Wednesday, November 24, 2010

CRT update Nov 23 - 2010


MannKind Corporation (MNKD: BUY, PT $13.75, close $6.13) - filed a Form
8-K in which it noted that a former employee, John Arditi, who had filed
a lawsuit in New Jersey in September 2010 alleging wrongful dismissal
pursuant to "whistle-blowing" activities, had now filed a Notice of
Voluntary Dismissal with the respective court on November 18, 2010,
dismissing his lawsuit without prejudice. MNKD stated that it did not
make any payment or provide consideration of any kind to Mr. Arditi in
connection with this dismissal. Pursuant to an existing arbitration
agreement, Mr. Arditi had previously agreed to resolve claims relating
to his employment through arbitration. As of the November 22, 2010, Mr.
Arditi has not initiated arbitration. Recall that sell-side analyst
publication of the Arditi complaint led to a decline in the share price
of more than $1 per share. Based on our conversations with management
and the timing of the alleged whistle-blowing allegations, we believed
the issue would be resolved in favor of MNKD. MNKD's lead product,
AFREZZA, has a PDUFA date of December 29, 2010. While the approval of
the product might slip into the new year, we continue to believe that
the inhaled insulin product will be approved by the end of January 2011,
that MNKD will partner the program by Spring 2011 and launch AFREZZA in
late Fall 2011.

Tuesday, November 23, 2010

The shakedown; my two cents

Part 2

If you don't stand for something, you’ll fall for anything. This pretty much sums up Mannkind’s stand on the lawsuit. The shareholders can put this issue to rest now.

Mannkind posted a new 8-K

Item 8.01 Other Events.
As previously reported, on September 16, 2010, a former employee, John Arditi, filed a lawsuit in the Law Division of the Superior Court of New Jersey (Bergen County), against us and two of our officers. Pursuant to an existing arbitration agreement, Mr. Arditi had previously agreed to resolve claims relating to his employment through arbitration. On November 22, 2010, we confirmed that Mr. Arditi had filed a Notice of Voluntary Dismissal with the court on November 18, 2010, dismissing his lawsuit without prejudice. We did not make any payment or provide consideration of any kind to Mr. Arditi in connection with this dismissal. As of the date of this report, Mr. Arditi has not initiated arbitration.


Part 1 (posted few weeks back when lawsuit was first filed. )

These are trying times for the patient long term investors of Mannkind corp. The Arditi lawsuit is another one in the long list of issues impacting the stock price that is outside the control of Management.

They are a few things to consider before one decides to take any action.

a) The safety and efficacy of Afrezza are undisputed.

b) Mannkind has performed both internal and external investigation on this issue. The company says in the PR that no evidence of problem was found. If an evidence of problem was found, the company has to file a 8-K with SEC as per the regulations. So far, the company hasn’t filed any 8-K regarding this matter.

c) The FDA had conducted inspection of Russian trial sites and did not issue form 483.

d) All the data from Bulgarian and Russian sites were submitted to FDA. FDA hasn’t raised any issues in the CRL. FDA hasn’t asked Mannkind to perform any new trials. In fact, FDA approved Mannkind to perform pediatric studies for children ages 4 and above

d) Bulgaria was involved in only one Phase 2 trial named “MKC-TI-010”. In that trial 228 patients were enrolled. Out of 40 sites that were part of this trial, 8 were in Bulgaria. This trial was completed in October 2008 and FDA has signed off on it. 

e) There is nothing in 50+ year’s of Alfred Mann’s public life to suggest improbity & impropriety. People leave a long paper trail. There is nothing to indicate that management had tried to cut costs. In fact, in one of the conference calls, Al Mann said, “I asked my team as to why we need to perform these elaborate trials?” Nevertheless, they went ahead and performed a large trials treating Afrezza as a new compound. Mannkind is doing superiority trials even though FDA hasn’t asked for it. All their actions indicate that if there were a genuine concern on the Russian/Bulgarian trial site, they could have easily dropped that data and performed new trials to augment it. Al Mann’s management team is even more cautious.

f) Matt Pfeffer (CFO) says that the “The FDA has been made aware of all the details and has so far expressed no concerns.

g) The timing of the lawsuit is very suspect.

