Thursday, December 30, 2010
Market Outperform; Target Price: $18.00
12/29 came and went without closure for MNKD: our scenario analysis on what happens in four weeks
Anticlimactic end of the year for MannKind with FDA missing its own deadline, pushing decision date out by “approximately four weeks”: this is neither good or bad news for MNKD, we will just have the next chapter in the Afrezza saga four weeks later: Two days before the deadline for the expected decision on its NDA for Afrezza, the FDA notified MannKind that it would not be able to hand out a decision by the expected December 29th PDUFA and that it would need approximately four more weeks. No new PDUFA has been set. We don't see this development as either good or bad news for MNKD (other than prolonging the agony/excitement of everyone involved), since we don’t believe it really reveals anything about the outcome of the NDA other than the fact that the FDA simply missed its deadline and was not able to complete its review.
With the new “PDUFA” tentatively set for around the end of January/beginning of February, we continue to believe that Afrezza should be approved....however, we acknowledge the unpredictability and increased risk on the timing of an approval given the FDA's extra-conservative/random stance this past year, especially in the diabetes space (see Avandia, Bydureon etc). We remain steadfast in our view that Afrezza should be approved by the FDA and should get to the market in 2011, since it has shown it is a safe and effective insulin with the important advantage of having superior pharmacokinetics that result in less hypoglycemia. In addition, we believe that the company has done everything the FDA asked of them in the Complete Response Letter and this should lead to a fairly straightforward approval a month from now.
Were we operating within a “normal” or “average” FDA environment, we would handicap Afrezza's chances for approval a month from now as 80% probability for approval and 20% probability for rejection (i.e. a second CRL requesting major clinical trials): As discussed above, we believe that since the company has successfully addressed the issues brought up in the first CRL, the Afrezza NDA should be approved. However, we believe that the current regulatory environment, which we view as especially cautious/conservative, makes the situation a lot more unpredictable and random. Even though we believe that the NDA should be approved, and would not at all be surprised if the agency approved Afrezza in four weeks, we would probably be equally not surprised should the FDA come up with some reason (they are the FDA and can do whatever they want after all, who is going to question them?) to issue a second CRL.
Our handicapping of the new “PDUFA” in three scenarios and where the stock goes in each case: 1) To further elaborate on and clarify the last statement in the previous paragraph: we don't see the FDA as having a basis for requesting additional long-term trials (like a Phase III trial) from MannKind. This (catastrophic) scenario that would delay approval by a number of years is always a possibility for most NDAs and it could, of course, materialize. We assign a probability of this happening as 20% and should it materialize, we would view it as equivalent to a rejection and expect that the stock would drop to the $1-$2 per share neighborhood. 2) On the other end of the spectrum, we believe that there is a 40% chance of a straight approval four weeks from now, and if that materializes, we expect shares to soar to the $16-$20 range. 3) Finally, and again, simply because of the current conservative environment at the FDA, we believe that there is a 40% chance that the agency would pull another Bydureon type of scenario (i.e. the agency brings up a new issue, that had not been brought up in the first CRL) and issue a second CRL. However, even if this third scenario were to materialize, we don’t believe it would translate in as lengthy a delay as in the Bydureon case (i.e. ~18 months), but it would rather be a more “benign” CRL, similar to the first CRL issued to MannKind, which could again be addressed in a matter of months. We are using the Bydureon analogy as it pertains to the FDA bringing up a new, previously unaddressed, issue and not as it pertains to the length of the delay resulting from it. If this third scenario materializes, we expect the shares to drop to the $4-$6 range, depending on what is requested by the agency in this scenario.
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.
Tuesday, December 28, 2010
MannKind Corporation (MNKD-NASDAQ)--Outperform (1) / V
Price as of 12/28/2010: $7.97
FY 10 EPS: $-1.57
FY 11 EPS: $0.70
Shares Out.: 113.1 MM
Market Cap.: $901.41 MM
Sector Rating: Specialty Drugs, Market Weight
* Summary: Afrezza decision delayed about four weeks, now expected at the end of January 2011. Separately, planned sale of 1.4MM shares should close tomorrow night (12/29), providing about $5MM cash and cancelling roughly $5.5MM in debt. Maintain Outperform.
* Maintain Outperform. We maintain our Outperform rating on the potential for Afrezza. Though a positive decision would have been preferred, we think a short delay by the FDA is better than a complete response letter (CRL) and should be viewed as a generally neutral outcome. Additional approval delays could become problematic but we think MNKD should be able to fund operations through 2011 with cash and credit currently available.
* Afrezza decision delayed about four weeks, now expected at the end of January 2011. The FDA informed MNKD it would not be able to decide on Afrezza by the December 29 PDUFA date and would require about four additional weeks to decide. Additional details were not provided. We think late December decisions are typically tough for the FDA and are not surprised by the delay. We view the news as generally neutral but think a positive bias could result from the fact that no CRL was issued and no additional information was requested.
* Separately, planned sale of 1.4MM shares should close tomorrow. Per MNKD's agreements with Seaside 88 and the Mann Group, we think the ten-day volume-weighted average price (VWAP; greater than $6.49) should support the close of a sale tomorrrow night and would garner MNKD about $5MM cash and cancel roughly $5.5MM debt.
This morning, MannKind announced that the FDA has informed them that the agency’s review of MannKind’s New Drug Application for Afrezza, its inhaled insulin product for diabetes. It’s not clear whether this is good or bad for MannKind: the delay can be read either way. We continue to believe that the FDA has every reason to reject Afrezza, and no reason to approve it.
The bull case. The delay means that the FDA is taking MannKind’s application seriously, contrary to skeptics who think that the FDA has already made up its mind that Afrezza is dead.
