Q3 2010 MannKind Earnings Conference Call: summary

I took some notes while listening to the Q3 2010 earnings call. I only captured what I thought were relevant.
Any text in italics are mine. Once again Al Mann did an excellent job of presenting the benefits & prospects of Afrezza. Not all of the following is verbatim.
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Matt Pfeffer (CFO): 

• Raw materials were purchased
• Cash on hand at end of quarter 98MM
• Cash on hand + Credit facility (not including seaside) 196MM
• Mannkind has enough cash until end of Q3 2011

Hakan S. Edstrom (COO):

• NDA is progressing for Afrezza
• Preparing for commercialization
• MKC1106 Oncology phase 2 has started
• No feedback from FDA regarding any concerns
• On minutes: FDA is focused on resubmission, so minutes have taken a lower priority
• (regarding the Amylin CRL & unpredictably of FDA) Amylin didn't perform QT
• Partnership will be more favorable if Afrezza is approved or if label is finalized
• Continuing the negotiations with Partners; difficult to finalize it before PDUFA
• Packaging machines are in Danbury, CT
• To differentiate Afrezza, more trials are planned

 Peter C. Richardson (CSO):

• NDA is progressing normally
• No indication of an advisory committee
• Small pilot studies are planned and will be followed by larger trials (it seems the larger trials will start after partnerships and will be funded by the partner)

Alfred E. Mann (CEO):

• We don't expect closure on partnership until label is finalized
• We are preparing for commercial readiness; filling & packaging equipment were delivered in August
• At current capacity, we can produce 400 cartridges/min to take care of 400,000 patients. At full capacity the Danbury plant can produce cartridges for 2MM patients generating $4 Billion in revenue at current prices of rapid acting analogs. (Al Mann talked in detail as to why the preparation for commercialization is justified) 
• We are confident of rapid & substantial penetration in the market place because of the many significant and unique benefits of therapy using Afrezza for treatment of diabetes
• Insert one simple convenient discreet delivery
• No need for complex titration
• A1C comparable to today's best standard of care
• Less hypoglycemic risk
• Lower post-prandial highs
• Lower fasting glucose levels
• Less weight gain
• Little need for meal time glucose measurement
• Afrezza is well tolerated
• We have not identified any safety signals, we'll not recommend it to patients with compromised lung function
• It meets the poorly met need in a burgeoning market, such an advanced therapy could not be more timely
• USA's Center for Disease Control release frightening prediction.By mid century prevalence of diabetes in will be 21-33% of US population
• FDA asked for no new trials, but additional trials to expedite penetration after launch (Peter talked about 3b, 4 studies for later label expansion). Those trials are being initiated as small pilot studies before partnership. Our intention is for expansion of these studies to be funded by our partner. The objectives are to reinforce the benefits that I've just outlined and to demonstrate better A1C's compared to Type 1&2 basal/bolus therapy and mono therapy in earlier stage Type 2 patients.
• We are generating Echo cardiogram for market authorization application in EMEA europe
• All this leads to my comment on the market opportunity for Afrezza. Based on my long experience in this field, I believe Afrezza has the potential to change diabetes therapy
• In patients with Type 1 diabetes, Afrezza insulin for prandial control in conjunction with optimized long acting insulin may prove to be the best therapy until we find a cure for this devastating disease
• We are working with JDRF to explore the Afrezza/basal pump combination
• For Type 2's, based on my understanding of the mechanism of the disease, Afrezza may play an important role in the early management of the disease. After all, the underlying disease progresses with the loss of prandial glucose control. Earlier use of prandial insulin is not being pursued in the past largely because of the deficiencies of the current product. Many KOL's (key opinion leaders) believe that there will be an important role for earlier use of ultra fast acting insulin that will contribute to preventing the progression of the disease.
• In past, some people questioned the approvability of Afrezza. Most of those doubters now seem to shifting to question the size of the market opportunity of Afrezza. This negativity seems to be based on the incredible failure of Exubera. It is foolish to compare these two wildly different products. This comparison makes no sense at all. Interestingly this skepticism is limited to those only in finance community. We see very little skepticism by patients or by health care professionals, not by specialists, not by PCP, not by nurses and not by diabetic educators. 
•  On contrary there is substantial interest in Afrezza. This has been reflected in various surveys including those done by "Close Concerns" at their last ADA convention. Before phase 3 completion, and just after Exubera failure, the survey said 20% will use Afrezza in their practice. A year later as they learnt about the benefits of Afrezza it went to 48%. In June of this year, people increasingly realizing the importance of Afrezza, 95% said they'll consider using it. Close concern survey is not a rigorous market evaluation, but there currently is a minimal concern and an increasing interest amongst diabetic professionals.  
• We contracted number of marketing studies; in one such study involving 611 physicians, divided evenly between PCP's & endos, 25% or more said they'll prescribe Afrezza (after reviewing an actual patient file). It was higher in Spain and Italy and less in Germany
• Our prediction of a multi-billion dollar opportunity (along with partners) may prove to be conservative

