Risks are Still Out of MannKind’s Control While MannKind has re-filed Afrezza and received a December PDUFA date, we note that the risks to the program have not changed and are largely out of the Company’s control. The re-filing, a new PDUFA date and the re-initiation of partnership talks were all expected events that give little insight into the approvability and the potential partnership value of Afrezza. Aside from a partnership, we think, the next potential catalyst is the announcement of an expert FDA panel. We do not think Afrezza will be approved without first facing an expert panel.

Monday, August 16, 2010

Mannkind’s new convertible offering – Aug 2010


I thought I’ll come up with a pictorial way to explain the deal; To understand this better, pretend that Bank of America is acting as a middle man without any financial stake (if it shorts, it shorts on behalf of institutions, it is acting as their agent)

This is at initiation; at completion it’ll be the reverse (Mannkind pays back 100MM, BofA closes short, Mannkind gets back the shorted shares)

convertible deal

The bottom line is

1) Mannkind gets $100MM from the convertible debt sales (or 115 if overallotment is taken up); this cash will go a long way to remove uncertainties ; Bank of America is facilitating the deal (no surprise here, as few months back they started covering Mannkind)
2) The deal solves the issues of institution holders need to short the stock to hedge their position; they may now get a partial hedge. Mannkind is already having a big short position, so it’ll be expensive for them to short more at the market price

What’s not known?

a) Conversion price: this will decide if the deal is dilutive or not. Generally for deals like this, the conversion price will be way more than the current selling price.

The bad part:
a) More shares in the market; short term pressure on price
b) Is Mannkind signaling that negotiations are a little farther away? or is it tactical?

Thursday, August 12, 2010

Seaside deal; Comments from Wells Fargo, Bank of America and Oppenheimer

Wells Fargo
* Summary: Maintain Outperform on Afrezza potential and improved liquidity. View next near-term catalyst as potential partnership agreement. MNKD will sell up to 36.4MM shares through structured purchase agreements. The deal will provide roughly $30MM cash per quarter at the August 10 closing price; share price appreciation would increase the contribution. We think the deal is likely to fund operations beyond the end of 2011 and improve MNKD's bargaining position with potential partners. Valuation unchanged at $11-13.

* Maintaining Outperform. Our positive stance on MNKD is based on the potential for Afrezza. We think the FDA's recent acceptance of MNKD's CRL response as a class II submission with six-month review reinforces our belief that Afrezza approval is likely. We think management's tone on partnership discussions has been positive. The share sales reduce liquidity risk and improve MNKD's partnership bargaining position, in our view. We think the next catalyst for MNKD will be a partnership agreement.

* MNKD to sell up to 1.4MM shares every 14 days. Under the terms of the agreement, Seaside 88, LP will purchase up to 700,000 MNKD shares every 14 days for 50 weeks beginning September 22. Under a separate agreement, The Mann Group will match Seaside's purchases on a share count basis. Shares will be sold to Seaside at an 8% discount to the ten-day volume weighted average while sales to the Mann Group will be a debt conversion at the higher of $7.15 per share or the previous close. MNKD has the option to cancel the agreement at its discretion.

* We think the agreement could fund operations beyond year-end 2011. On the Q2 2010 earnings call, management indicated that cash/borrowing resources would fund operations through Q1 2011. Based on MNKD's August 10 close, the Seaside agreement would provide MNKD about $30MM per quarter through late Q3 2011. Assuming the Q2 cash burn of $38MM per quarter and MNKD's $31MM cash and $108MM in available borrowings at the end of Q2, share sales would fund operations through Q4 2011; share price appreciation would extend that.

* Deal provides improved bargaining position with potential partners, in our view. We think the agreement will offer MNKD more time to select a partner and will prevent MNKD from having to accept poor terms.

Bank of America/Merrill Lynch
Offering should fund phase 3b trials while capturing upside
MannKind agreed to sell shares to investment firm Seaside 88 on an every 2-week basis over the course of one year at an 8% discount to the 10-day average price. The first transaction begins at the end of Q3. Cash proceeds could approximate $30mn per quarter, representing the low end of the company’s
quarterly cash burn. We believe this funding will enable MNKD to initiate additional studies to increase the commercial value of Afrezza (e.g. Afrezza in combo with basal pump). No stock sale will occur if the 10-day average price falls below $6.50/share. Conversely, MNKD will capture the additional value if the
stock appreciates, and can terminate the stock sale if a partner is secured.

