Thursday, January 27, 2011

What should Mannkind do now?

 

The 2nd CRL from FDA for Mannkind’s lead drug Afrezza hit the management and shareholders like a bolt of lightning. What is so sad is, the people with diabetes will have to endure 1-2 more years of needles. It appears that Mannkind was lead to believe that the in-vitro bioequivalence was enough. Later the FDA might have changed their mind and never informed Mannkind. It is also possible that FDA asked too many questions on Dreamboat and it prompted Mannkind to start Affinity2 trials in August 2010 time frame.

A new risk that has entered in the equation is the execution risk. To restore credibility in both FDA and Management & to create more transparency, I recommend the following

1) The entire Mannkind management should meet with all the divisions of the FDA. They have to take very careful notes.

2) Mannkind should get the CRL notes from FDA. They should not proceed with the new phase 3 trials till they get the notes. Let it take a week, a month, or  a year. Mannkind should wait. As they say “assumption is the mother of all….”

3) The CRL notes should be published in a PR. The PR need not include confidential information, but information at a high level. All the shareholders & stakeholders should know exactly what FDA is asking for. A check list like a, b, c,…

4) Mannkind tasks/actions should be based off of the check list.

5) Mannkind management should solicit advice from ex-FDA directors

The FDA is only answerable to the US government and it reacts to the changing mandates and pressures of public. The way FDA thinks may not be in sync with what Mannkind management thinks or perceives. It is in the best interest of the shareholders that Mannkind’s thinking be in sync with FDA and not the other way around.

In 10 years from now, I hope to tell my kids that the 2nd CRL was just a minor hiccup in the glorious history of Mannkind.  I have no doubt in my mind that if executed right, Afrezza will be a crowning achievement in the life of Alfred Mann.

Thursday, January 20, 2011

Weeden update jan 20-2011

We are upgrading MannKind (MNKD) from Hold to Buy as we view the new regulatory path for Afrezza post the Jan. 18 complete response letter (CRL) as less risky following additional clarity from FDA in the new CRL. Our 12-month price target of $9 is based on a 12x price/sales multiple applied to our 2014 Afrezza sales estimate of $162m, discounted at 20% for two years. MNKD shares are trading down from $9.11 (Jan. 19 closing) to the $5.00-5.60 range intra-day following yesterday's announcement that the FDA issued a complete response letter (CRL/non-approval) on Jan. 18 for its Afrezza ultra rapid-acting inhaled meal-time insulin used to treat diabetes. We believe at current levels, investors do not believe MannKind will be able to complete the two Gen2 clinical bridging trials in 2011, resubmit the Afrezza new drug application (NDA) around year-end 2011, receive FDA approval in mid-2012, and/or announce a marketing partnership in 2012.

Following FDA's request for two clinical trials with the Gen2 inhaler (including one with an arm for the prior MedTone inhaler) with 12-week follow-up, we estimate the Afrezza regulatory approval path has been extended by about two quarters: to a December resubmission and late 2Q12 FDA approval. We had previously assumed MannKind would receive a CRL requesting 30-day evaluation data with the Gen2 inhaler, resubmit its application to the FDA for Afrezza in 2Q11, receive FDA approval for Afrezza in 4Q11, announce an Afrezza partnership in 4Q11, and co-launch Afrezza in the US in 1Q12. As FDA requested no longer-term clinical studies beyond that needed to bridge the Gen2 inhaler to the prior MedTone inhaler, we view less risk associated with this new path going forward following additional clarity from FDA in the new CRL.

Post the Jan. 18 Afrezza CRL, we assume MannKind resubmits its application to the FDA for Afrezza in December, receives FDA approval for Afrezza late 2Q12, and a 3Q12 partnership announcement and US co-launch of Afrezza. We expect MannKind has its CRL follow-up meeting with the FDA in March/April (following the first CRL on March 12, 2010, MannKind met with the FDA on June 9 and resubmitted the Afrezza NDA on June 29), initiates two new Gen2 clinical trials (including one with a MedTone arm) in May, completes enrollment in July, reaches 12 weeks of patient follow-up in October, and resubmits the Afrezza NDA in December. If current Gen2 clinical studies (Affinity 1 & 2) can be leveraged to address the CRL, we would expect a September 2011 FDA resubmission, late 1Q12 FDA approval, and 2Q12 partnership announcement and US co-launch.