Other Q&A highlights:
        Simos Simonidis of Rodman & Renshaw asked if we may get another CRL. Hakan said we've no indication of that with our interactions with FDA.We anticipate Label/REMS review at the end of the review cycle. Not planning to launch at beginning of year, we couldn't launch before 2nd half of next year. Partnership timing is insignificant (dec or early next year). We are not building inventory, machines going through qualification, validations etc. We'll start making powder not in distant future. EMEA filing: package is coming together; hoping to submit with a partner;

Wells Fargo Q3 2010 comments

MannKind Corporation (MNKD-NASDAQ)--Outperform (1) / V
Price as of 10/29/2010: $6.38
FY 10 EPS: $-1.57
FY 11 EPS: $0.71
Shares Out.: 113.1 MM
Market Cap.: $721.58 MM
Sector Rating: Specialty Drugs, Market Weight

Keypoints
* Summary: MNKD raised $100MM in Q3; cash burn was $38.5MM. We estimate MNKD is now positioned to fund operations into 2012. Q3 loss per share was $0.40 versus $0.39 consensus and our $0.46 loss estimate. Revising 2010E to a loss of $1.57 from EPS of $0.05, 2011E from loss of $0.97 to EPS of $0.71 on expectation that partnership is more likely in early 2011 than Q4 2010. Maintain Outperform on Afrezza potential.

* Maintain Outperform rating. We continue to like Afrezza's potential and are more comfortable with MNKD's improved liquidity (versus Q2 2010). We await news of Afrezza partnership or an FDA decision (PDUFA: 12/29/2010) as the next potential catalyst.

* Cash burn for Q3 was $38.5MM, modestly higher than $37.8MM in Q2. MNKD raised $100MM in Q3 2010 via $100MM notes offering and $4.3MM through a Q4 share sale. Cash at the end of Q3 was $98MM and $98MM remained available under an existing loan agreement. Given a cash burn rate of $38MM per quarter, we estimate MNKD has enough cash and available credit to fund operations through early 2012 without a partner. Additional Seaside share sales could add about $100MM (assuming completion of all remaining sales) and extend cash for an additional three quarters.

* Key Q3 2010 takeaways: (1) Management has seen nothing to suggest Afrezza delays beyond PDUFA; management does not plan to discuss process again ahead of PDUFA. (2) Partnership discussions continue but are unlikely to close before label finalization. (3) Operations likely funded through early 2012 without additional share sales. (4) Validation of manufacturing underway; launch expected H2 2011 given on-time approval.

* MNKD's Q3 loss was $0.40 per share versus consensus loss per share of $0.39 and our $0.46 loss estimate. In our view, near-term results are of less importance than pipeline advancement or partnership events for MNKD as a development-stage company.

* Revising 2010 and 2011 estimates to $1.57 loss and EPS of $0.71 from EPS of $0.05 and a loss per share of $0.97, respectively. We now model Afrezza partnership and receipt of a $200MM milestone payment in early 2011 (previously Q4 2010). As a result, we estimate 2010 revenue of $0.1MM, net loss of $179MM; in 2011, we model $301MM revenue, $87.7MM net income.