Mann Group swaps debt reduction for more shares
The outstanding balance on MNKD’s debt to the Mann Group (controlled by CEO Al Mann) was $250mn at the end July, which will be gradually reduced roughly in half over the course of a year for an equal value of stock. Every stock sale transaction to Seaside 88 will be matched by the Mann Group (without the 8%
discount), keeping Al Mann’s ownership roughly constant near 46%. Repayment on this debt was also extended by one year to the end of 2012.

Dilution offset by lower risks - no change in valuation
While the stock sale to Seaside 88 is gradually dilutive to shareholders, it provides a steady source of cash to roughly match the cash burn. We believe investors were expecting a near-term transaction, given the company’s cash position had been reduced to $31mn by the end of June. With commercialization of Afrezza
increasingly likely in 2011 and financing more secure, we lowered our WACC assumption from 11% to 10%, resulting in no change in our $9 PO.


On 8/11, MNKD announced an agreement with investor groups to purchase up to a total of 36.4M shares of stock, providing up to $230M in cash. (1) Given the deal terms, we see potential for MNKD's share count to increase from 113M to ~150M, suggesting 30% dilution. (2) We believe the nature of this offering suggests most investor groups were unwilling to invest in MNKD. (3) We note that MNKD cannot
access additional cash under this agreement if the shares fall significantly below $6.50. (4) Assuming a negative FDA decision on the 12/24/10 AFREZZA PDUFA date, we estimate MNKD only has cash through 2Q11.
 Deal Suggesting Up to ~30% Dilution, Permits Sale of Up to 36M Shares. This agreement could result in the issuance of ~36.4M shares, resulting in ~30% dilution. The terms allow private investment partnership Seaside 88, LP, to purchase 700,000 shares (at a $6.50 minimum 10-day VWAP, or volume
weighted average trading price), for 18,200,000 total shares, and the Mann Group to match Seaside's purchase at $7.50/share.

 Nature of Offering Suggests Investors Tepid. In our view, the nontraditional nature of this offering suggests that MNKD may have tried, but was unable to complete, a more traditional equity offering where multiple investor groups purchased additional shares of the company.

 MNKD Cannot Access Additional Cash With Share Price < $6.50. If MNKD shares fall substantially below $6.50 (i.e., on a potentially negative FDA decision on AFEZZA in December), the company would not have access to raise cash under this agreement. We believe MNKD could then engage in a more traditional secondary offering.

MNKD May Only Have Cash Through 1H11 On A Negative FDA Decision. 
We estimate MNKD can raise ~$40M through year-end 2010, but MNKD is burning ~$30-40M/quarter. If AFREZZA is not approved on the 12/24/10 PDUFA, we believe MNKD would only have cash through 2Q11, given ~$100M remaining on its loan agreement and ~$30M cash at 2Q10.

Tuesday, August 10, 2010

Mannkind Report

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Tuesday, August 3, 2010

BofA Merrill 2Q 2010 update


Bioequivalence data supportive of new Dreamboat inhaler
MannKind released bioequivalence data provided in its NDA resubmission to demonstrate that 20 units of Afrezza delivered with the new Dreamboat device had a similar pharmacokinetic profile for blood insulin as 30 units delivered by the older Medtone Model C device used in the pivotal trials. Using two immuno-assays measuring two insulin parameters (AUC0-120min and Cmax) resulted in bioequivalent results (see next page). In addition, while the effect of Afrezza on forced expiratory volume (FEV1) was within FDA's acceptable limits, preliminary data with the Dreamboat device suggests a more modest impact on FEV1.

Awaiting FDA minutes to accelerate partnering talks
During its Q2 conference call, MannKind indicated that the pace of partnership discussions has increased following receipt of FDA's letter of acceptance for the company's new drug application (NDA) resubmission for its inhaled insulin product (Afrezza). Several new regional and global entrants are reportedly now included in these discussions, up from levels prior to FDA's Complete Response letter received in March. MannKind expects these partnering discussions to accelerate following receipt of the June 9 FDA meeting minutes. The company has sufficient funds to finance operations through 1Q of 2011, with total cash of $31mn at the end of 2Q and $108mn remaining in its credit revolver.