This is the time to go back and review the reasons for your buying the stock originally. If the original reasons haven’t changed, then there is no point in selling based on market rumor or baseless claims. My reasons for buying in the first place are

1) The potential of Afrezza

2) Al Mann’s track record of bringing successful products to the market.

Warren Buffett said, “it takes a life time to build a reputation and days to destroy it”. Al Mann’s reputation has been built over his life time.


Let us look at what FDA does when it inspects a site.

From the link:

Upon arrival at the clinical investigator study site, the FDA investigator will display his/her FDA credentials and issue a completed Form FDA 482 (Notice of Inspection) to the clinical investigator or appropriate study staff. FDA is authorized at reasonable times to access, inspect, and copy any required records related to the clinical investigation. See section 704 of the Federal Food, Drug, and Cosmetic Act (21 USC 374), 21 CFR 312.68, and 21 CFR 812.145.
During an inspection at the site of a clinical investigator, the FDA investigator typically verifies compliance with the regulations governing the use of investigational products and human subject protections at 21 CFR parts 50, 56, 312, and/or 812, by inspecting records and talking to individuals involved in the conduct of the study to ascertain:
• who performed various aspects of the protocol for the study (e.g., who verified inclusion and exclusion criteria, who obtained informed consent, who collected adverse event data);
•whether the IRB approved the protocol, informed consent form, and any amendments to the protocol prior to implementation;
•whether the clinical investigator and study staff adhered to the sponsor’s protocol and investigational plan and whether protocol deviations were documented and reported appropriately;
•whether informed consent documents were signed by the subject or the subjects’ legally-authorized representative prior to entry in the study (i.e., performance of any study-related procedures);
• whether authority to conduct aspects of the study was delegated, and if so, how the conduct of the study was supervised by the clinical investigator2;
• where specific aspects of the investigation were performed;
• how the study data were obtained and where the study data were recorded;
• accountability for the investigational product, including shipping records and disposition of unused investigational product;
•whether the clinical investigator disclosed information regarding his financial interests to the sponsor and/or interests of any subinvestigator(s), spouse(s) and dependent children3;
• the monitor’s communications with the clinical investigator;
• the monitor’s evaluations of the progress of the investigation; and
•corrective actions in response to previous FDA inspections, if any, and regulatory correspondence or sponsor and/or monitor correspondence.

When FDA considers whether to accept non-U.S., non-IND clinical studies in support of an IND, NDA, or BLA, an FDA inspection may help in determining whether the study was conducted in accordance with 21 CFR 312.120. Specifically, the inspection will evaluate whether the following criteria are met:

• The study is well-designed and well-conducted.
• The study is conducted in accordance with Good Clinical Practice (GCP), which is defined as a standard for the design, conduct, performance, monitoring, auditing, recording, analysis, and reporting of clinical trials in a way that provides assurance that  the data and reported results are credible and accurate and that the rights, safety, and well-being of trial subjects are protected.
• The study has been reviewed and approved (or provision of a favorable opinion) by an independent ethics committee (IEC) prior to study initiation, continuing review of an ongoing study by an IEC, and the freely given and documented informed consent of the subject (or the subject’s legally authorized representative if the subject is unable to provide consent) prior to any study-specific procedures.

Studies Involving Investigational Devices
FDA’s inspection of clinical investigators conducting foreign trials includes device trials in support of a premarket approval application (PMA) or a premarket notification (510(k)) submission.
For device studies conducted outside the U.S., FDA will accept research in support of a PMA, but which has not been conducted under an IDE, if certain conditions are met. An FDA inspection may help in determining whether the study was conducted in accordance with 21 CFR 814.15. Specifically, the inspection will evaluate whether the following criteria are met:
• the data are valid; and
• the studies are conducted in conformance with the "Declaration of Helsinki,"7 or the laws and regulations of the country in which the research is conducted, whichever affords greater protection to the human subjects.

FDA validates the authenticity and accuracy of data and confirms compliance during an inspection, which is performed under the circumstances listed above in section III. The FDA investigator may request documentation as to whether the study was conducted under the laws and regulations of the non-U.S. country and/or the Declaration of Helsinki, whichever accords greater protection to human subjects.