Hapoalim Q3 2010 comments

 

MannKind reported 3Q10 EPS of ($0.40), $0.02 below our estimate of ($0.38) on significantly higher-than-expected R&D spending. More importantly, the company stated that it does not expect to partner Afrezza until after an approved label is available. Because of the FDA’s bias against approving new products and because no expert panel is scheduled ahead of the December 29 PDUFA date, we continue to expect Afrezza to get a Complete Response Letter. We reiterate our SELL rating and $1 Price Target.

The Unknown Unknowns – With the FDA’s recent string of Complete Response Letters (CRL), several things are apparent to us. First the FDA remains risk averse which we think this is a major problem for MannKind since the FDA has already questioned Afrezza’s clinical utility. Second, the FDA is focusing on extremely small details and since the Afrezza trials were done using different generation devices, it may have created an opportunity for the FDA to nitpick comparability. Third, the FDA can bring up different and new issues in consecutive CRLs. Because MannKind responded to its initial CR letter without even having the “official” minutes from its end of review meeting, it is possible that the company has not properly addressed the “official” concerns of the FDA. Finally, the issues the FDA brings up are often previously unknown to investors and often unknown to the company itself.

Changes to Our Model – Based on higher than expected spending in the quarter, we are increasing our 2010-2014 operating cost estimates. We are increasing the estimated share count for 2011-2014 as the company would need to offer more shares to generate sufficient capital to cover the additional operating costs. Higher costs lower EPS for 2010 and 2011 and increased dilution decreases the EPS loss for 2013 and 2014. Our 2012 EPS estimate remains unchanged. Our new 2010-2014 EPS estimates are $(1.55), $(1.39), $(1.22), $(1.11) and $(1.03) and from ($1.47), ($1.32), ($1.22), ($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 ($181.4) million.  We assign a value to the Afrezza program of $250 million, roughly value MannKind’s cancer vaccine program at $75 million, and roughly value MannKind’s GLP-1 program at $10 million.  We value MannKind at $153.6 million based on this sum-of-the-parts model, or approximately $1.00 per share.

Rodman & Renshaw Q3-2010 comments

MNKD reports 3Q10 numbers: MNKD reported 3Q10 financial results, including a net loss for the quarter of $45.3M or ($0.40)/share, slightly higher than our net loss estimate of $42.6M or ($0.38)/share, and the consensus net loss estimate of $44M or ($0.39)/share. Operating expenses were $42.5M, in line with the $42.8M spent in 3Q09. R&D expenses of $31.4M were 3% higher compared to the $30.5M spent in 3Q09, while SG&A expenses for this quarter were down 9% compared to 3Q09 ($11.1M vs. $12.3M in 3Q09). The net burn for the third quarter was $38.5M. During 3Q10 MNKD issued Senior Convertible Notes of $100M and also entered into two separate share sale agreement with Seaside 88 and The Mann Group respectively. MNKD ended 3Q10 with $98M in cash or ~$0.86/share, and guided that current cash and the remaining $98M from the line of credit extended by Al Mann is sufficient to fund the company through 3Q 2011, without factoring in additional funding. Partnership talks for Afrezza are ongoing, and with 60 days left before the FDA’s decision, we do not believe a deal will be finalized prior to approval. Finally, the company reiterated its plans of not launching Afrezza on its own, but rather waiting for a partner to do the launch.

With PDUFA 60 days away, the big question is: could the FDA’s current conservative stance around diabetes drugs translate to another CRL for Afrezza? We continue to believe in Afrezza’s approvability, given the efficacy and safety dataset and the fact that we are dealing with insulin and not a new chemical entity….but we believe that the current climate in the FDA, especially regarding diabetes drugs, increases the risk and the possibility of a second CRL, and makes us cautious on whether we’ll see an approval or whether the FDA may come up with something new to ask for, resulting in a second CRL by 12/29/2010. We believe the company has addressed all the issues the agency has brought up to date, but, and despite our positive outlook on Afrezza’s approvability, we would not be surprised if the agency pulled another Bydureon (AMLN Not Rated) and asked MannKind for something new the two sides have not discussed before. This is an issue that is very difficult to predict or handicap and while we acknowledge the risk, we continue to remain cautiously optimistic on the eventual approval of Afrezza.