Key catalysts through 2011: 1) 4Q10 earnings call in Feb: we expect additional clarity on MannKind's regulatory strategy and two Gen2 inhaler delivery device bridging clinical trials, any preliminary feedback from FDA, a financing/balance sheet update, and/or a marketing partnership update to be positive catalysts for shares, 2) status update from the CRL follow-up meeting with FDA in March/April, 3) completion of Gen2 clinical trials patient enrollment in 3Q11, and 4) confirmation in 4Q11 that the Gen2 clinical studies met primary endpoints, and 5) resubmission of the Afrezza NDA in late 4Q11.

Key risks to our upgrade through 2011, in our view, include: 1) a longer-than-anticipated timeline to address the Jan. 18 CRL for Afrezza that would delay FDA approval materially beyond our 2Q12 assumption, 2) negative results from Gen2 clinical trials, and 3) financing and balance sheet risk.

We expect MannKind to address its balance sheet by mid-2011 with an equity/debt raise of approximately $150m. At the end of 3Q10, MannKind had $98m in cash and equivalents and $461m in debt. Including $98m available from the credit facility with Mr. Al Mann, MannKind's Chairman and CEO (who has personally invested $925m into MannKind and owns 48m shares or 39% of outstanding MNKD shares), financial resources totaled $196m. Based on a cash burn in 3Q10 of $38.5m, versus $38m in 2Q10, management believes these resources should fund operations through 3Q11, not including any potential proceeds from future equity sales. In August 2010, MannKind had announced an agreement in which it will sell up to 18.2m shares (700k every two weeks over the course of one year; volume weighted average trading price must be at least $6.50 per share) to investment group Seaside 88 and swap out the same number of shares to the Mann Group, controlled by Mr. Mann.

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We are raising our 12-month price target on MannKind (MNKD - Hold) from $6 to $9 following the Jan. 18 receipt of an FDA complete response letter (CRL/non-approval) for its Afrezza ultra rapid-acting inhaled mealtime insulin used to treat diabetes. In-line with our expectations, FDA issued a CRL for Afrezza and requested more information on its Gen2 inhaler delivery device. On the positive side, FDA requested no clinical studies beyond that needed to bridge the Gen2 inhaler to the prior MedTone inhaler. Our raised 12-month price target of $9 (prior $6) is based on 12x (prior 10x) our 2014 Afrezza sales estimate of $162m, discounted at 20% (prior 30%) for two years. We use a lower discount rate and higher price/sales multiple: although we estimate the Afrezza FDA regulatory approval path has been extended by about two quarters from our prior expectations, we view less risk associated with this new path going forward following additional clarity from FDA in the new CRL.

Yesterday, MannKind announced that the FDA issued a CRL for Afrezza on Jan. 18, requesting more information on its Gen2 inhaler delivery device. The FDA requested that MannKind conduct two clinical trials with the Gen2 inhaler to confirm the bridging and handling of the Gen2 inhaler delivery device to the prior MedTone inhaler used in the Afrezza pivotal clinical trials. Our prior Afrezza sales forecasts through 2014 had assumed MannKind receives a CRL, resubmits its application to the FDA for Afrezza in 2Q11, receives FDA approval for Afrezza in 4Q11, announces an Afrezza partnership in 4Q11, and co-launches Afrezza in the US in 1Q12.

We now assume MannKind resubmits its application to the FDA for Afrezza in December, receives FDA approval for Afrezza late 2Q12, and a 3Q12 partnership announcement and US co-launch of Afrezza. We expect MannKind has its CRL follow-up meeting with the FDA in March/April (following the first CRL on March 12, 2010, MannKind met with the FDA on June 9 and resubmitted the Afrezza NDA on June 29), initiates two new Gen2 clinical trials (including one with a MedTone arm) in May, completes enrollment in July, reaches 12 weeks of patient follow-up in October, and resubmits the Afrezza NDA in December. It is unclear to us whether MannKind would be able to announce a marketing partnership prior to FDA approval – this depends on the potential partner's comfort with the new regulatory path going forward following the Jan. 18 CRL. We leave a $100m upfront partner payment in our forecast for 4Q11, since a partnership prior to FDA approval cannot be ruled out.

We have updated our 2012 sales/EPS estimates for MannKind to reflect the two-quarter delay from our prior expectations; our 2013 and 2014 estimates remain unchanged. If current Gen2 clinical studies (Affinity 1 & 2) can be leveraged to address the CRL, we would expect a September 2011 FDA resubmission, late 1Q12 FDA approval, and 2Q12 partnership announcement and US co-launch.