The bear case. The FDA doesn’t consider the Afrezza application to be urgent, given the product’s lack of “clinical utility,” and has pushed back its response because it has been focused on more pressing applications. Or, the agency wants to write as thorough a response as possible so as to ensure that MannKind doesn’t waste its time with further applications.
Which is it? Taking the announcement on its own terms, there’s no way to know. What we do know is that a four-week delay will make considerable money for options dealers, given the massive open interest in MNKD January puts, which are now likely worthless. We would not be surprised to see bullish action in MNKD shares today, as traders with large options positions rotate into February contracts.
Sell the vol. If Feburary options prices end up mimicking what we saw in January options prices up to today, we continue to believe that MNKD shares are unlikely to trade far below $4 on a second Complete Response Letter from the FDA, and that MNKD $4 puts are overvalued.
Key catalyst: (Revised) FDA PDUFA deadline of January 26 for approving or rejecting Afrezza.
Valuation. We arrive at our target price of $2 by assigning an 80% probability of MannKind abandoning Afrezza in 2011, with a $3.0 billion enterpise value for FDA approval, and no residual value. If Afrezza is never approved, MannKind will not be able to pay off its half-billion of debt.
MannKind Corporation (MNKD: BUY, PT $13.75, close $7.97) - MannKind
(MNKD) announced that it was informed on December 27, 2010 that the Food
and Drug Administration would not be able to complete its review of the
AFREZZA(tm) new drug application by its December 29, 2010 PDUFA date. In
the press release filed this morning, MNKD stated that the FDA indicated
that it would require approximately four additional weeks to review the
NDA. We've suggested time and time again that the FDA might extend the
PDUFA date but also that we anticipated approval by the end of January
2011. We affirm that view today. Further, we'd view any pullback in the
pricing of MNKD's securities as a favorable entry point.
We maintain our Hold rating on MannKind (MNKD) and 12-month price target of $6 following the delayed FDA decision on Afrezza; our price target is based on 10x our 2014 Afrezza sales estimate of $162m (discounted at 30% for two years).
- This morning, MannKind announced that the FDA will require approximately four additional weeks to complete its review of MannKind's Afrezza ultra rapid-acting inhaled mealtime insulin used to treat diabetes; the FDA PDUFA action data for Afrezza is December 29, 2010.
- On the positive side, FDA did not issue MannKind a complete response letter (CRL), as they did on Dec. 23 to pSivida (PSDV - NR) and Alimera Sciences (ALIM - NR) for their Iluvien eye disease drug, which also had a Dec. 29 FDA action date. But we continue to believe there is risk that the FDA may issue MannKind another CRL (non-approval) for Afrezza, requesting more information on its Gen2 inhaler delivery device. The prior MedTone inhaler was used in the Afrezza pivotal clinical trials.
- We followed up with management, and confirmed that no specific reason for the delay was given by the FDA and that FDA had not requested any additional information from MannKind while communicating this delay by telephone. Recall during the first round of the Afrezza FDA review, FDA (on January 8, 2010) delayed the review beyond the January 16, 2010 action date. FDA had referenced the need to complete a manufacturing inspection, and had not specified any timing on when the review would be completed. On March 12, 2010, MannKind received a CRL for Afrezza. MannKind met with the FDA on June 9, resubmitted the Afrezza NDA on June 29, and FDA had set a corresponding PDUFA action date of December 29, 2010.
This morning, MNKD announced that the FDA will not complete its review of Afrezza’s (inhaled insulin) regulatory application by tomorrow’s PDUFA action date. Rather, the agency needs “approximately” 4 more weeks to make an approval decision (precise timing now unknown). We suspect investors (this stock has a heavier than normal retail following) could attempt to read into this as a positive development, thinking that a brief delay indicates the company is “almost there,” but we hesitate to jump to any conclusions as we can envision a number of plausible sources and implications. We had an opportunity to speak with management this morning, and they indicated it was a straightforward notification from the FDA with no real reason or explanation provided. We maintain our UW rating given the company’s near $1.5B EV in the face of regulatory, device, labeling, strategic, and commercial uncertainty. Still, with considerable short interest (26% of float) and high retail interest, we anticipate trading could remain volatile.
· Déjà vu. This is technically the third regulatory delay for Afrezza. Recall that ahead of the initial PDUFA in Jan 10, the FDA informed the company it wasn’t in position to issue a decision due to a pending facility inspection. Subsequently in March, the FDA finally issued a rather onerous Complete Response Letter (CRL). The second official PDUFA was set for Dec 29, but once again, the precise timing of an agency decision is now in limbo.
· Can we read anything into the apparently brief delay? According to the company, the FDA did not offer any particular reason for today’s development, but we can envision a few different sources of this latest delay. First, this could simply be a matter of difficult timing around year end. Sure, the FDA recently issued some CRLs for other products with PDUFA dates this week (ALIM’s Iluvien, CEPH’s Nuvigil), but those were from other divisions of the agency (and the endocrine/metabolic division – one of multiple departments involved in this review – has had a particularly jam packed 2H). Second, this potentially could indicate that Afrezza is indeed closer to crossing the finish line, and final steps such as product labeling just need to be ironed out (management recently indicated to us that labeling discussions had not begun as of mid Dec). Otherwise, why not just issue a CRL at the PDUFA? Although that may be easier said than done. Finally, this simply could be a matter of really needing more time to work through a very complex regulatory filing, and thus today’s development means nothing one way or the other.
· A brief delay does not have commercial implications. Even if approved on time, Afrezza was unlikely to launch before 2H11 anyway. Therefore, this particular development does not technically impact commercial timelines.
Sunday, December 26, 2010
We are nearing the PDUFA date. I hope my next post will be about FDA’s approval of Afrezza.
I came across the MS drug Gilenya that is taken orally. The drug was approved in Sep 2010.