Despite the agency’s current unpredictability, we are reiterating our long-term thesis on MNKD: we continue to expect Afrezza to surprise, be approved, partnered and in the market. While we acknowledge the increased risk introduced by the current climate at the FDA, especially around diabetes drugs, 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 reiterate our Market Outperform rating and 12-month PT of $18/share on MNKD. 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.

ABC news: Diabetes to Double or Triple in U.S. by 2050: Government

Link to ABC news; 
It is projected that 1 in 3 will have Diabetes by 2050.






This has a lot of implications 

1) Loss of productivity; decline in GDP; 
2) A threat to national security as diabetics are not allowed in battle grounds. Afrezza makes perfect sense for soldiers with diabetes.
3) An increase in unfunded liabilities like medicare/medicaid as the costs of handling diabetic complications skyrocket
4) The way African nations are unable to handle the HIV/AIDS issue now, the world will be unable to manage the diabetes epidemic

Feel free to read my old article "How to devastate humanity and bankrupt the world "

Wells Fargo securities update – Oct 22, 2010

 

Wells Fargo securities issued an update yesterday regarding debt conversion and QT study. Here are the key points.

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

Price as of 10/21/2010: $6.26
FY 10 EPS: $0.05
FY 11 EPS: $-0.97
Shares Out.: 113.1 MM
Market Cap.: $708.01 MM
Sector Rating: Specialty Drugs, Market Weight

Keypoints

* Summary: MNKD sold 0.7MM new shares and converted $5.0MM in debt to 0.7MM new equity shares. Transaction is likely to recur on two week interval (provided 10-day VWAP is >$6.49). Reducing 2011E loss per share to $0.97 from $0.98 to reflect higher share count. In our view, the additional cash and improved bargaining position with potential Afrezza partners outweighs the dilutive impact of these transactions. Valuation unchanged at $11-$13 (14-16x 2014E EPS of $1.95, r=25%, 4yrs). Maintain Outperform on Afrezza potential and think the next catalyst will be a partnership agreement.

* MNKD sold shares and converted debt under previously established agreements. The structured agreement between MNKD permits Seaside 88 to purchase 0.7MM shares every two weeks (for 50 weeks) from 9/22/10 at an 8% discount to the 10-day VWAP, provided VWAP is at least $6.50 (See 10/19, 8/11 notes for more details). At the 10/20/10 close, the transaction would have occurred at $6.19 (an 8% discount to the $6.72 VWAP) for total consideration of $4.3MM. Via a separate related agreement, the Mann group acquired 0.7MM shares by conversion of $5.0MM in debt holdings ($7.15/sh, 0.7MM sh).

* Narrowing 2011E loss to $0.97 per share (previously $0.98) on increased share count estimate. The transactions resulted in the aggregate issuance of 1.4MM new shares. As such, we now estimate 2010 and 2011 share count of 120.9MM and 123.4MM (previously 120.5MM and 121.8MM), respectively. We model no change to our 2010E EPS estimate.

* We view the transactions as a positive -- bolstering cash position should improve bargaining position with potential Afrezza partner. In our view, the cash that these transactions could provide would enhance MNKD's bargaining position, allowing the company to retain more of Afrezza's potential value. Though modest dilution will result from the issuance of new shares, we think the modest reduction in interest expense and potential for an incrementally better Afrezza deal should offset the negative impact.

* Separately, MNKD released clean results from a previously performed QT study. Recall in the Bydureon (LLY, AMLN, ALKS) CRL, the FDA requested a QT study. A similar request would be unlikely for an insulin product, in our view, but a QT study was conducted for Technosphere, Afrezza's delivery platform. We think the prospective FDA review and clean results minimize the risk of a related Afrezza setback. See details and exhibits below.