At the end of an inspection, the FDA investigator conducts an exit interview with the clinical investigator or his/her representative. At this interview, the FDA investigator who conducted the inspection reviews and discusses the findings from the inspection and, if deficiencies were found, issues a written Form FDA 483 (Inspectional Observations; 483) to the clinical investigator or his/her representative. The 483 describes any inspectional observations that, in the opinion of the FDA investigator conducting the inspection, represent deviations from applicable statutes and regulations.
Some common deficiencies that have been observed by FDA investigators during a clinical investigator inspection include:

•failure to follow the investigational plan and signed investigator statement/agreement (e.g., failure to conduct or supervise the study in accordance with the relevant, current protocol(s)). See 21 CFR 312.60 and 812.110(b).
•protocol deviations (e.g., failure to appropriately document and report any medically necessary protocol deviations). See 21 CFR 312.66 and 812.150(a)(4).
•inadequate recordkeeping. See 21 CFR 312.62 and 812.140(a).
•inadequate accountability for the investigational product. See 21 CFR 312.62(a) and 812.140(a)(2).
•inadequate subject protection, including informed consent issues. See 21 CFR part 50, 312.60, and 812.100.


Saturday, November 20, 2010

Behind FDA's thinking on new guidelines for diabetes drugs

Read this PDF to get some idea behind FDA's thinking on new guidelines for diabetes drugs

I will be posting about Dr. Orloff. It seems he was a big influence behind FDA approval of Exubera.

Friday, November 19, 2010

Insulin Biosimilars: A Big Market with Great Opportunities - GLG News

Insulin Biosimilars: A Big Market with Great Opportunities - GLG News

The sunset at Summer street Research

When I read the Summer Street research partner's (SSRP) Mannkind conference call recap this week (11/16/10), the Bertrand Russell quote came to my mind. "Most people would rather die than think; in fact, they do so." How fitting.

This is what SSRP had to say about Mannkind's Afrezza.

Our experts believe that because of the differences between the Dreamboat inhaler and the Medtone C inhaler, the FDA will require new phase III clinical trials with the Dreamboat before granting market approval. Even if this were not the case, our experts believe the FDA will require device robustness trials of several hundred patients over several months, almost guaranteeing that the Dreamboat inhaler will not be approved. Furthermore, the experts do not believe the FDA would consider approving more than one unique product in the same application and thus will not approve the Medtone C/D. We concur with our experts and we do not expect approval of any MNKD product at the upcoming PDUFA date on December 29, even if the date gets extended.

It will be difficult to convince the clinicians at the FDA that the safety data with the Medtone C is representative of what would be found with the Dreamboat.

The ex-FDA experts that SSRP consulted were Dr. Marianne Mann (no relation to Alfred E. Mann) and Dr. Guirag Poochikian. I also attended the conference call that SSRP hosted. I spoke with Dr. Poochikian a day after the conference call.

Here are some simple facts 

1) The Afrezza is a device-drug combination product. The drug's formulation (TI particle with monomeric insulin) has not changed in dreamboat device.

2) The amount of insulin entering the lungs is same in both Medtone C and Dreamboat

3) The fact that Dreamboat uses 1/3rd less insulin does not make the change significant. The reasons are
  • In Dreamboat there is less residual insulin in device after inhalation
  • The insulin lost in mouth/throat in less in Dreamboat 
  • Dreamboat does a better job of de-agglomerating the particles
4) Mannkind approached FDA during October with the Dreamboat idea. FDA told Mannkind what needs to be done to get Dreamboat approved (bio-equivalency and other tests). Mannkind told FDA that they are not going to commercialize Medtone. FDA told Mannkind to submit the Dreamboat results as an amendment (instead of sNDA). The fact is, Mannkind was consulting FDA in every step of the way. This is not some unilateral decision to submit Dreamboat results as a response to CRL and surprise FDA.

5) The ex-FDA experts that SSRP consulted were not privy to any of the internal meetings between FDA and Mannkind. In fact, Dr Marianne Mann mentioned that we don't know what really transpired between the two parties. Dr. Poochikian in the conference call had no idea of what was changed in Dreamboat. He was getting the facts in the conference call and giving his 2 worthless cents. Like a parrot, he kept repeating that the Dreamboat changes were significant.