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Monday, January 10, 2011

Bloomberg interviews Al Mann – Jan 10-2010

 

Jan. 10 (Bloomberg) -- Alfred Mann, chief executive officer of MannKind Corp., talks about prospects for U.S. Food and Drug Administration approval of the company's inhaled insulin. U.S regulators delayed a decision on the diabetes drug, Afrezza, on Dec. 28. Mann talks with Shannon Pettypiece on Bloomberg Television's "Street Smart." Bloomberg's Carol Massar and Matt Miller also speaks. (Source: Bloomberg)

Saturday, January 8, 2011

Dueling the Afrezza bear

 

Lets explore the Afrezza’s popular bear arguments & misconceptions.

#

Bear’s argument

My comments

1 Cost to Patient : Leerink Swann has given a lot of thought to costs.  They are saying that margins will be slim. Read here Here are some facts:

1) Bioequivalence of inhaled insulin in Dreamboat is 40% of s.c. rapid acting analogs.
(In medtone, 45U TI ~ 12 IU of Lispro-> link;
Dreamboat uses 1/3 less TI, so 30U TI in dreamboat ~ 12 IU of Lispro)

2) Mannkind hasn’t made public what the cost would be, but in conference calls, they’ve said Afrezza costs will be within 5% of RAA (or I think they used the word comparative)

For Exubera: For a 70kg adult, using 0.5 units/kg/day, $8-9/day, Blister packs = $3042 + 1 chamber $19 + 28 release units/year = $3145.00/year

For s.c.: $1000/year

For Afrezza: Disposable inhaler thrown in for free that lasts 2 weeks; Even if you assume 20% more expensive than s.c, you are talking $1200/year. The increase in per month is $16 or around 50 cents per day. if you go by Mannkind’s PR the increase is 15 cents per day.

From historic point of view, this whole argument of cost is utter nonsense. When rapid acting analogs came into the market, the only convenience they offered was that the injection need not be taken 30 minutes prior to the meal. Even today, the Canadian pharmacy lists Humulin 5 x 3 ml at $55.49 and Humalog 5 x 3 ml Cartridges at $89.99. This is 61% more expensive. The society was willing to pay 61% more for a product whose only advantage (at time of approval) was convenience of taking the shot early. Folks, think about all the advantages of Afrezza that are proved by trials and those will be proved later. Simple logic, won’t the public absorb the extra cost?

One should also focus on TCO (total cost of ownership). Consider the following

1) Reduced number of test strips
2) Reduced number of correctional shots (as RAA lingers a lot)

Let us conveniently forget all the other proved advantages of Afrezza (weight neutral, less hypos, more satisfaction, more compliance ….)

2 Margins are too low to make any money Fact of the matter is everyone is speculating. When Leerink’s analyst (a physician) gave his comment about margin, it reminded me of a quote A horse that can count to 10 is a remarkable  horse, but not a remarkable mathematician”.

I’m comfortable with the steps Mannkind has taken to control costs and improve margin.

a) Insulin:  Mannkind was proactive in securing the insulin supplies. They paid like $2 million dollars for potential $10 billion dollars of sales and have more option to buy insulin for several billion dollars of sales from Pfizer. They also have long term contracts with other manufacturers.  

b) Inhaler: Mannkind took all the efforts to come up with a better inhaler that was even more cost effective to make. It also uses 1/3rd less insulin and this resulted in less lung impact as well.

Folks, Al Mann is several steps ahead in the game (compared to sell side analysts) and is taking proactive measures to rein in the costs.

One can make an intelligent comment only when we see the real costs in the income statement.
3 FDA already rejected Afrezza FDA gave a complete response letter and didn’t reject Afrezza. The CRL asked for no new trials and asked for additional data that Mannkind already had. The resubmission included the dreamboat inhaler
4

Since insulin is a growth factor, endocrinologists have always been
concerned that inhaled insulin would be associated with lung cancer.
Because of this and in spite of earlier assurances from clinical
trials that there was no such increase in the risk of lung cancer,
many endocrinologists, like myself, have never prescribed inhaled
insulin. Obviously, our worst fears have been realized. This is the
final nail in the inhaled insulin coffin.

– David S. H. Bell, MD

On what scientific evidence do you base your hypothesis that inhaled insulin is oncogenic, while secreted insulin, injected insulin, and orally available insulin analogs do not cause cancer?

In short, where’s the proof?
5 FDA wont approve inhaled insulin The sector got tarnished with Exubera’s withdrawal. Exubera was a commercial failure. FDA has never said that it will not approve any inhaled insulin products. Afrezza differentiates itself in a number of ways.