Technosphere® QT Study – Oct 21-2010

 

This article has been posted recently in Mannkind website’s Media room. The media room has lot of articles. The link to the Technosphere QT study is here. I recommend readers to read the article in entirety. It is very clear that FDA is very sensitive to CV risk. The recent FDA’s feedback on Bydureon doesn’t help either. It looks like Mannkind corp has proactively performed the study to make sure that Technosphere particle does not cause any  CV issues.

The first page in the pdf has this:

To date there have been no data to suggest cardiovascular effects in animals or humans
that would be attributed to Technosphere® particles. Following careful review with FDA,
it was agreed to thoroughly assess Technosphere as the New Chemical Entity in
Technosphere Insulin.

To definitively assess the potential for QT prolongation, 48 healthy subjects were
randomly assigned a sequence in a crossover trial to receive one of the four treatment
regimens: Technosphere (FDKP) 20mg, Technosphere (FDKP) 40 mg, placebo and
moxifloxacin (positive control) 400 mg.

A centralized, independent ECG reading lab was used to read the ECGs with
interpretation by a high-resolution manual on-screen caliper method with annotations to
minimize inter-reader variability. The central ECG laboratory was blinded to subjects and
their treatment. All treatments included a single baseline of the mean of 18 ECGs just
before each dose of treatment. The study protocol was prospectively reviewed by the
FDA and complied with "E14 Guidance to Industry: Clinical Evaluation of QT/QTc
Interval Prolongation and Proarrhythmic Drugs for Non-Antiarrhythmic Drugs.

The validity of this trial was demonstrated by the following:

• The moxifloxacin positive control group showed the expected small change in
QTc duration.

• The placebo group’s change from baseline was within 3 ms for QTcI and
shows that the spontaneous factors for QTc change were very well controlled.
The results of this ECG trial showed no signal of any effect on heart rate, AV conduction
or cardiac depolarization as measured by the PR and QRS interval durations. There were
no new clinically relevant morphological changes.

The effect of Technosphere on cardiac repolarization using the QTcI interval and the
pharmacokinetic-pharmacodynamic relationships demonstrated no signal.
It was concluded by the independent analysts that this trial was well conducted and valid
(assay sensitivity being reached and placebo group showing control of background QTc
variability), and the results of this Thorough ECG Trial demonstrated that Technosphere
had no effects on heart rate, PR and QRS interval duration or cardiac morphology. The
effects on cardiac repolarization by the preponderance of data, including a careful
pharmacodynamic-pharmacokinetic analysis also show that Technosphere has no effect
on cardiac repolarization.

 

A physician in mid-west comments on Afrezza

 

This physician (sorry, I cant reveal his/her name) is a Professor and Director of a Diabetes center in mid-west. He has seen first hand the efficacy of Afrezza. In one of the conference call sponsored by a research institution, I heard him say “Afrezza is too good to be true”. He has 38 years of experience and practices diabetes, metabolism & endocrinology, geriatric medicine and internal medicine in mid west.

This is what he has to say about Afrezza in a Q&A session.

Patients don't want Injected Insulin

Patients, not endocrinologists, want inhaled insulin and that will be
the driver

Afrezza has a lower propensity to hypoglycemia

Exubera fiasco caused FDA not to like inhaled insulin

FDA has now realized it can’t stop inhaled insulin; FDA won't have a good reason to block approval. FDA will give in this time. It will be a conditional approval subject to the data on the new inhaler; FDA did not get enough data on the new inhaler yet

Mannkind will get a partner upon approval

Sanofi Aventis is the by far the best partner fit

Mannkind is dealing with financial circumstances beyond it’s control due
to Exubera

Afrezza would be great for kids

Better kinetics than RAA

What Mannkind has been saying about Technosphere Insulin is true

 

JMP securities Mannkind upgrade – oct 19-2010

Initiating Coverage with Market Outperform Rating

1) Upside on approval and partnership but commercial uptake will likely require patience;
initiating coverage on MannKind with a Market Outperform rating and $11 price target.

2) Assuming that approval and partnership can be achieved by mid 2011, we believe the stock can appreciate to our $11 price target, which is derived by our discounted cash flow valuation methodology, assuming sales of $519MM in 2015, an 85% probability of success, and 30% royalty rate to MannKind.