Balance of factors continue to favor approval; Raising PO
In our view, recently completed studies, bioequivalence analyses, lack of safety signals, lack of weight gain and significant clinical benefits should adequately address issues in the CRL and position Afrezza for approval in 2011. While FDA may want to see the 117 study repeated with the Dreamboat device, we believe the bioequivalence data increases the probability of approval. Accordingly, we are raising our PO by $1 to $9.

Rodman Renshaw 2Q 2010 update


MNKD reports 2Q10 numbers: MNKD reported 2Q10 financial results, including a net loss for the quarter of $42.3M or ($0.37) per share, in line with our net loss estimate of $43.3M or ($0.38)/share, and slightly better than the consensus net loss estimate of $45.4M or ($0.40)/share. Operating expenses were down 30% yoy ($37.4M vs. $53.4M in 2Q09), mainly due to lower R&D expenses of $26.2M versus $39.8M in 2Q09, while SG&A expenses for this quarter were down 17% compared to 2Q09 ($11.2M vs. $13.5M in 2Q09). MNKD ended 1Q10 with $30.8M in cash or ~$0.27/share, and the company guided that current cash and the remaining $108M from the line of credit extended by Al Mann is sufficient to fund the company through 1Q 2011, without factoring in additional funding.

Next for MNKD: financing/extension of LOC, partnership and FDA decision (not necessarily in that particular order). With the Afrezza NDA resubmission completed at the end of June, the company is now shifting its focus on partnership discussions, while waiting for the FDA’s decision. In addition, given that the company currently has approximately three quarters worth of cash, and unless partnership discussions progress extremely fast (which is not likely, in our view, given the time of the year, and the fact that we are just five months away from a decision on approval), we would expect the company to address the liquidity issue by either accessing the capital markets as they did last summer, or by getting a six- to twelve-month extension (~$85-$170M) in the Al Mann Line of Credit. We believe that the fact that the company is operating with three quarters of cash is an issue which we don’t believe goes unnoticed in partnership discussions, and we expect that the company will have to address it at some point this year.

Reiterating our long-term thesis on MNKD: We continue to expect Afrezza to surprise, and be approved, partnered and in the market. With the FDA back and forth now done (at least for this round), the next most significant milestone is the agency’s decision on the resubmission by the end of the year. In addition, we expect that the company will re-engage in partnership discussions and we continue to believe that it will be successful in finding a partner for Afrezza, especially with the re-submission process completed without the requirement for additional trials. We are not sure whether a partnership will be consummated by PDUFA, or whether partners may want to wait for approval, but we view the importance of the timing of a partnership as secondary; we believe that the most important questions for investors are whether Afrezza gets approved or not, and whether it gets partnered or not….and we remain bullish on the outcome of both.

We reiterate our Market Outperform rating and 12-month PT of $18/share on MNKD. We reiterate our thesis that A) Afrezza should NOT be bundled together with Exubera et al. as just another inhalable insulin, but that it is a “better” insulin, that just happens to be delivered via inhalation, B) we believe that Afrezza will be approved by the FDA and will get to the market, C) the company will be able to secure a worldwide partnership for Afrezza, and that D) it is a product that in the long-run, has the potential to become a multi-billion dollar product. We reach our 12-month PT of $18 by using a 30x P/E multiple of our fully diluted 2013 EPS (the company’s second year of profitability) and discounting back using a 25% discount rate.

Hapoalim 2Q 2010 update


MannKind met with the FDA on June 9, filed its 19,000 page response to the Complete Response Letter on June 29 (including successful bioequivalence data for the Dream Boat inhaler), received a December 29 PDUFA date and is once again in discussions with potential partners. While Afrezza seems to be back on track, a re-filing was completely expected and gives us little insight into the approvability of Afrezza or the demand for the product from potential partners. We continue to have concerns over the long-term prospects of Afrezza and reiterate our SELL rating and $1 Price Target.

The Risks are Still Out of MannKind’s Control – While MannKind has re-filed Afrezza and received a December PDUFA date, we note that the risks to the program have not changed and are largely out of the Company’s control. The re-filing, a new PDUFA date and the re-initiation of partnership talks were all expected events that give little insight into the approvability and the potential partnership value of Afrezza.

