Monday, July 11, 2011

Rodman & Renshaw transferring coverage of Mannkind

Market Perform;

We believe Mannkind’s lead asset, Afrezza, could become a blockbuster as an inhaled insulin product for Type 1 and Type 2 diabetics, but the lack of near-term catalysts and the capital position suggests to us that shares will be range-bound over the next 12 months. After reviewing the clinical portfolio from Afrezza’s trials in Type 1 and Type 2 diabetics we believe Afrezza holds considerable promise to produce positive clinical results in the upcoming Affinity 1 and Affinity 2 trials, respectively. In January, the company received their second Complete Response letter for their Afrezza NDA and since then has been discussing trial designs with the FDA. We believe the Affinity 1 trial in Type 1 diabetics will be initiated soon and the Affinity 2 trial in Type 2 diabetics should begin enrolling before this fall. The company has stated that they expect these trials to cost $25 million each. We expect the existing line of credit will be sufficient to fund operations until the end of Q112.

Collectively, the six Phase 3 trials provide compelling clinical evidence. From our perspective, the clinical dataset that the company provided the FDA includes evidence that Afrezza is non-inferior to the standard of care on the primary endpoint of reducing HbA1c levels at the 24, 52 and 104 week time points tested in both Type 1 and 2 diabetics. The secondary endpoints included changes in hypoglycemia and body weight, the majority of which favored Afrezza on a statistically significant basis. In this report we include our subjective weighting of which trials that we believe the FDA will place more emphasis on as they make their regulatory decision in 2013. Given the FDA’s likely concern for safety in an NDA for any diabetes drug, we believe the FDA has been and will be placing most of their interest on Study 030, the two year safety study. That said, early 2013 results for the Affinity 1 and Affinity 2 trials are likely to be the binary clinical events for Afrezza and Mannkind.

Afrezza holds the potential to achieve blockbuster status worldwide. According to prevalence data released during the American Diabetes Association’s conference a few weeks ago there are roughly 350 million diabetics worldwide, 26 million of which are in the U.S. and 19 million of those are diagnosed. Based on data we learned at the 2011 ADA conference diabetes has contributed more to increased healthcare spending than any other condition and results in roughly $200 billion in annual spending in the America. While the top nine diabetes medications produced $20 billion in 2010 revenues, seven of which are blockbusters, it should come as no surprise to investors that Afrezza can become a worldwide blockbuster with FDA approval. At this point we assume single digit market shares yet reach a $1.8 billion revenue estimate in 2020 with US and EU approval.

We are transferring coverage of Mannkind Corporation with a Market Perform rating. We continue with our Market Perform rating on Mannkind shares. At this point, with the clinical picture coming into view and the funding to support the two Phase 3 trials unspecified, we are placing a Market Perform rating on Mannkind.