For DLCO, the reductions from baseline in percent of predicted values at Month 24 were 3.8% for fingolimod 0.5 mg and 2.7% for placebo.
There is insufficient information to determine reversibility of the decreased DLCO upon drug
-0.507 mL/min/mm Hg per year for TI-treated subjects and -0.455 mL/min/mm Hg per year for
UC-treated subjects (difference between the treatment groups, 0.117 mL/min/mm Hg per year
[95% CI -0.058, 0.292]).
FEV1 At month 24, the reduction from baseline in the percentage of predicted values for FEV1 was 3.1% for fingolimod 0.5 mg and 2% for placebo. The changes in FEV1 appear to be reversible after treatment is discontinued. Medtone
Over 2 years, PFTs declined in all groups, including the non-diabetes group. TI was noninferior to UC for mean change in FEV1 from Baseline to 24 months using Mixed Model Repeated Measure analysis with a prespecified noninferiority margin of
After a slightly larger initial decline at the first post-Baseline assessment visit, annual rate of change (slope) in PFTs from Month 3 to Month 24 was not statistically different between the TI- and UC-treated subjects. Annualized change in FEV1 between 3 to 24 months was
-0.047 L/year for TI-treated subjects and -0.036 L/year for UC-treated subjects (difference
between the treatment groups, 0.010 L/year [95% CI -0.003, 0.022]);
Here is another one
ZIAC® (Bisoprolol Fumarate and Hydrochlorothiazide)/ZEBETA Tablets. Link
Thursday, December 23, 2010
MNKD Preview of upcoming FDA decision on MannKind's Afrezza (inhaled insulin) ($8.12)
The PDUFA date for MNKD's Afrezza (inhaled insulin) is 29-Dec. Recall that the FDA previously issued a complete response letter for Afrezza on 15-Mar. StreetAccount notes that the Street is generally expecting another Complete Response Letter on the PDUFA date.
- Approval issues: Several analysts remain supportive of eventual approval of Afrezza, based on efficacy and safety. However, the list for potential reasons cited for a likely delay at this time is much longer, including: an FDA request additional data on Dreamboat (the second-gen delivery device), lack of an advisory panel to date, outstanding REMS and label discussions, and outstanding FDA facility inspections.
- Leveraged: MannKind currently owns full rights to Afrezza, with plans to partner following approval.
- StreetAccount notes that sell-side price targets on MNKD range from $1 to $18/share.
- Sell-side research and commentary:
- Hapoalim, among the most bearish on the stock, noted on 17-Dec that another regulatory delay creates a "major negative catalyst" for shares. The firm cites multiple reasons for a CRL on the PDUFA; PT $1.
- Weeden, newest to initiate coverage on MNKD, noted on 17-Dec the risk of CRL, citing the FDAs recent track record in the diabetes space, and the company's device switch (earlier in 2010); PT $6.
- Oppenheimer noted on 30-Nov that the firm sees substantial downside on the FDA decision; PT $2.
- Leerink noted on 1-Nov that the firm believes in eventual approval, but does not see the future revenues to justify the current valuation; PT $5.
- BOAML noted on 31-Oct that it believes the risk/reward for approval is favorable; risk-adjusted PT $9.
- Rodman & Renshaw, with notably the most bullish PT we've reveiwed at $18, stated in a 29-Oct note that it remains cautiously optimistic on eventual approval; the firm notes the risk of a Bydureon-like surprise from the agency (ie. a blind-side request).
- JP Morgan, in a 29-Oct note called the Afrezza PDUFA and potential partnership the two major events underpinning share price performance; firm continued to say that Afrezza is the overwhelming component of its valuation; firm cites a lack of visibility into approval and their limited confidence in the market potential as basis for their underweight rating.
Monday, December 20, 2010
This user Eric is still using Exubera and is also a Mannkind shareholder. He is offering a unique perspective on inhaled insulin. The highlights are mine.
Howdy fellas - I thought I might chime in since I may be the only person in the world who is still using Exubera...
As soon as it was pulled from the market I went to all of the drugstores within a 100 mile radius and stocked up on the stuff and have been using it exclusively ever since. I am a type 1 in good control and lead a very active life as an avid cyclist. I have been keeping track of Afrezza since I first heard about it and have been greatly amused by the debate surrounding it, and also a bit annoyed by all of the foul things said about Exubera.
Despite its shortcomings as a commercial product, it has very few shortcomings as a medical one. The only reasonable explanations that I have heard for it's failure deal with issues that are unrelated to patient's experience with the product (cost, pulmonary function equipment needed by medical offices, lack of incentive to prescribe since no obvious health advantages etc...). From the patient's side of things, I can say that the switch to an inhalable form of insulin offered an incredible improvement in quality of life. While it is true that there was no change in my control, there was a tremendous change in the way I was able to manage things. There is a point that I never hear discussed, perhaps because it is one that requires actual first hand experience with the product to understand, that has to do with the way meals and insulin dosing can be structured with inhaled vs injected insulin:
With injected insulin, because you generally want to take as few injections as possible throughout the day, you end up grouping all of your food into large meals so that you can cover everything with one injection. With inhaled insulin you can live your life more or less as a normal person, eating snacks whenever you feel so inclined, since it really doesn't matter how many small doses of inhaled insulin you take. This is a very big deal.
And one final thing about Exubera, even though there isn't much point in defending it at this point, the argument that it is too cumbersome a device is just infuriatingly absurd. We are talking about an inhaler compared to syringes. I have been kicked out of restaurants and am always given a curious look when I pull out a syringe, find a spot to inject (a little upper thigh is usually enough skin to show in public) and stab myself. With an inhaler, no matter that it is larger than normal, I rarely get noticed. Most diabetics that I know are too embarrassed to inject themselves in public, but this is a basic bodily function we're dealing with. The inhaled insulin packets combined with the inhaler is orders of magnitude more convenient to carry than glass vials of insulin - I have traveled extensively with both.