I don't have to go in detail the commercial reasons for pursuing the Dreamboat.

The SSRP research report begs answers to these questions
1) Are their subscribers getting their money's worth?
2) What is their hidden agenda?

I think SSRP would perfectly fit Russell's description.

There is no dearth of critics opposing Mannkind. The attack on Al Mann never seems to wane (read latest Forbes article). Let us take comfort in Einstein's quote "Great spirits have always encountered violent opposition from mediocre minds..."

Monday, November 15, 2010

Gen2 inhaler: newer, cheaper, more efficient and better


I always wondered if I’ll see some data on the Gen2 (dreamboat) inhaler. Al Mann commented earlier that the lung function decline in Gen2 inhaler was around 0.5% compared to Medtone’s ~1.5%. The reason given was that the aggregation of technosphere particles in Gen2 is drastically reduced. I chanced upon this new doc posted under title “2010 Diabetes Technology Society”, "Acute Pulmonary Effects of Technosphere® Insulin Inhalation Powder Administered Using a Gen2B Inhaler Compared to a MedTone® C Inhaler"
Authors: Nikhil Amin, MD; Mark T. Marino, MD; James P. Cassidy, MS; Hao Ren, MS; Russell L. Harris, MBA, RPFT, CRT; Peter C. Richardson, MD. Link to pdf is here.

Picture is worth a thousand words. Everything given below is from the pdf mentioned above.








Discussion section:

Results of the study demonstrate that the observed acute changes in FEV1 immediately post-inhalation in healthy volunteers are minimal and consistently smaller when TI Inhalation Powder is delivered
using the Gen2B Inhaler compared to the MedTone Inhaler. This finding may simply be the function of the amount of the dry powder required to be inhaled by the subjects to achieve similar systemic insulin exposure with the two inhalation systems. The Gen2B inhalation system is developed to maintain all performance characteristics of the MedTone system. Both the MedTone and Gen2B devices are breath-powered, reusable, high resistance inhalers that rely on air flow balance to empty the cartridge and
deagglomerate the powder. In vitro data demonstrate that the Gen2B Inhaler deagglomerates the powder more efficiently than the MedTone Inhaler. Compared to the MedTone Inhaler, the
fraction of the emitted dose in the fine particle range is greater and the amount deposited in the oropharynx is smaller when TI Inhalation Powder is delivered with the Gen2B inhalation system.
Thus, with the Gen2B Inhaler, 33% less powder per cartridge is required to provide comparable systemic insulin exposure. Overall, this efficiency reduces the total amount of powder required to
be delivered to the patient with each dose.


  • The acute FEV1 changes after the administration of
    equivalent doses of TI Inhalation Powder using
    either the Gen2B or MedTone Model C inhalation
    system in healthy volunteers were small and clinically
    unlikely to be meaningful.

  • The observed changes in FEV1 immediately post-
    TI Inhalation Powder inhalation using the Gen2B
    Inhaler were minimal and consistently smaller
    compared with the MedTone Inhaler.

Tuesday, November 9, 2010

Leerink Swan 3Q 2010 update

My comments: Looks like Leerink’s Joshua Schimmer & co are warming up to Mannkind. I think their concern for lack of partner is overblown. Once Afrezza gets FDA approval, they will have no issue finding a partner.


3Q10 Review: Second Shot at Afrezza Approval This December

• Bottom Line: MNKD reported 3Q:10 earnings which were uneventful.
The financing steps the company took in 3Q alleviated its near-term financing concerns, although shares are still dependent upon approval of Afrezza and finding a commercial partner. We believe Afrezza is an
approvable drug but are wary of the amount of future revenues needed to justify the current valuation. We reiterate our UP rating.

• Afrezza Update: MNKD noted that there is no indication from the FDA that an advisory panel meeting will be requested and that it is a bit too early to be holding label and REMS discussions with the FDA. The
company recently installed a packaging machine at its manufacturing site which may require FDA inspection, but so far the agency has not stated its intention to do so. Recall that MNKD does not expect to commercialize Afrezza until 2H11 in order to launch with proper inventory levels.

• Afrezza Partner Not Likely Until After Approval: MNKD believes that a partnership will not be signed until after approval. MNKD could file with the EMEA by itself but prefers to do so with a partner.

