Friday, May 13, 2011

Griffin securities update


• 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.

Tuesday, May 10, 2011

Wells Fargo update

MannKind Corporation (MNKD-NASDAQ)--Market Perform (2) / V


* Summary: While we are encouraged MNKD has agreed with the FDA on Affinity 1 (Type I diabetics) trial design, approval of Afrezza before H2 2013 seems unlikely. Q1 loss of $0.34/share narrower than consensus loss of $0.40/share but wider than our estimated loss of $0.20/share. Widening 2011E loss to $1.23/share (from loss of $0.94/share) on Q1 actuals, higher OpEx, and lower share count. 2012E EPS goes to -$1.22 from -$1.05. Maintain Market Perform on lack of near-term catalysts. Valuation range: $4-6 (9-10x 2015E EPS of $1.26, r=25%, 4 yrs) from $5-6. Risks: Further Afrezza delays or failure to garner additional funding.

* MNKD reached agreement on Affinity 1 trial design, Affinity 2 design still uncertain. While MNKD has agreed with the FDA on a basal-bolus, non-inferiority study design for Affinity 1 (Type I diabetics), no exact agreement has been reached for Affinity 2 (Type II diabetics). The company will not begin either trial until receiving meeting minutes from the FDA (expected in ~3 weeks). Company projects trial completion by latter half of 2012.

* Maintain Market Perform. We are encouraged that MNKD has finalized the design for one of the two Affinity studies for comparing Dreamboat with MedTone. However, given the lingering uncertainty on Affinity 2 design post-FDA meeting and recent FDA delays in releasing meeting minutes, we believe additional delay could be possible. Our near-term outlook remains neutral as we continue to believe Afrezza approval could be at least two years away.

* We are widening 2011E loss to $1.23/share (from loss of $0.94/share) on Q1 actuals, higher OpEx, and lower share count. We increased 2011E OpEx to $132.1MM (from $104.9) and lowered share count to 121.4MM (from 131.1MM)

* Q1 loss of $0.34/share narrower than consensus loss of $0.40/share but wider than our loss of $0.20E/share. Q1 loss wider-than-expected on higher OpEx of $38.1MM (vs. $21.8MM E), due to employee severance/ termination benefits, and lower share count of 121.1MM (vs. 130.8MM E).

* Key Takeaways: 1) $144.9MM cash available at end of Q1: $47.5MM cash on hand and $97.4MM from remaining credit facility; company believes it could fund operations through Q1 2012. 2) Cash burn of $9-10MM/month (excluding restructuring charges), but will likely escalate in Q3 and Q4.

MannKind Corporation (MNKD-NASDAQ)--Market Perform (2) / V
Price as of 5/10/2011: $4.40
FY 11 EPS: $-1.23
FY 12 EPS: $-1.22
Shares Out.: 121.0 MM
Market Cap.: $532.4 MM

Weeden update ; Reit. Buy

We are reiterating our Buy rating on MannKind (MNKD) and decreasing our 12-month price target from $8 to $7 to reflect a 3Q13 (prior 1Q13) US Afrezza launch following last night's 1Q11 earnings call. On the positive side, MannKind should be able to initiate at least one of two clinical trials for its Afrezza inhaled insulin to treat diabetes in June, following the expected receipt of minutes from the “very productive” May 4 FDA follow-up meeting in approx. three weeks; and management can resume partnership/financing discussions following the receipt of the May 4th minutes. On the negative side, based on the anticipated trial designs for the "type 1 & 2 diabetes basal-bolus Gen2/MedTone study" and "earlier type 2 diabetes Gen2 study", management expects trial enrollment and patient follow-up to be completed in 2H12 (prior mid-2012), implying a late 2012/early 2013 new drug application (NDA) resubmission for Afrezza (prior mid-2012) and FDA approval and US launch of Afrezza best case in mid-2013 (prior 1Q13). We expect a partnership/financing update in 3Q11 to be a positive catalyst for MNKD shares.

Our new 12-month price target of $7 (prior $8) is based on a 12x price/sales multiple applied to our lower 2014 Afrezza sales estimate of $110m (prior $141m), discounted at 15% (prior 20%) for two years. Although the longer timeframe until FDA approval and US launch is disappointing, and the extended timeline translates to increased financing needs to fund operations through end-2013, we continue to view this regulatory path for Afrezza post the Jan. 18 complete response letter (CRL) as less risky. Management believes the $145m in financial resources as of 1Q11 ($47m in cash and equiv.; $98m from The Mann Group credit facility) should fund operations through 1Q12 (prior 4Q11), giving management the flexibility of waiting until after the May 4 FDA meeting minutes are available to strengthen its balance sheet. Cash burn was $33m in 1Q11, versus $42m in 4Q10 and $38.5m in 3Q10.