If it is half as good as Exubera, I will be on board. If it is twice as good, which by all accounts it seems to be, I will be on board and I think I will be joined by every other diabetic who has access to it.
The ultra rapid peak time is huge. The area where most people in good control have room for improvement is the hour or so after a meal when you get a blood sugar spike before the insulin kicks in, it is difficult to always plan an hour ahead for meals. So not only will the Afrezza offer a tremendous improvement in quality of life - it will offer a huge improvement in control. Its small size is just a cherry atop a very tall sundae.
Disclosure: I am long mnkd...
In reference to Exubera's Tmax - in my experience using the drug, and monitoring my blood glucose with a continuous monitoring device which takes readings at 5 minute intervals, I don't see a significant effect until at least an hour after dosing, maybe closer to an hour and a half. So, for me, it's about the same as humalog on that front, if Afrezza really does peak at 10-15 minutes then it will be a great improvement.
Downgrading to Neutral based on valuation
We are lowering our rating on MNKD to Neutral with an unchanged risk-adjusted
PO of $9. We continue to believe an approval for Afrezza (inhaled insulin) is more
likely than not, based on our assessment of the key approvability issues (see
Table 1). However, the risk/reward to the shares is now more balanced ahead of
the Dec 29 PDUFA decision date, in our view, as the shares have appreciated
nearly 30% this month. We expect the stock could trade in the low teens upon
approval, versus drop to the low single digits with another CRL.
Meaningful potential for Afrezza
The pharmacokinetic profile of Afrezza is fundamentally compelling, as it achieves
peak serum insulin levels in 12 minutes versus closer to an hour for conventional
meal-time insulin. While Afrezza was not superior to these latter insulins in A1c
reduction, Afrezza results in significantly fewer hypoglycemic events, lower fasting
blood glucose levels, and less weight gain. Our surveys also support a meaningful
market opportunity for Afrezza due to patient aversion to injectable insulin.
Risks centered on trials, device change, and FDA caution
The FDA has moved markedly more cautious about diabetes drugs in recent
months (e.g. Avandia withdrawal and Bydureon CRL), which increases our
concern that the FDA could delay approval to request more clarity on A1c
reduction (borderline noninferiority results in one of the pivotal trials), particularly
given the current availability of prandial insulins. A key risk to approval is the
device switch MannKind made between that used in clinical trials and to a newer
‘Dreamboat’ version it plans to commercialize. The new inhaler is more efficient
and has essentially no pulmonary function impacts, but adds another variable for
FDA to evaluate, which could result in a request for additional trials. We lowered
the US probability of approval which was offset by the ex-US opportunity. Nearterm
EPS revisions were driven by trial cost sharing with a prospective partner.
(Added Dec 20 2010) Investors Holding Breath on Inhaled Insulin
August 30th, 2010: Discuss Pharmacy AFRESA(R) Phase 3 Data Show Sustained Glycemic Control, Normal Lung Function In Patients Over Four Years Of Treatment
- August 27, 2010: Florida TV news about Afrezza
Friday, December 17, 2010
There is nothing more reinvigorating to Mannkind shareholders than hearing what nay-sayers have to say. Here is the bunch as PDUFA (Dec-29-10) is approaching.
(From Jon Lecroy, who needs no introduction)
We continue to think that Afrezza will again be delayed by the FDA and that the recent price appreciation creates an opportunity ahead of what we think will be a major negative catalyst for the stock. We expect Afrezza to be delayed for the second time for multiple reasons: potentially insufficient data in Type 1 diabetes; no minutes were given after the last FDA meeting; the new inhaler may need more than bioequivalence data; the Danbury facility may not have received all final inspections; and the lack of an expert panel. We reiterate our SELL rating and $1 Price Target.
December 29 PDUFA, Approval Unlikely – The FDA remains extremely risk averse and has been increasing its focus on comparative clinical utility. We think this is a major problem for Afrezza since the FDA has questioned Afrezza’s clinical utility in the first Complete Response Letter (CRL). We also think it is problematic that the Afrezza clinical trials were done with different generation devices, creating an opportunity for the FDA to nitpick device comparability and potentially requesting safety and efficacy data with the newer Dreamboat inhaler. Additionally, because MannKind responded to its initial CR letter without 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. The multiple issues with the Afrezza program lead us to believe that the FDA will again delay the approval of the product.
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.
Headquartered in Valencia, California, MannKind’s lead product Afrezza is an ultra rapid-acting
inhaled mealtime insulin used to treat diabetes. In our view, key downside risks to MannKind
1) a complete response letter (CRL) for Afrezza from the FDA requesting additional
clinical studies that would delay approval beyond 2011,
2) the inability of MannKind to find a marketing partner for Afrezza following FDA approval,
3) manufacturing ramp or FDA inspection issues at the new facility in Danbury, CT, impacting the company’s ability to supply Afrezza,
4) a slower-than-anticipated uptake of Afrezza by the diabetes community, physicians, and patients,
5) balance sheet risk if financing terms are more dilutive than expected, and 6) potential legal or regulatory actions that would limit the company's ability to manufacture Afrezza. In our view, key upside risks to MannKind include FDA approval of Afrezza on or around the Dec. 29 PDUFA FDA action date and a quicker uptake of Afrezza post-launch.
MannKind May See CRL For Afrezza, Diabetes Experts Say
Dec. 17 (Bloomberg) -- MannKind likely to see FDA complete
response letter for lead inhalable insulin product Afrezza,
diabetes specialists said in interviews.