FDA decides on safety & efficacy. Mannkind has done enough trials to prove safety and efficacy as per FDA’s guidelines.
6 Even if FDA approves, the product will not take off The best argument against it is the surveys. Both physicians (> 25%) and patients (95%) like Afrezza. There is no point in comparing Exubera and Afrezza. Read about their differences here
7 Mannkind hasn’t found a partner. Partners aren’t interested. Approval will solve this issue. Al Mann is a tough negotiator and will not give the upside away.
8 Inhaled insulin is not safe to the lungs Lung function decline (~0.5% for dreamboat) is minimal, non-progressive, & reversible.

Antibodies increase have no clinical consequences (type 2: <3 times increase Vs 2 times in control; type 1: 8 fold vs 2 fold in control)

COPD/Smokers: FDA may not approve the drug to be used by this patient population
9 Long term lung safety is always a major concern. The best we’ve seen is the Pfizer Exubera’s 8 year study. No long term lung function decline has been reported.

Read link

Friday, January 7, 2011

The Good, Bear & the Ugly

(some of these are good arguments even if you do not agree with them. Any blue comments are mine. Bottom line: Some bearish analysts have moved away from questioning the efficacy to questioning the margins. That is one good sign that you shouldn’t miss.)

Leerink Swann

Bottom Line: We are profiling MNKD's 2011. The company is on the
verge of receiving a response from the FDA on its application for Afrezza.
Investors are generally bearish on prospects for approval, which we
believe are reasonable particularly since from our analysis, FDA
decisions that come after the PDUFA date has passed tend to be
Complete Responses rather than approvals (click here ). That said, the
FDA is unpredictable both with approvals and non-approvals, and while
we wonder whether MNKD has generated sufficient data to accurately
understand the appropriate use, dosing and safety of Afrezza in diabetes,
that is a decision that obviously rests with the agency. We do have more
caution on Afrezza's commercial potential and whether the company can
identify a partner with high confidence in the prospects for a drug that is
viewed by specialists as a generally niche product. We reiterate our UP
rating on MNKD; as our caution on the ability to procure a commercial
partner increases, our valuation unfortunately falls from ~$5/share to
~$3/share.

Cautious On The Dosing Profile: While much of the bear case on
Afrezza to date has been generally circumstantial, at least in our mind,
our own deep dive analysis of the presented literature leaves us
wondering whether the appropriate dose level of Afrezza has been in flux
and what impact that may have on both approval prospects, dosing
requirements, long-term safety from a pulmonary perspective, product
margins, and ability to find an attractive partner.

Commercial Partner Probably Needs High Conviction In Market
Opportunity For Afrezza: After factoring in: 1) a royalty to MNKD; 2)
Afrezza COGS which we worry could be above pharma industry average
based on the required dose to optimize blood sugars; 3) funding
post-approval study requirements and potentially a large registry; 4)
covering fixed costs of a large primary care sales force, which likely
measures in the hundreds of millions (particularly given such a
competitive space); and 5) the initial period of unprofitability associated
with the launch, we are concerned MNKD may not find a collaborator who
is willing to make such a meaningful commitment to the product even if
approved. Unfortunately, the Street's generally bearish attitude toward
Afrezza may further hinder any large pharma CEO's willingness to step
up and make a sizable investment in Afrezza for fear of backlash from
their shareholders.

Analyst predictions at a glance – 2Q 2010

 

added Weeden & Oppenheimer – Dec 1st 2010

added Leerink Swann Jan – 07-2011

Firm Price target Valuation analysis General comments by the firm
Griffin $26.00
(12 mo target)
Risk adjusted cash flow
the probabilities of approval in the
three most likely time periods are as follows: fourth quarter of 2010, 60%; first quarter of 2011, 35%;
second quarter of 2011, 5%.
Leerink Swann

~$5/share to
~$3/share


Underperform

DCF valuation methodology and apply a ~10% discount rate to the cash flows.

We use a Our modeled estimates assume an Afrezza launch in 4Q11, a generous commercial global partnership with a tiered 20-30% royalty rate that covers MNKD's COGS, and global sales of ~$340M in 2015 representing 4% penetration of an expanding global
rapid-acting insulin market; but offsetting this opportunity, there is the possibility that Afrezza
consumes sufficient resources to drive the shares to a near-zero long-term valuation. We do not
risk-adjust our estimates to reflect the potential that MNKD could eventually become insolvent if Afrezza fails to be successfully commercialized, but not this scenario would obviously represent
additional downside.