3) The primary outstanding issues with the FDA appear to be confirming the benefit of Afrezza
in T1DM and finalizing the REMS program. We believe the primary reason the FDA issued a
CRL for Afrezza was results of the pivotal trial in type 1 diabetics. This trial demonstrated that
although Afrezza provided effective glycemic control and provided additional benefits including
reduction in hypoglycemia and weight gain, there was ambiguity over whether the trial met the
statistical non-inferiority margin. Although, encouragingly, the CRL did not call for new trials, this
continues to be a point of debate for the stock. We believe that the new data from the 117 trial
provided to the FDA adequately address the non-inferiority question. Moreover, even if the FDA
does issue a second CRL, we are confident that no new large clinical trials will be required, as
outlined in our scenario analysis on page 4, representing significant upside, in our view.

4) A challenging market to develop but one with blockbuster upside potential. In our view,
commercial success for Afrezza will be dependent on securing a partner, and we believe multiple
parties remain engaged in this process. We are confident that, following approval, MannKind can
rapidly complete a commercial partnership for Afrezza with terms favorable to MannKind and its
investors. Additionally, in contrast to the current consensus view, we believe that a partnership may
be secured in 1H11 even with a second CRL, providing upside to the stock. However, we caution
that, while further data are generated to differentiate Afrezza from currently available insulins,
patience will be required before exponential acceleration of the launch trajectory begins.

Valuation:
We value MannKind solely on Afrezza and include no value for pipeline programs. (my comment, Revenue starts at 61MM in 2012 and increases to 969MM in 2018; shares outstanding 162.2MM, WACC 10.7%)
 
Key investment points:

- The next step in improving insulin therapies.

- Complete response letter increases confidence that Afrezza will be approved and new data
available to push it over the goal line.

- Inclusion of new delivery device in NDA resubmission incrementally increases regulatory risk
but should not present an unsurpassable hurdle.

- Following approval, further upside lies in securing a partner; we are confident that Mr. Mann will
drive a hard bargain.

- Our expectations for partnership terms. Assuming that, as with these two deals, MannKind’s first
partnership for Afrezza is focused on the U.S. market, we would look for similar economics to these
examples. We believe, given our expectation of a deal for Afrezza shortly after approval, that MannKind
should be able to secure an upfront payment of approximately $150MM. We would also expect
substantial sales-based milestones (likely approaching or exceeding $1 bil). We believe that, as not only
the clinical risk but also the regulatory risk will have been fully assumed by MannKind, a strong royalty
rate can be secured and look to a rate in the 25-35% range. Finally, our preference would be for a
structure similar to the Arena deal for product manufacture and supply with MannKind supplying
finished product. MannKind has invested significant resources and generated significant expertise in the
manufacturing processes for Afrezza. We believe that this justifies additional value being attributed to
the company. First, the delivery device has been optimized to a highly convenient footprint. Additionally,
MannKind has previously secured a supply of insulin sufficient to sustain a hugely successful launch as
well as obtained equipment and licenses to manufacture further insulin supply. In our view, maintaining
control of the manufacture and supply of product to the commercial partner both reduces uncertainty
over royalties due and retains the attractive manufacturing margins that MannKind has accomplished.

- Lung cancer risk more hype than science

- Conservatively anticipating labeling language to exclude at-risk lung populations and REMS to
include simple spirometry testing prior to initiation of therapy.

- Exubera legacy must be overcome no matter how flawed the concerns and comparisons are.

- A challenging market to develop but the opportunity is great.

A guide for newbies

This post is directed more towards newbie who is hearing Mannkind corp for the first time.


What does Mannkind corp do?
Mannkind is a biopharmaceutical company, focuses on the discovery, development, and commercialization of therapeutic products for diabetes and cancer. Its lead product candidate, AFREZZA, a rapid-acting insulin that has completed Phase III clinical trials for the treatment of diabetes in the United States, Europe, and Japan.