- Afrezza is a “complex” product in a crowded type-2 diabetes space, unlikely that the FDA will send an Approval Letter on or by its Dec. 29 PDUFA date, Dr Ananth
Annapragada of The University of Texas Health Science Center said
* FDA may ask for an advisory panel to handle any critical
issues prior to PDUFA, said global diabetes analyst at IMS
Health, Brian Lasky
* Hapoalim analyst Jon LeCroy said that Afrezza PDUFA may be
delayed by “risk-averse” FDA for insufficient data in Type
1 diabetes; new inhaler may need more than bioequivalence
data; no minutes given after last FDA meeting
* MNKD CFO Matthew Pfeffer said he is comfortable with data
package that was presented to the FDA, although did offer
that it is “up to the FDA to approve, or need something
* Even though JMP analyst Jason Butler said there is a chance
Afrezza may be approved in the first week of January, he
added there is the possibility that FDA may require work on
a REMs program
* Afrezza trials, which were done with varying generations of
devices, may further cause FDA to issue CRL, said portfolio
manager of the Highland Long/Short Healthcare Fund, Michael
* NOTE: In March MNKD received a CRL for Afrezza; in July MNKD
submitted updated pooled safety data related to Afrezza,
with information on comparability of its Dreamboat delivery
system to the MedTone device used in pivotal clinical
* Annapragada said the FDA would be inclined to look at the
* Pfeffer said the bridge-to-new device is in-line with what
FDA needed after extensive meetings
* Former president of the American Diabetes Association Dr
Gerald Bernstein, also VP medical affairs of Generex, said
MNKD has pulmonary delivery of insulin transported to the
fragile alveolar membrane of the lungs, similar to PFE/NKTR
inhalable insulin predecessor Exubera; the latter saw lung
cancer risks, which saw PFE discontinue sales in 2007
* With MNKD animal testing, there have been no signals of
cancer in Afrezza; Afrezza has safety advantages to Exubera
as it controls hypoglycemia and reduces weight gain, Pfeffer
* MNKD down has traded up 25% since Dec. 7 despite being down
7.8% YTD vs Russell 2000 Health-care Index up 16%; short
interest 24.6% of float
Thursday, December 16, 2010
MannKind Corporation (MNKD-NASDAQ)--Outperform (1) / V
Price as of 12/16/2010: $8.20
FY 10 EPS: $-1.57
FY 11 EPS: $0.70
Shares Out.: 113.1 MM
Market Cap.: $927.42 MM
Sector Rating: Specialty Drugs, Market Weight
* Summary: MNKD sold 0.7MM new shares and converted $5.9MM in debt to 0.7MM new equity shares. Lowering 2011E EPS to $0.70 from $0.71 to reflect higher share count. Maintain Outperform on Afrezza potential. Upcoming potential catalyst: Afrezza PDUFA on 12/29/2010.
* 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 9/22/2010 at an 8% discount to the 10-day VWAP, provided VWAP is at least $6.50 (see our 8/11 note for more details). At the 12/14 close, the transaction would have occurred at $6.76 (8% discount to $7.35 VWAP, Bloomberg) for total consideration of $4.7MM. Via a separate related agreement, the Mann Group purchased 0.7MM shares by conversion of $5.9MM in debt holdings ($8.46 per share, 0.7MM) shares.
* Slightly lowering 2011E EPS to $0.70 from $0.71 on increased share count estimate. The transactions resulted in aggregate issuance of 1.4MM new shares. As such, we now estimate average 2010 and 2011 share counts of 121.3MM and 125.0MM (previously 121.0MM and 123.6MM). Reducing our Q4 2010 estimated loss to $0.40 per share. (from loss of $0.41 per share) although full year estimate remains unchanged at loss of $1.57 per share.
* We view the transaction as a positive, bolstering MNKD's cash position. During the Q3 earnings call, MNKD mentioned operations were likely funded through early 2012 without additional share sales. We think the transactions further ensure that operations will likely be funded in case of delays to Afrezza approval.
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 $1.92, 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.
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 longterm
Wednesday, December 15, 2010
Dec 14-15 2010
Al Mann brought up some great points.
1) One was on risk/reward equation. The fact is companies spend a billion or two & around 10-15 years to get the product approved and have less than 10 years of patent protection after approval. To recoup the costs, the approved drug has to be sold at a high price before generic companies reverse engineer and sell it for pennies. To put things in perspective, one in 10,000 new chemical compounds discovered in science come out as an approved drug. Once in the market, only 2 out 10 drugs generate revenues that match or exceed its research and development costs. Of the drugs reaching the commercial market less than a third become blockbusters, drugs that earn or exceed a billion dollars in revenues. This game of drug discovery is rigged. The retiree dropping the last quarter in the Vegas slot machine has better odds.
2) Charlie Munger often talks about power of incentives. Munger’s thinking can help us understand FDA’s actions. You have a system in place that blames FDA for couple of thousand deaths due to adverse reactions to drugs and places no blame for couple of millions of deaths due to the unavailability of drugs. There could have been 1000 companies whose business plans died in the napkin of some diners or companies that shelved the promising drugs due to reduced revenue prospects. Nobody hears about them. The stock market is smart and prices it in. You can look at the short interest on biotech firms and on the reduced P/E multiple on pharma companies to see the effect of FDA’s actions.
Mannkind shareholders have been blessed to have Al Mann bankroll Afrezza’s development. So many other companies haven’t been lucky. Who is going to shed a tear or two?
What no one realizes is the fact that the product cycle is too long. If FDA changes its actions, it’ll take 15-20 years for the society to see the effects and reap some benefits.
Sunday, December 12, 2010
If Martin Luther King had been alive today and was a shareholder of Mannkind corp, his speech would have started like this “I’ve seen the promised land. And in that promised land, the people with Diabetes use Afrezza.”