• Melanoma Trial Update Possible in 1H11: MNKD initiated a Phase II trial of MKC1106-MT, a cancer vaccine, in melanoma patients this month. The open-label, multicenter trial is expected to finish recruiting the first 19 patients in 1H11. Following an interim look, MNKD will decide on proceeding with recruiting 25 more patients.

Financials: MNKD reported a loss per share of $0.40 compared to our estimate of $0.37 and consensus of $0.39. The company altered its capital structure earlier in the quarter with $100m in 5.75% convertible
debt due in Aug 2015. It also entered into a predefined stock sale agreement with Seaside and a predefined debt/equity swap agreement with a major debt holder. The company believes it has sufficient liquidity
until 3Q:11. Our model revisions reflect Afrezza launch in 2H11 and increased near-term R&D expenses associated with new clinical trials.

• Next Up: Afrezza PDUFA date on 12/29.

Investment thesis:

MannKind is a developmental stage biotechnology company that is developing Afrezza, an inhalable insulin. The FDA issued a complete response letter in March, and MNKD expects to hear from the FDA on 12/29/10. Afrezza has been shown to reduce risk of hypoglycemia, lower both post-prandial and fasting plasma glucose, and reduce weight relative to rapid-acting insulins.

Afrezza will attempt to break into the large and rapidly growing fast-acting insulin market, estimated at $5B worldwide in 2009. However, due to the commercial failure of Exubera and the discontinuation of clinical development of two other inhalable insulins, there are concerns regarding Afrezza's prospects for regulatory and commercial success. Although we believe MNKD has addressed many of the concerns surrounding Exubera -- such as ease of use, lung cancer concerns and decrease in lung function -- we are not the ones who need convincing. Specialists are mixed on prospects for Afrezza but trend bearish on the probability of approval and the role of Afrezza in clinical practice. We rate MNKD shares Underperform because we lack clarity on prospects for a partner to finance a primary care launch, which can be resource-intensive.

Friday, November 5, 2010

CRT research update Nov 5th


(I’ve only given portions of the report. )

We continue to anticipate that MannKind Corporation’s AFREZZA™ will be approved within the next three months, that MNKD will successfully partner the inhaled insulin product by Spring 2011 and launch it by late 2011.  AFREZZA™’s official PDUFA date is December 29, 2010. As we discuss in our report, we believe that yesterday’s current price pressure was unwarranted and represents opportunity in the shares and convertible note tiers.  Our new $13.75 one-year price target is based on a four times multiple of five-year forward sales discounted back four years at 30% to November 2011, assumes that the Founder Loan is fully drawn, and further assumes that all future milestone and royalty payments are redeployed into the business and repay the 2013 convertible notes at maturity.  And, while we believe that there exists option value in the company’s non-diabetes products, our price target does not reflect any contribution from the pipeline.

Market Over-reaction to Alleged Whistle-Blower Retaliation. MNKD shares closed down ($0.68) or (11%) yesterday following a competitor’s highlighting of an on-going civil lawsuit between a terminated employee and alleged whistle blowing activities. MannKind disclosed in its 3Q Form 10Q that an independent firm had reviewed the potential fraud allegations and had found them to be without merit. MNKD and Mr. John Arditi remain in litigation which prudently limits commentary that MNKD may make publicly. We have reason to believe that the Russian site mentioned by the Artidi lawsuit was the only Phase III trial location at which fraud has been alleged (those claims involve blood pressure readings). Further, we believe that the FDA has previously audited that site, quelling our concern. It is curious to us that Mr. Arditi references a November 13, 2009 meeting wherein he raised questions surrounding Phase III and earlier trial activities when such trials had been concluded months previous to that date, and their data had been studied and included
in the NDA filing package submitted in early 2009 (original PDUFA date was January 16, 2010).