Who is running Mannkind?
Alfred E. Mann. If you don't know jewelry, then know the jeweler. Al Mann is a pioneer in the field of medical devices and diabetes with a long list of accomplishments. He is a billionaire octogenarian philanthropist, who has the compassion of Mother Theresa and business acumen of Warren Buffett. His goal in life is to help improve people lives and the unintended consequence is that he always makes money for those who invested with him.

Who are the competitors?
The mealtime insulin market is dominated by three players. Eli Lilly (Lispro- marketed as Humalog with sales of  $2 Billion), Novo Nordisk (Aspart- marketed as Novolog with sales of $7 Billion) and Sanofi Aventis (Glulisine marketed as Apidra with sales of 0.75 Billion). All sales figures are for worldwide in $.

What is insulin?
Insulin is a hormone produced by the pancreas that regulates the level of glucose, a simple sugar that provides energy, in the blood. In type 1 diabetes, the pancreas stops producing insulin; in type 2 diabetes, the body becomes resistant to the insulin the pancreas produces.

Why would anyone use Afrezza?
Afrezza is an inhaled form of insulin that is given during meal time. Afrezza works better than the existing meal time insulins because it closely mimics the natural insulin that is secreted by the body during meal time. In the trials, Afrezza has shown superiority over existing meal time insulin in the market. It has the potential to eliminate at least 3 injections per day as Afrezza is inhaled. The industry leaders opine that Afrezza can reduce long term complications from Diabetes due to its unique quality.

The trial participants love Afrezza. Mannkind has done numerous surveys to assess the market potential.

Pfizer's inhaled insulin Exubera failed. Why would Afrezza succeed?
This is an oft-repeated argument against Afrezza. Exubera failed due to many reasons. Exubera had a bong-sized inhaler, Exubera's insulin was very expensive and didn't offer any advantages over existing meal time insulin. Pfizer did a poor job of marketing Exubera and most insurance companies refused to pay.

Afrezza's inhaler is whistle sized, it costs are comparable to other meal time insulin and has established superiority in trials.

Am I late to the party?
The party hasn't started yet. If you buy the stock today (Oct 15th 2010), you are paying less than what Mr. Mann paid to acquire shares from market, secondary offerings etc. The company has spent around $1.5 billion developing this product and is valued currently at half of the money spent. Diabetes is a growing epidemic. Just look at Novo Nordisk's market cap to see the potential.


What's the upside?
The market research indicates that Afrezza is a billion dollar opportunity. If you assume that Afrezza will reach a billion dollar of sales, you can easily value it at a sales multiple of 5. Al Mann's previous venture Minimed got sold to Medtronic and the stock holders who bought at IPO made 100 times return. The upside is huge if Afrezza's technology (called technosphere) becomes a platform for inhaled drugs. There are also two phase 2 cancer drugs in the pipeline. 



FDA will decide Afrezza's fate on 12/29/2010 (called PDUFA date).  



What are the risks?
This stock may not be suitable for widows and orphans.The stock hasn't priced in Afrezza's potential. FDA already gave feedback for the first submission and had asked for no new trials. The FDA also has allowed pediatric study (for children ages 4 and above). The chances of rejection are negligible. A delay of few months is possible. The carrier molecule of Afrezza is FDKP and it has been tested extensively for safety.

What is the symbol of Mannkind?
MNKD.

Who is the partner for Mannkind?
Mannkind is in advanced negotiations to get a marketing partner. Mannkind owns manufacturing plants to make Afrezza, it owns insulin for $15 billion of sales. You may see Mannkind sign up a partner in the next few months.

What about financing?
Mannkind has completed most of the trials and the cash burn is reducing in recent quarters. Mannkind completed a $100 million convertible offering with Bank of America, signed up an offering to sell shares through Seaside (in the same deal, the debt Mannkind owes to Al Mann gets converted to equity). Mannkind also has a line of credit of $300 million with Al Mann. You can read CFO's comments in this sec link. Their cash on hand should last little beyond 2011. Any partnership should alleviate any cash concerns.

Where can I go for more information?
A great place to start is Mannkind's website. Click on sitemap button in this blog for more information.