The stock price appreciation of Mannkind will depend on the revenues, and the revenues will depend on the adoption rate of Afrezza. This brings us to the subject of this post “What factors will influence the adoption rate?”, i.e. the diffusion of Afrezza innovation in the diabetic population. Everett M. Rogers has done some pioneering work on the theory of “Diffusion of innovation”.
“Getting a new idea adopted, even when it has obvious
advantages, is often very difficult.”
— Everett Rogers, Diffusion of Innovations
Malcolm Gladwell’s Tipping point is also an excellent book for understanding how ideas propagate. Gladwell says “Ideas and products and messages and behaviors spread just like viruses do.” In Tipping point, Gladwell applies his theory to explain Hush Puppies sales and to spread of AIDS virus.
The ten critical dynamics of Innovation diffusion
# Dynamic How Afrezza stacks up? 1 Relative Advantage
The decision to adopt a technology is influenced by (1) the ability of a potential adopter to judge whether the benefits of
using the innovation will outweigh the risks of using it, and (2) whether the innovation improves upon the existing technology.
The more benefit people anticipate from adopting the innovation relative to what they now do, the more rapidly it will diffuse.
According to Rogers, “the degree of relative
advantage can be expressed as economic profitability, social prestige, or other benefits.”
The benefits & relative advantage of Afrezza over existing RAA’s are well documented and validated by the trials/studies/surveys.
the ease of use
• Understand end user
• Recognize impact of change
• Consider business case
• Use testimonials & success stories
Trialability is the ability to try out an innovation without total commitment and with minimal investment. In classic diffusion research, the easier it is to try out an innovation without having to commit fully to it, to discard an existing way of operating, or to invest heavily in technology or training, the better the prospects for adoption and diffusion. Trying out an innovation or new technology allows potential adopters to reduce their uncertainty about the risks and
benefits. Even when the weight of evidence
argues for or against the benefits of adopting a technology, personal experience (one way or the other) can overcome the evidence.
Free samples to PCP/Endo’s will help. 3
Observability is seeing how an innovation works by watching someone else use it and then acknowledging that the technology is safe and/or beneficial.
The extent to which potential adopters can
witness the adoption of an innovation by others can determine its prospects for diffusion. The more obvious the evidence of improved experience, increased functionality, and better outcomes, the more likely it will be adopted by new users.
Mannkind should distribute DVD’s/Posters that show how Afrezza is used in PCP/Endo offices. 4 Communication channels
Diffusion of innovations is a social process that
depends on new ideas being communicated from an individual who knows about the innovation to an individual who does not. Health care professionals and consumers are bombarded by information from many sources, each trying to persuade them to try a product, a procedure, or a point of view. Many specialized communications channels have evolved.
Social media – internet, facebook, twitter, direct to consumer ads, ads in physician journals… 5 Homophilous Groups
The degree of similarity among group members
across which an innovation diffuses will affect the ease and speed with which the diffusion
takes place. Innovations spread faster among
homophilous groups (those with similar characteristics) than among heterophilous groups (those that differ in important ways).
In general, communication is more effective
when the source and receiver share common
meanings, beliefs, and mutual understandings.
Communication among like individuals will
be more effective because individuals feel
more comfortable interacting with others like
themselves. However, differences in training,
social status, beliefs, and language can lead to
mistaken meanings, thereby causing messages to be distorted or to go unheeded.
This product will only be used by people with Diabetes, so the target group by nature is a homophilous one. 6 Pace of Innovation/Reinvention
Some innovations are relatively stable and do
not evolve as they diffuse. Others evolve more
rapidly and are altered by users along the way.
The degree of reinvention of any innovation
affects both its pace and style of diffusion. Some innovations lend themselves readily to being appropriated and altered by their users, and can diffuse rapidly even as they change, becoming almost unrecognizable as they reach new populations. Others are much less mutable—either they are used as intended or are not used at all.
Given the changes done to the device already, one can make a reasonable prediction that inhaler device may undergo little change for next couple of years. 7 Norms, Roles, and Social Networks
The norms, roles, and social networks of medicine are very important to the diffusion of new technology. According to classic diffusion theory, the configuration of the social networks through which innovations diffuse help govern the pace and extent of diffusion. Studies in the mid-1960s of physicians’ prescribing patterns of tetracycline,
for example, showed that doctors with more
extensive social networks—those on hospital
staffs or who attended hospital staff meetings,
those who practiced in groups, those who consulted with other physicians about their cases, and those who were cited as being close friends of other doctors—adopted the drug much more rapidly than doctors who were relatively more socially isolated.
Norms of behavior and expectations about roles
are strongly ingrained in health care professionals and affect how new ideas and technologies diffuse into practice. These norms and expectations can be used to target the appropriate social networks to help diffuse a given innovation.
The therapy guidelines given by ADA and AACE will play a role here. 8 Opinion Leaders
Opinion leaders are key actors in the diffusion
of innovations. Change agents who want to
promote a new idea or technology must pay
attention to those individuals whose words and
behaviors influence that of their peers. In general, opinion leaders have greater exposure to new ideas through the media, by being more cosmopolite than others, by having more exposure to change agents, having higher income and education, and by having wider social networks than most people.
Opinion leaders have been a key vector of diffusion for many medical and information technologies, and a large amount of effort is dedicated to identifying, informing, and convincing them to become early adopters.
KOL’s like Dr. Jay Skyler can play an important role.
Celebrities with Diabetes (Halle Berry, Larry King, Nick Jonas ..) can help create awareness and give endorsements.
The familiarity of an innovation, its compatibility with the existing environment and behavior, is strongly linked to its diffusion. The more an innovation can integrate and coexist with technologies and social patterns already in place, the greater its prospects for adoption and diffusion.
If the innovation is consistent with a potential
adopter’s past experiences, existing values and
needs, the decision to adopt is facilitated.