JP Morgan UW rating Discount rate of 15%

EPS Estimates
2010 (1.52)
2011 (1.34)
No price target given
Two models
our proprietary real options sum-of-the-parts analysis and a risk adjusted NPV model
Wells Fargo $11-$12
Outperform
12-month valuation range is based on a P/E multiple range of 14-16x our 2014 EPS estimate of $1.95, discounted for four years at a 25% rate. 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 risk/reward profile.
CRT capital group $12 (6 mo target) This is based on a 4.0 times multiple of five year forward worldwide sales, discounted back over 5.5 years at 25%. Revenue projections in
MM (worldwide)
2011 $  15
2012 $  81
2013 $ 192
2014 $ 392
2015 $ 843
2016 $ 1,630
Hapoalim
securities
$1.00 Zero revenues projected from Afrezza

Sum of Parts: $147 million
Afrezza program: $225MM,
Cancer vaccine:   $50MM
Q4 BV               ($137.7)MM
2010-2012 EPS estimates
($1.47), ($1.32) and ($1.22)
2013 & 2014->EPS ($1.13) and ($1.06),
Bank of America $9 (previously $8) Sales estimates

2011 $155MM
2012 $399MM

EPS Estimates
2010   2011  2012
(1.67) (1.06) (0.93)
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 $11.20 per share from projected royalties in Afrezza sales offset by -$2.60 per share from the company's debt.
Rodman and Renshaw $18
Market outperform
2011 Revenue Est 62MM
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.
it is a product that in the long-run, has the potential to become a multi-billion dollar product.
JMP Securities $11 discounted cash flow valuation

sales of
$519MM in 2015, an 85% probability of success, and 30% royalty rate to MannKind.


wacc 10.7%
Weeden $6 hold Sales multiple of 10 based on 2014 sales of $162 m, discounted at 30% for two years.

Our Afrezza forecasts though 2014 assume MannKind receives a CRL on or around Dec. 29, resubmits its application to the FDA for Afrezza in 2Q11, receives FDA approval for Afrezza in 4Q11, announces an Afrezza partnership in 4Q11, co-launches Afrezza in the US in 1Q12 at
an annual $2k price, and receives a 35% Afrezza sales royalty and
transfer price rate.

We estimate Afrezza sales to ramp from $24m in 2012 to $86m in 2013 and $162m in 2014, as the Afrezza patient user base expands to 100k patients at the end of 2014 or 2% of the 5 million people in the US using insulin to treat their diabetes. Our revenue estimates for MannKind are $0m in 2010, $100m (Afrezza partnership payment) in 2011, $8m in 2012, $30m in 2013, and $57m in 2014.
Oppen-heimer $2 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 a 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 $2.00.

Tuesday, January 4, 2011

The bitter truth

 

I want every single current and prospective Mannkind corp shareholder to view this video by Dr. Robert H. Lustig, M.D., UCSF Division of Endocrinology & Metabolism. It helps you get the big picture and make sense of what is going on in the world.

Monday, January 3, 2011

Compiling the scientific evidence in favor of Afrezza

 

Glucose excursions, PPG-->oxidative stress—>Vascular damage

1) One of the hallmarks of Afrezza is its ability to control post prandial glucose excursion. This research article demonstrates that activation of oxidative stress was more dependent upon glucose excursions than chronic sustained hyperglycemia in subjects with IGR (impaired glucose regulation) and patients with newly diagnosed T2DM. Afrezza controls glucose excursions better than RAA due to its unique PK profile. The oxidative stress causes vascular damage.

From the article, “Although the primary pathophysiological mechanism by which postprandial glucose excursions activate the process of protein oxidation remains unknown, our results suggest that postprandial hyperglycemia, as well as glucose excursions by meals, might contribute to the development of diabetic complication through carbonyl stress, even during prediabetic stages.”

2) From the article titled “Reducing Oxidative stress in patients with Type 2 DM: A primary call for action”,

image

image  

3) From the article

image

4) From

  • Postmeal and postchallenge hyperglycaemia are independent risk factors for macrovascular disease
  • Postmeal hyperglycaemia is associated with increased risk of retinopathy
  • Postmeal hyperglycaemia is associated with increased carotid intima-media thickness
  • Postmeal hyperglycaemia causes oxidative stress, inflammation and endothelial dysfunction
  • Postmeal hyperglycaemia is associated with decreased myocardial blood volume and myocardial blood flow
  • Postmeal hyperglycaemia is associated with increased risk of cancer
  • Postmeal hyperglycaemia is associated with impaired cognitive function in elderly people with type 2 diabetes

5) Lung function impacted by chronic hyperglycemia:

     One day researchers will suggest that Afrezza will improve long term lung function.

     From the link:

image

     6) Editorial that says focusing on PPG is more important. The traditional focus has been on A1C

For further reading:

a) Three articles that validate the importance of Afrezza

b) Beyond Hemoglobin A1c; Dr. Hirsch article in JAMA

c) Value of early intervention