MannKind (MNKD) shares have been eviscerated over the past 18 months as the company suffered through a bad breakup with Sanofi, the company's marketing partner on its inhalable insulin drug, Afrezza. The launch of Afrezza was a series of botches and errors that would have been at home in an episode of Fawlty Towers.
Afrezza is contra-indicated for patients with chronic obstructive pulmonary disease (COPD), not surprising since it is absorbed into deep lung tissue. Sanofi seemed to misunderstand this issue and was caught off guard when endocrinologists did not have the proper equipment to perform the simple spirometry test needed to prove lung function. Also, Afrezza's initial sample packs did not include an inhaler. The revolutionary aspect of Afrezza is its powdered insulin formation, but it's kind of hard to demonstrate that without the proprietary inhaler.
So the diabetes market has not embraced Afrezza, and short-sellers have pounced. As of the last reported data, MNKD had 98.6 million shares shorted, a full 30.6% of the float and nine days' worth of trading.
The shorts have declared Afrezza a failure, and script data from pharma consultants IMS and Symphony show Afrezza's market reception has been tepid, at best. MNKD's CEO, Matt Pfeffer, acknowledged at today's JPMorgan Healthcare conference that Afrezza has experienced a "script lull" in recent weeks as MNKD shifts from a contract sales force to an in-house marketing staff. So this product is not flying off the shelves, and I would throw up my hands and say "the shorts are right," except for one key fact: Afrezza works.
I am not a biopharma analyst, but MNKD's numbers show that Afrezza typically works in 16-21 minutes, twice as fast as injected insulin products, and also leaves the body much more quickly. Really, though, the Holy Grail is lower A1C blood-sugar levels, and social media are rife with stories of Afrezza users who are able (and present the Dexcom device data to prove it) to consistently keep A1C under the important 7% level.
If you want further info, read this article by Mary Caffrey in the American Journal of Managed Care.
But the upside of Caffrey's excellent piece is the downside for MNKD stock. A dedicated group of diabetics love Afrezza, but are having to fight with their endocrinologists and/or insurance companies to get prescriptions for it.
That's changing, and that's why I bought MNKD this week ahead of its presentation at JPMorgan.
- As previously announced, Express Scripts (ESRX) added Afrezza to its formulary in 2016 fourth quarter with no prior authorization (PA) requirements
- Pfeffer announced in his presentation that Aetna (AET) added Afrezza to its formulary as of Jan. 1 with PA requirements that he described as "not onerous."
- Pfeffer further noted that he expects to announce another managed-care win "soon."
The breakup with Sanofi was ugly but lucrative for MNKD, to the tune of $120 million, the last part of which was announced today in an 8-K. MNKD was able to divest an unused faculty that had been used as collateral for the loan that Sanofi has forgiven.
Don't forget, though, the genius behind Afrezza has always been its Technosphere delivery system. It has always been MNKD's intention to use Technosphere with other drugs, a prospect that seemed like a pipe dream before the settlements were reached with Sanofi.
Pfeffer noted today that MNKD continues to work with the FDA on an orally delivered formation for epinephrine. I think we all learned during the Mylan (MYL) fiasco that epinephrine itself is now generic, and it is the delivery systems that are expensive. To replace a jab into the thigh with a quick inhalation (Pfeffer demonstrated this at the conference) would be a huge win for those with allergies that can cause anaphylactic shock.
That's the upside for MNKD in the longer term, while in the shorter term I expect results from Afrezza to improve markedly as payor support improves and the in-house sales force matures.
So, once again I am directly at odds with that amorphous group known as "the shorts." My firm absolutely crushed the shorts on Navios (NM) in 2016 (we still own it, and NM is still rising) and I look forward to doing battle again this year.