Precedent behavior or an installed base of technology increases compatibility and improves the likelihood of diffusion. The more compatible an innovation is, the less change in behavior it requires.
Exogenous influencing factors, such as financial
reimbursement for using the technology, can
influence the pace of diffusion. Medical technology diffusion often “follows the money” in that the lack of a clear reimbursement method for a new technology is a significant barrier even if the technology offers a perceived competitive advantage
to the physician or hospital.
One of the reasons for Exubera’s failure is the lack of reimbursement in many plans. Hopefully this should not be an issue for Afrezza as costs are compatible with existing therapies. 10 Infrastructure
The adoption of many innovations depends on
the presence of existing infrastructure that can
support it. Fax machines are an example of
infrastructure’s role in technology diffusion; their rapid adoption depended on telephone lines, an infrastructure already in place.
Not a factor for Afrezza.
Stages in the Innovation—Decision Process
The diffusion S curve provides a model to understand how innovation spreads in a population.
Percent of Adopters
Geographically dispersed contacts
High tolerance of uncertainty and failure
2.5 Early adopters
Well-respected opinion leadership
Well integrated in social system
Judicious and successful use of innovation
Highly interconnected within a peer system
Just ahead of the average
Responsive to economic necessity
Responsive to social norms
Limited economic resources
Low tolerance for uncertainty
Precarious economic situation
It is very apparent that Exubera wasn’t adopted even by the Innovators. This is the first group that Mannkind needs to make inroads for wider acceptance.
The S curve also gives lots of pointers to how the stock price will move. The stock market is a machine that prices in future expectations. So the stock price will move ahead of S curve in adoption. The history confirms this. If you had owned shares of Amgen, you’d have seen the revenues, income and cash flow go up exponentially in last 10 years, but the stock price has basically remained flat. One of the main reason is (not to mention the falling P/E’s for biotech), the price in year 2000 reflected all the improvements in fundamentals that followed in the next decade. One can make a reasonable bet that 80% of Provenge’s potential is already reflected in Dendreon’s stock.
If we apply this logic, if Afrezza is approved by the PDUFA date, the bulk of appreciation will be priced after seeing 2-5 quarters of sales. It is already too late, If one waits for all the revenues to come in.
Afrezza is different from other drugs approved by FDA. For Afrezza the prevailing wisdom is, even if product is approved, it wont take off. So we wont see the bulk of appreciation after the approval. A good triple digit sales growth will do the trick.
The sections above are copied from various sources (ihealth reports in particular). As they say copying from one source is plagiarism and from many sources is research.
Sunday, December 5, 2010
Both Exubera and Afrezza had shown in their trials an initial lung function decline, that was reversible, non-progressive and statistically insignificant. For Afrezza, Alfred Mann equated that to the difference between the lung function of 80 & 81 year old. This initial decline is small and doesn't seem to cause any major concern. What about long term safety data? I came across this article published by Pfizer that should put some of these concerns to rest. Also bear in mind that the lung function decline in Dreamboat inhaler is a fraction of Medtone inhaler (earlier version used in trials). This link has more details on that.
The link given below is from Pfizer's website. This is old news (2007), but is of some help in reassuring us.
“It’s exciting that eight-year Exubera data are available so quickly after this medicine has become available to physicians and patients because it supports the safety and efficacy of Exubera,” said Dr. Mark Burge, from the University of New Mexico School of Medicine, Department of Medicine. “These data should reassure both patients and physicians that people with diabetes can use Exubera safely and effectively over an extended period.”
Eight-Year Exubera Study
The first study assessed lung function and blood sugar control over eight years in adults with type 1 and type 2 diabetes. Patients, completing any of the three, three-month randomized phase 3 Exubera clinical trials, could enter the study and were treated with a diabetes treatment regimen (metformin and/or sulfonylurea and/or thiazolidinediones and/or injected insulin) that included Exubera (Exubera group) or that did not include Exubera (comparator group) for two years. One hundred seventy-three patients were enrolled in the Exubera group, and 44 patients were enrolled in the comparator group. When the study was extended for patients using Exubera, more than half remained in the study beyond two years, and 52 of the patients remained in the study for eight years. Lung function was measured using force expiratory volume (FEV1) and yearly rates of decline were calculated and compared to the control group and to two databases which evaluated lung function over two and seven years in adults with diabetes.
The eight year study found that the average yearly reductions in lung function in patients using Exubera were similar to people with diabetes that were not treated with Exubera. From an initial lung function test (FEV1) of 3,000 - 3,500 mL, yearly rates of decline were 49 mL for Exubera, 71 mL for the comparator group, and 57 mL and 71 mL for the 2 and 7 year database populations respectively. Other clinical studies for Exubera showed that average initial declines in lung function were small compared to the control group and did not progress. This study also showed that Exubera provided sustained blood sugar control throughout the eight year period. Blood sugar levels as measured by A1C were 8.5% at the beginning of the study, decreased after 3 months of therapy, were maintained throughout the eight years ending with an A1C of 7.9%.
The most common adverse event was hypoglycaemia which decreased over time from 2.9 episodes/subject-month after 1 month of Exubera therapy to 1.7 episode/subject-month after 8 years of therapy. Over the eight years of the study, the three most common respiratory adverse events were respiratory tract infection, such as a common cold, (67.6%), cough (41.6%) and pharyngitis (sore throat) (38.2%). As can be expected in a long term trial, serious adverse events were reported. These occurred in 62 (35.8%) of patients over the eight-year period. Among the serious adverse events were coronary artery disease, degenerative joint disease, anemia, myocardial infarction and basal cell carcinoma. The study did not have a control group beyond two-years but no events occurred with consistency.
Exubera versus Lantus Exploratory Study
Because lack of mealtime, blood sugar control is the first defect in type 2 diabetes, a second exploratory study was designed to explore whether Exubera, mealtime insulin, could provide effective 24-hour blood sugar control.