Partnership and Panel Announcement are Next Potential Catalysts – MannKind is again in partnership discussions with both regional and global players. While less attractive, a regional (potentially Japanese) company would be the most likely partner, in our view. While we don’t expect a partnership until after full approval, a near-term partnership announcement is obviously a possibility. Aside from a partnership, we think, the next potential catalyst is the announcement of an expert FDA panel. We do not think Afrezza will be approved without first facing an expert panel.

Changes to Our Model – We are lowering our 2010-2012 operating cost and 2010 and 2011 share count estimates. Our new 2010-2012 EPS estimates are ($1.47), ($1.32) and ($1.22), from ($1.44), ($1.33) and ($1.25), respectively. We are also rolling out 2013 and 2014 EPS estimates of ($1.13) and ($1.06), respectively.

Valuation – Our price target of $1.00 for MannKind shares is based on a sum-of-the-parts model (factoring in our peak sales estimate of products, pipeline value, and shareholders’ equity).  The company ended the fourth quarter with a book value of approximately ($137.7) million.  We assign a value to the Afrezza program of $225 million, roughly value MannKind’s cancer vaccine program at $50 million, and roughly value MannKind’s GLP-1 program at $10 million.  We value MannKind at $147 million based on this sum-of-the-parts model, or approximately $1.00 per share.

Kudos to Al Mann for a well deserved award


My dad used to say, some men are born great, some men achieve greatness and some men have greatness thrust upon them. I think Al Mann belongs to second category. He is becoming a legend in our own times.

I’ve only three reasons for investing in Mannkind. They are Al Mann, Al Mann and Al Mann.

Here is the business wire article

Mannkind’s chairman and CEO Alfred E. Mann has been named to PharmaVOICE’s list of the “100 Most Inspiring People in the Life Sciences.” Mr. Mann was recognized for his extraordinary leadership and passion in his lifelong roles as a scientist, inventor, entrepreneur and philanthropist, for which he has received more than 70 honors from the public and private sectors, including life achievement and humanitarian awards. He was nominated to the list by peers, colleagues and friends who have worked with him throughout his career and who describe him as “boundlessly visionary and persistent.” Throughout Mr. Mann’s nearly 60 years in the life sciences industry, the octogenarian billionaire has founded 17 companies, devoting his professional life to developing innovative medical products and technologies to satisfy the unmet needs of patients with health issues ranging from diabetes and heart disease to hearing impairment and chronic pain.

You can read more about Al Mann in my old article “Know the Mann”. I’m conferring Al Mann a new title “The wizard of Valencia”

Monday, August 2, 2010

Wells Fargo 2Q 2010 update


MNKD: 2Q2010 Results A Non-Event, Raising Ests.
Maintain Outperform, Partnership Is Key

• Summary: We are maintaining our Outperform rating with Afrezza PDUFA set for December 29 and near term catalyst could be potential resolution of partnership situation. Key next step will be installing and validating
manufacturing equipment for the Dreamboat device. Cash burn of $37.8MM for 2Q; Management reiterated it has enough cash resources until 1Q2011. We are raising our 2010E EPS to $0.07 from $0.00 on lower Opex.

Maintain Outperform rating. FDA acceptance of MNKD response to Afrezza CRL as class II resubmission (6 months review) affirms our belief that Afrezza approval is likely. We are further encouraged by management's tone concerning partnership discussions and believe that NT catalyst for MNKD will be potential resolution of partnership agreement.

Key takeaways: Installation and validation of manufacturing equipment for Dreamboat is currently underway. Cash burn for 2Q was $37.8MM (lower than 1Q burn rate of $41MM). Management reiterated that it has enough cash resources to fund operations until 1Q2011, although management continues to
evaluate its options regarding financing.

MNKD's 2Q EPS loss was $0.37. This compares to consensus estimate of ($0.40) and our estimate of ($0.44). The beat was driven by lower Opex from lower Afrezza clinical development expenses and decreased HC/salary expenses. Because MNKD is a development-stage company, we believe near-term financial
results are of less importance than pipeline/partnership progress.

Raising our 2010E EPS to $0.07 from $0.00. The $0.07 increase is driven primarily by decreased Opex during 2Q 2010. Note that our estimate includes upfront payment of $200MM from partnership. Exclusive of the upfront payment, our 2010E EPS would be a loss of $1.69.

