• Mannkind will set Afrezza’s clinical development path within a few weeks.
• Partnering and financing alternatives await decisions on Afrezza; our comparative
analysis provides a perspective on a licensing transaction.
• We now rate MNKD stock a BUY for speculative investors with a target price of $10.00.
We think speculative investors will do well to consider MNKD at its recent price. Initiation of
the trials and a partnering deal offer near-term drivers. And recent pharmaceutical transactions
provide a basis for valuing Afrezza to a partner, while our projections to 2015 indicate MNKD
shares are undervalued. Accordingly, we are reinstating our BUY recommendation and setting
a 12-month target price of $10.00 per share.
Type 1 Diabetes Trial Goal – To Satisfy FDA Approval Requirements & Gain A Marketing Edge: The new plan is to conduct one trial with Type 1 diabetic patients to obtain the comparison between the Medtone and Dreamboat inhalers and to assess whether Afrezza is superior to NovoLog, as the original trial was intended. This means that number of patients using the Medtone inhaler would likely be more than the 75 planned in the original studies. In addition, Mannkind will obtain echocardiograms to satisfy European regulators who routinely request this type of heart monitoring as part of new drug applications. (The FDA requires this type of monitoring only as indicated by other tests.) Based on the characteristics of Afrezza and the comparator, NovaLog, patients treated with Mannkind’s drug should achieve better HbA1c levels with fewer bouts of hypoglycemia when glucose levels are tightly controlled. (HbA1c is a measure of glucose control over 2 to 3 months.) Thus, the study should help Afrezza gain acceptance for treating patients who are dependent on basal and bolus insulin.
Type 2 Diabetes Trial Goal – To Expand the Market for Afrezza: The second study plan has yet to be finalized, as Mannkind is awaiting the minutes of its meeting with the FDA before coming to a decision on the trial design. Based on the conference call that was held after the market closed last night (May 9th), we believe the study will evaluate Afrezza’s safety and efficacy in Type 2 diabetic individuals who do not require basal insulin. Afrezza will most likely be tested in combination with the most commonly prescribed therapy used by early-stage diabetic patients, metformin. Given Mannkind’s desire to gain a marketing advantage from the new studies, the trial will probably involve a comparator drug, such as a DPP-4 inhibitor that is often used in combination with metformin as the condition progresses. (DPP-4 inhibitors are orally available inhibitors of the enzyme dipeptidyl-peptidase-4, which breaks down glucagon-like peptide-1, a signal released by the gut to help control blood glucose levels after eating.) We believe the results will show that Afrezza is at least as good as a DPP-4 inhibitor for individuals requiring intermediate assistance in controlling glucose levels. And that is important because the number of diabetic individuals who use a combination therapy involving an oral medication is much larger than those with a more advanced condition that requires the basal/bolus insulin regimen. (Diabetic individuals who use only insulin account for just 12% of the patient population, while 14% use insulin in combination with an oral medicine and 58% rely on oral medications.)1 We do not believe the change in trial design will significantly alter the timeline for gaining FDA approval. Indeed, the Type 1 trial, which will likely commence before the Type 2 trial, is all that will be necessary to obtain U.S. regulatory approval. It is worth noting that the Company has expanded the number of medical centers participating in the two studies worldwide since January and that should facilitate patient enrollment while providing more physicians with an opportunity to gain experience with the drug. Accordingly, Mannkind is targeting the second half of 2012 for submitting new data to the FDA, which means Afrezza should launch in the first half of 2013.