Key Investment Points
● AFREZZA™ has the fastest onset of any insulin product of which we are aware. This is important and is the
primary reason, in our view, that AFREZZA™ data continually demonstrate lower risks of hypoglycemia
and weight neutral effects. Data have continued to support this thesis, first published by us more than four years ago – that the faster onset of AFREZZA™ compared to any other insulin formulation allows better control of meal-time glucose excursions, fewer hypoglycemic episodes, and less weight gain. Early findings were at first dismissed by the Street as just “variability in clinical trial data”. Now, they seem increasingly conclusive. These findings may prove superior to even short-acting injectable insulin. While it may take time for physicians to process post marketing data, we believe that such a difference could make a dramatic difference among treating physicians views.

● AFREZZA™’s safety profile is solid, and the Company has gone to great lengths to provide data, yes, data – the only way to truly persuade the FDA. We believe AFREZZA™’s data demonstrates a profile that is safe for
short and long-term use, both regarding risk of lung cancer, as well as risk of worsening underlying lung
function. Based on these data, we anticipate FDA approval. With the “right” partner and the “right” launch, we believe that AFREZZA™ could generate sales in excess of $1.6 billion in five years (800,000 patients at an average of $2,000 per year per patient). We acknowledge that public perception is just as important for AFREZZA™’s success, as is its clinical trial data. Ultimately, albeit with a slow initial ramp in sales, we believe that AFREZZA™ will prove to be a readily adopted treatment option for diabetics.

At the end of the day, we again focus on the data, not the hype – as will the FDA. While we acknowledge the Street’s anxieties and scrutiny of AFREZZA™, we continue to believe that the level of data provided in the Company’s NDA is impressive – and speak to AFREZZA™’s efficacy and safety (with data from more than five years of study).

Risks to achieving our price targets:
Delay in FDA December 29, 2010 decision.
Failure to receive FDA approval.
Inability to partner the program for commercial launch.

Tuesday, November 2, 2010

JMP securities initiation with market outperform rating – Oct 16 2010



  • 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.
    MannKind is developing Afrezza, an ultra-fast acting insulin delivered through the company’s
    proprietary inhalation technology. Following the receipt of a complete response letter (CRL) to the
    Afrezza NDA in March, MannKind met with the FDA and resubmitted its response to the agency.
    We are confident that the company has addressed the issues in the CRL and anticipate approval
    on or shortly after the new PDUFA date of December 29th, 2010. Following this, we anticipate a
    commercial partner to be secured prior to the product’s launch. 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.
  • 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.
  • 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.


We value MannKind solely on Afrezza and include no value for pipeline programs. We model Afrezza
sales through 2018, based on which we conducted a discounted cash flow analysis for the asset, as
shown in Figure 2. Our DCF valuation yields a price objective of approximately $11 per share, derived
by adding our net present value of the Afrezza asset to our projection for net cash and dividing by our
estimate for fully diluted shares outstanding of 162.2 million shares, which includes potential dilution
from recent financing agreements with Seaside 88 and Chairman and principal shareholder Alfred

We apply a probability of success to Afrezza sales of 85%, reflecting clinical, regulatory, and
commercial risks, which we believe are currently weighted 20%, 30%, and 50%. We then calculate
royalties to MannKind and adjust for a contribution margin that accounts for the operating costs of the
core business (but does not take into account development costs for other internally funded programs
that may be ongoing at the time). We include a terminal value that assumes a 5% terminal growth rate,
reflecting our view that exclusivity for Afrezza can be maintained with patent protection through at least
2020 (composition of matter) and additionally through trade secrets surrounding the delivery technology
and device increasing the barrier to entry for potential competition. We then discount the cash flows by
the company's weighted average cost of capital, which we calculate to be approximately 10.7%.

We note that our valuation conservatively does not include sales of Afrezza outside of the U.S. and
does not attribute any value for upfront and milestone payments due from potential partnerships for
Afrezza either in the U.S. or other global geographies. Our income statement presently includes
additional equity financings in 2012 and 2013; however, should upfront or milestone payments be
received in relation to partnership agreements, the company may not need to return to the capital
markets for funding.

Our revenue model for Afrezza is driven by our market model presented in our accompanying industry
report on the ultra-fast acting insulins. Our model assumes that Afrezza will be launched at the
beginning of 2012 by a commercial partner with MannKind receiving royalties on product sales at a rate
of 30%. We assume the product will be launched at an annual price per patient of approximately
$1,100, which represents a 20% premium to the current fast-acting insulin analog products. We project
that the product will achieve penetration in the prandial insulin market of 13.5% in 2018 with sales in
that year of $969MM.