Jim Cramer interview with Alfred Mann - Oct 14, 2010

Airtime: Thurs. Oct. 14 2010 | 6:51 PM ET

Cramer goes one on one with Alfred Mann, MannKind chairman/CEO and discusses the health of disease fighting plays in the market.

Catalysts for MNKD price appreciation

    An old Chinese saying goes, “May you live in interesting times”. It can’t get any more interesting for Mannkind shareholders. The Mr. Market is in a dour mood right now though when it comes to Mannkind shares. The reason for investing is to make money and let us explore the near term (1-3 years) catalysts that can cause some price appreciation. This is purely speculation and I’m assuming that FDA will approve Afrezza on time by PDUFA date of 12/29/2010.
Note of caution: If one or more catalysts act at the same time, we may not see the cumulative effect. The current price is around 6.5 (Oct 06-2010). The percentages shown in the table are in reference to the current price.

Catalyst	Time frame (months from approval date)	Reason	% jump in price/ share
Short covering	-1 to 3 months	There is a massive short (22% of float) of 14 million shares. You can track it here. Short covering is the buying back of shares from open market to cover the sold ones. This can cause a massive spike in price.	> 25%
FDA approval	0	Merrill/Bank of America predicts that upon approval, MNKD may double to 12.	> 75%
Domestic partnership – Afrezza	-2 to 3 months	Partnership validates everything what Mannkind has been doing (along with FDA approval). The terms of the deal will be interesting as Mannkind owns the patents, raw material, manufacturing plants etc. Mannkind needs the partner only for sales/marketing support.	> 50%
Partnership  for oncology	Anytime	The deal may not be substantial (maybe milestone related), but may jump start the oncology program & reduce cash burn. Only phase 1 has been completed for two drugs (MKC1106-MT & MKC1106-PP	>20%
TI Platforms	-1 to ..	This holds the most promise and in theory can be bigger than Afrezza. We’ve had Rose pharma working on some GLP-1 drug. The TI platform will take off if Afrezza takes off.	tough to predict; can be substantial
International partnerships -Afrezza	1-12 months	Partnerships in developed countries will bring more attention;	> 20%
Approval in Europe	~ 8-12 months	Approval in Europe and OK from UK Nice and German counterpart can cause good upside in stock price.	> 50%
Approval in other countries	~ 6-12+ months	Sales can be huge for developing countries like Brazil, China and India.	> 1%
Sales to countries having socialized medical care	1 - 12+ months	In recent JMP securities call, Al Mann hinted at $200million dollar sales (probably Israel) to a country; if this gets official we’ll see a nice pop. This is recurring revenue and may happen for more countries.	> 5%
Report of US sales	3-6 months	After FDA approval and partnership, this is the single biggest factor that can cause a huge price appreciation. IF we get a QoQ sales% of 100%+, upgrades will follow quickly	> 1%
Upgrades by analysts	1 – + months	Analyst community (with few exceptions) are skeptical, if they change their mind and upgrade, the herd will follow. Upgrade is not an one time event, this can occur multiple times as they adjust their sales projections.	> 10%
Patient feedback on blogs, forums, twitter, email, ..	1 +	We already got positive feedback from trials surveys. In an interconnected world, NEWS WILL SPREAD FAST.	tough to predict; not a single event driven
Comments from Key opinion leaders	1+	Key opinion leaders like Dr. Jay Skyler can influence the physicians thinking and perception	tough to predict; not a single event driven
Ad blitz	2+	This creates an awareness in general public; Both diabetics and general population will know about Afrezza.	tough to predict; not a single event driven
Research articles, Academic article, articles in leading magazines	1+	Imagine a million articles in Fortune, Forbes, Business week, .. can create lot of buzz	tough to predict; not a single event driven
Publishing other trial data	6+	The data from Afrezza trials that are done to show superiority will create more buzz.	> 10%

I’ve not tried to give outlandish percentages. For some it may look conservative and for others it may appear crazy. The market is always prone for irrational exuberance's and manic depressions. I’m of the firm belief that price appreciation will be gradual after FDA approval/partnership. We may not see Dendreon style jumps. It will be predicated on revenues.