Valuation Range: $11.00 to $13.00
Our 12-month valuation range is based on a P/E multiple range of 14-16x our 2014 EPS estimate of $2.01, discounted for four years at a 25% rate. Risks to the stock trading to our valuation range include significant delays to Afrezza approval, and failure to secure a partnership agreement for Afrezza on favorable terms.

Investment Thesis:
We rate MNKD shares Outperform. MNKD's Afrezza could become the therapy of choice for the treatment of diabetes based on its performance, convenience, and ease of use. At the current share price, we believe the stock has a favorable long term risk/reward profile.


My comments:
What I found surprising in the Wells Fargo model was their revenue estimates for Afrezza. the numbers are in millions.

2011 - $101.4
2012 - $292.3
2013 - $525.5
2014 - $733.0
2015 - $924.8

JPM Mannkind 2Q 2010 snapshot


This morning, MNKD reported an in-line second quarter and reviewed the regulatory
and strategic progress for its lead asset, Afrezza (inhaled insulin).

• Key incremental takeaway: Partnership talks reinitiated, but timing remains uncertain. This morning, MNKD offered investors a regulatory and strategic progress report for Afrezza (inhaled insulin) as part of its 2Q update. Management not surprisingly remains enthusiastic about Afrezza’s regulatory prospects following
the recent announcement of FDA acceptance of the company’s June 29 amended NDA (with its next-generation Dreamboat device) and the assignment of a Dec 29 FDA action (PDUFA) date for the product. The company also offered that partnership discussions have resumed (with both old and new parties). Formal
minutes from the June 9th Type-A meeting with the agency have not yet been received, however, which may be limiting the current scope of discussions.

Notwithstanding the apparent regulatory progress, we continue to be circumspect about a pre-approval partnership given outstanding questions around labeling and possibly the ultimate market opportunity for the asset.

• 2Q results: in line. 2Q EPS ($0.37) vs. JPMe ($0.38) and consensus ($0.39). Nonetheless, we do not yet consider MNKD an earnings-driven story.

• Estimate revisions: only minor changes. We have tweaked our estimates slightly to reflect the updated quarter. Our outer year forecasts are essentially unchanged.

• Balance sheet status: something needs to be done, soon. MNKD ended the Q with just $32M in cash, although the company does have access to an additional $108M (of an initial $350M line) from CEO Al Mann. After burning $38M, the balance sheet is getting tight, with current capital likely sufficient to support
operations through 1Q11. Options to extend the runway include more restructuring, an Afrezza deal, another loan from Al Mann (may or may not be feasible), or tapping the capital markets. Recall that MNKD filed a $200M shelf in April.

• Key upcoming events: Afrezza partnership/PDUFA. The 12/29 PDUFA and a potential Afrezza partnership are the 2 overwhelming events to watch for MNKD.

• Impact to our UW investment thesis: negligible. Today’s update does not change our view on MNKD. The company’s apparent regulatory progress is commendable. However, we maintain our UW rating given the company’s ~$1.1B EV in the face of regulatory, labeling, strategic, and commercial uncertainty. Still, with a short interest of 25% and high retail interest, we suspect trading could remain volatile.

What should people with Diabetes expect from Afrezza?


I thought I would jot down some points for a future patient who is planning to use Afrezza. This is definitely a game changer. I’ll revisit this topic later to make some updates if necessary (for errors and corrections). Don't forget to read & understand the disclaimer in the end of this article.

1. Dosage & Titration:

For Type 2

           This is a big deal for patients using insulin. If you think Afrezza requires training, then you wont believe how much training physicians give to patients to train them on dosage. The current users of prandial insulin have dosage and titration reduced to an art form. Any mistake in dosing results in either severe hypos or high blood sugar. The current RAA (like humalog, novolog etc) are also difficult in terms of calculating the correctional dosage. As current RAA stays in the body for long, you’ve correctional dosage stacked on top of earlier dosage. The risk of Hypos in correctional dosage is also of concern. It’s the Yo-Yo that bothers diabetics.

      Here comes the best part. In Afrezza dosage and titration are not of great importance. Before you scream that this is a sales pitch, look at the chart below. You can not imagine Eli Lilly or Novo Nordisk attempting to pull this off (giving rapid acting insulin in patients who have not taken meal)

ppg breakfast challenge

ppg lunch challenge

      If you are picture challenged, here is what you need to understand about Afrezza. Even If you take Afrezza without a meal, there is a low chance of a hypo. The variations in PPG is very low even with no meal or 200% of normal meal. In a study 46% of patients using injections misinterpreted dosage in instructions. (From rethink insulin website). This issue should go away with Afrezza.