Oppenheimer Q3 2010 update


On 10/29, MNKD reported 3Q 2010 EPS of ($0.40) vs. our estimate of ($0.38) and consensus of ($0.39) on higher than expected R&D expenses.

(1) Importantly, we continue to believe MNKD will receive a CRL by its PDUFA.

(2) We also believe that the lack of an FDA Adv. Comm. is not favorable for approval.

(3) Furthermore, we note the new addition to MNKD's manufacturing facility, which has not been inspected, may pose additional risk to approval.

(4) MNKD has also commenced additional pilot program studies in order to facilitate EU approval and expand their label once Afrezza is approved, which we view as unlikely.

Price Target
We value MNKD based on a probability adjusted NPV calculation that assumes ~$200M in peak sales for AFREZZA in both the US and Ex-US. We use a 16% discount rate for AFREZZA sales, and arrive at an NPV of ~$739M in the US and ~$486M Ex-US. We estimate approval may be possible in late 2011 for AFREZZA in
the US and mid-2012 for AFREZZA Ex-US. We then probability adjust by 15-20% and discount back to the present to arrive at a current value of $89M for AFREZZA in the US and $52M for AFREZZA Ex-US. We estimate a value of $1.00- 1.50 per share for both US and Ex-US AFREZZA sales, resulting in a value of

Monday, November 1, 2010

BofA Merrill Lynch Q3 2010 update

BofA Merrill Lynch has a BUY rating in MNKD. The report is dated OCT 31-2010.

Focused on capacity expansions and post-approval trials
MannKind reported a $0.40 EPS loss in Q3, in line with our estimate. Most of the $42mn of operating expenses was R&D-related, in support of manufacturing capacity expansions and development of phase 3b studies ahead of an expected late-December FDA approval of Afrezza inhaled insulin. MNKD has installed the first of three high-throughput filling/packaging machines with an annual capacity target of 500k patients by mid-2011. Post-approval trials that could commence in the next few months include a head-to-head trial versus Humalog (AFFINITY 2) and combination trials with basal insulin (AFFINITY 1) and an insulin pump (AFFINITY P) with the objective of expanding Afrezza's market potential.

FDA's CV risk concerns not likely to hold up Afrezza
We appreciate investor concerns about an increasingly cautious metabolics division (in FDA, CDER, Office of New Drugs), particularly regarding recent actions pertaining to cardiovascular (CV) risks (e.g. delay of Bydureon for diabetes, withdrawal of Avandia for diabetes, withdrawal of Meridia for obesity). While we believe the FDA could have concerns about Afrezza, such as pulmonary impacts, change in inhaler device, or new manufacturing equipment, we do not see meaningful CV risks. MNKD previously conducted a QT study in accordance with an FDA-reviewed protocol, which determined no significant impact on heart rate, QTc interval prolongation, or cardiovascular morphological impacts of technosphere particles at 4x the high dose of Afrezza.

Favorable risk/reward - reiterate Buy rating
While we recognize regulatory scrutiny of diabetes drugs has intensified in recent months, we still maintain that approval of Afrezza is more probable than not, owing to clear clinical benefits and the lack of meaningful safety signals. We contend that the stock could more than double on approval versus declining by half on another significant delay. Our risk-adjusted PO is $9/share.

Price objective (PO) basis and risk

Our DCF derived PO of $9 is based on projected risk-adjusted sales estimates for Afrezza in treatment of type 1 and type 2 diabetes beginning in 2011. Our DCF derived PO consists of roughly $10 per share from projected royalties in Afrezza sales offset by $1 per share from the company's debt. Risks to our estimates and price objective are:

1) FDA request for additional trials which could delay approval
of Afrezza
2) slow uptake of Afrezza due to safety concerns or premium pricing
3) the need for additional financing to bring Afrezza to market, and
4) lower than expected royalty rate from a commercialization partner from sales of Afrezza. Our
PO could be exceeded if:

1) Afrezza captures more market share than we project
2) a partnership with a commercialization partner is announced prior to approval,

3) MannKind secures a sales royalty rate for Afrezza with a
commercialization partner that is higher that what we project.