In a single-site, two arm cross-over design, open label, exploratory in-patient study, 40 patients uncontrolled with multiple oral diabetes pills added either Exubera or Lantus as their first insulin. Patients’ blood sugar levels were intensively monitored using an 8-pt glucose profile for five days of each treatment period and 24-hour blood sugar profiles were assessed using continuous glucose monitoring system (CGMS) technology for the final 3 days of each treatment period. Exubera and Lantus were titrated according to blood sugar levels based on prescribing information. At the end of the study period, the daily dose of Exubera was 15.1 mg (equivalent to approximately 40.1 IU) compared with 16.4 IU for Lantus.
In the final three days of the study, mealtime blood sugar levels with Exubera were lower with similar fasting blood sugar levels compared to Lantus which resulted in lower overall 24-hour blood sugar levels with Exubera. There were no differences in the blood sugar variability endpoints (SD, MAGE, MODD) between Exubera and Lantus. Additional large scale studies comparing Exubera and Lantus are on-going. No patients experienced severe adverse events with either treatment in the study. As with all forms of insulin, hypoglycemia (low blood sugar levels) was the most frequently observed adverse effect with both insulins, but was more frequent in the Exubera group than in the Lantus group (8.7 vs. 2.4 per-subject-month of exposure).
“The results of these two studies further support the role of Exubera as a first insulin option in the management of type 2 diabetes,” said Dr. Rochelle Chaiken, Endocrinologist and Cardiovascular Medical Group Leader from Pfizer. “Given the progressive nature of diabetes and the challenges related to treating and managing the disease over time, we are committed to educating physicians and patients about the critical role that earlier insulin initiation may play in managing this disease.”
Friday, December 3, 2010
I want to set the record straight on Gen 2 inhaler. I want to thank my European Mannkind investor for pointing to the Al Mann’s comment in Q2 2009 Q&A.
Some of the recent research reports on Mannkind have sown the seed of confusion on the lack of data for Gen2 inhaler. I had posted on this earlier too. Link
The detractors argue that Mannkind has to perform two additional trials (for Type 1 & 2) using Gen2 inhaler as the changes to the devices are significant. They point to the new trials registered for Gen2 and argue that FDA will wait for the outcome of that trial to make a decision. This new trial ends in Dec 2011.
We’ll know on PDUFA date if those analysts are wrong. Meanwhile
1) The bio-equivalency studies done using ECLIA and RIA assays gave similar results. Link
2) The study MKC 117 was restarted using Gen2 inhaler. This study met the primary end point.
Al Mann’s statement in Q1-2010
As you heard from Hakan and Peter, we are preparing for the meeting with the FDA regarding the Complete Response letter in early June. Our team is assembling a briefing book that will be provided shortly to the agency. Included in the response is the additional data from Study 117 as well as answers to the several other questions and observations raised in the Complete Response letter. As you may recall, our clinical trials were done with the Medtone inhaler and our plan is to launch only with the new device. Our strategy has been to obtain initial approval of the insulin platform with Medtone and soon thereafter to file a supplemental NDA with our next-generation inhalers so that approval of the launch configuration would be obtained late this year.
We sought guidance from the FDA regarding the approval path for the new device and they have reviewed and endorsed our proposed plan. All the steps and that plan have now been completed. However, given that we have received the Complete Response rather than an outright approval, we have revised our regulatory approach. Instead of the SNDA, we plan to file an amended NDA incorporating the new device soon after the forthcoming meeting with the agency.
While we cannot predict FDA actions, if it completes to review of the amended NDA and approves AFREZZA within the allotted six months, this change in strategy will still complete the regulatory review without delaying our launch that is planned for next year. However, we would not have any interim approval of AFREZZA with the Medtone inhaler.
Wednesday, December 1, 2010
Previewing AFREZZA 12/29 PDUFA; Anticipate FDA Rejection, New Studies
We are previewing FDA's decision on MNKD's AFREZZA, which is expected to occur by the 12/29 PDUFA date. Importantly, (1) we continue to anticipate a complete response letter (CRL) for AFREZZA, with FDA requesting additional data from MNKD. (2) We view the lack of an FDA advisory panel prior to the PDUFA as an additional negative for the prospects of AFREZZA approval. (3) We note that diabetes products in general have a history of regulatory delays and expect a similar outcome with AFREZZA. (4) We believe that although not explicitly stated by MNKD, FDA may have suggested additional studies be run in the CRL received 3/16/10, making it difficult to interpret MNKD's statements regarding contents of any future CRL received.
- Anticipate CR for AFREZZA, Expect Additional Trials Needed. We continue
to believe that AFREZZA data is not adequate for approval, specifically due to
the failed TI-117 trial in Type 1 diabetics. Importantly, we see substantial
downside for MNKD's shares upon the FDA decision expected Dec 29.
- View Lack of FDA Panel as Additional Negative for AFREZZA. In our view,
the FDA is not likely to approve an inhaled insulin product without an advisory
panel. The safety barrier for diabetes drugs is extremely high, and AFREZZA
does not improve HbA1c reduction vs. injected insulin.
- Diabetes Products Have Unfavorable Regulatory History. FDA approval for
diabetes drugs has become increasingly difficult, suggesting a negative
outcome for AFREZZA. Importantly, many diabetes drugs have been rejected
and permanently discontinued. Finally, approved drugs have been delayed 22
months on average.
- "No New Data" Claim Meaningless Going Forward. MNKD noted FDA "did
not request new clinical data" in the March 2010 complete response (CR), but
has likely submitted data from TI-117. Also, MNKD disclosed that FDA cited
"HbA1c issues" in May 2010, after the March 2010 CRL, where HbA1c was not