The reason for this low variations in PPG is due to the unique pharmacokinetics of Afrezza.

For Type 1:

     Dosage and titration may be as important, but correctional dosages should be easier to compute. Since Afrezza comes in 2 or 3 standard blister packs,

2. Start insulin early:

The earlier you start, the better off you are.

A lot of articles have been written on this. Best place to go is rethinkinsulin.com, which is a website by Sanofi Aventis that wants Type 2’s to go on Basal. The fact is, Type 2’s need Prandial insulin, but it becomes a hard sell. How do you convince patients to take injections 3-5 times a day when they think that the disease hasn’t worsened? Afrezza is the answer.

We would a paradigm shift in the treatment in the next couple of years. The theme will be “Use Afrezza and halt beta cell decline”.

  • Before insulin initiation, patients may have spent an average of about 5 years with an A1C >8% and nearly 10 years >7%
  • At diagnosis, up to 50% of a patient's β-cell function may have been lost, and may continue to decline by about 5% annually

beta cell decline

    Feel free to read my old article to learn more about the decline.

3. Side effects

No more hypos, no more injection site reactions, and allergic reactions, including itching and rash. You will get non-productive cough that goes away in 99+% of patients in a few days. You may undergo periodic lung tests. The initial lung function decline (probably around one third of 1%) is non-progressive & reversible. It is possible that 1-5% may quit using Afrezza due to lung issues (like cough, bronchitis etc).  As no permanent damage has been observed in trials to date,  I believe one one will get discouraged from trying Afrezza.

I think for Type 2, this captures the risks well. What the PR/Posters/Journal articles show is “ANY CHANGES IN LUNG FUCTION ARE STATISTICALLY INSIGNIFICANT”. It is worthwhile to note that we are comparing the effects on lung function for a drug that uses lung for delivery (Afrezza) and other that is injected. Pic is from link


I’ve reviewed some of these in detail in this article.

Lung function is something that will be discussed ad nauseam now and later. It is totally strange that it took humans to decades to accept that Smoking causes cancer, decades to know that asbestos causes mesothelioma. I’ve seen old advertisements in Time magazine of DDT which is still used in developing countries. There are so many inhaled products used in the market. But when it comes to inhaled insulin, the prevailing sentiment of medical community and others can be summarized by this picture. Many of them don't want to hear, see or talk about the evidence that Mannkind is presenting. Why prejudge? The lung cancer in Exubera patients was less than the percentage in general population.

(From L-R, biotech analysts from Oppenheimer, Hapoalim and Leerink Swann)


   What is needed is a scientific approach and I hope FDA adheres to that.

4 . Tighter control of blood sugar, less bg testing

You should expect way less variations in bg level, so frequent testing of blood sugar level is not necessary. So way less finger pricks.

5 . When to start on Afrezza

We’ll see rewriting of old rules. Once Lifestyle change + Metformin doesn’t give desired results, you’ll start taking Metformin + Afrezza.

6. Other benefits

a) No more needle phobias

b) No pain and yes gain

c) Zero injection site variability

d) Make pancreas last longer

e) Normal A1C’s

f) Low glycemic variability; read Dr. Hirsch article

g) Little or no finger pricks for bg checks

h) Adhere to ADA guidelines

ada guidelines

i) Show off your brand new inhaler toy; And ladies, pick the inhaler that matches with your bag. Rappers can personalize & add bling with some diamond studding's.

j) Take insulin discreetly where you want it & when you want it.


7. Other facts

a) Afrezza is only for meal time insulin

b) Afrezza doesn’t cure diabetes

c) Afrezza can cause light hypos; (read the experiences of some participants; link)


The product is not yet approved by FDA (PDUFA date is Dec 29 2010). FDA will come up with all the instructions once it is approved. Once approved, you should go to fda.gov and search for Afrezza to get the necessary information. For more details, go to official Mannkind website www.mannkindcorp.com

Disclaimer: “Yours truly” is giving all this information from an investor point of view, One should consult a physician if one intends to use Afrezza {or any medication for that matter :)} Also read the general disclaimer on the right section.