A wild ride

A wild ride

Saying that shares of MannKind (NASDAQ:MNKD) took a wild ride yesterday is like saying Donald Trump is getting some media attention. After closing at $4.44 on Wednesday, shares opened Thursday at $4.10 reached a low of $3.95 a high of $4.53 closing at $4.46.  The reason for this rollercoaster ride can be directly linked to Sanofi (NYSE:SNY) who reported earnings yesterday which noted that sales of Afrezza continue to disappoint coming at slightly above $2.2 million for the quarter. As we noted yesterday when commenting on the Sanofi earnings in an ominous sign Sanofi never mentioned Afrezza nor did Afrezza appear on any slide used in the earnings presentation.

We expect this wild ride to continue as MannKind announced this morning they have increased production capacity for Afrezza. According to a company issued press release; “MannKind Corporation (Nasdaq:MNKD) today announced that it has completed the validation of two additional filling lines for the manufacture of Afrezza® (insulin human) inhalation powder. Material produced during the validation runs, including the recently approved 12 unit cartridges, will be supplied to Sanofi to support the launch of the new dosage strength, which is expected later this quarter.

“With the completion of the validation effort, which began last quarter, we can support a demand of more than 300 million cartridges per year,” stated Hakan Edstrom, President and CEO of MannKind Corporation. “The addition of the 12 unit cartridge will provide patients with another option to receive their prescribed dose.”

While this may seem like good news and seem to indicate that the company anticipates increased demand for Afrezza sales trends indicate the demand just isn’t materializing. Afrezza has now been on the market for approximately 6 months, Sanofi has begun its direct to consumer ad campaign, the product seems to be getting positive user reviews and still demand is weak. Although Afrezza supporters insist demand will increase as the DTC campaign continues and more physicians learn of the positive user reviews, we don’t.

Afrezza has four major hurdles – poor formulary position, the additional tests physicians must administer – the fact that many physicians are concerned about putting a growth hormone directly into the lungs and the reality that current short-acting insulin’s work just fine and are much cheaper than Afrezza. The drug has the additional hurdle of being very costly to manufacture, something that will not impact demand, but certainly impacts margins.

The harsh reality is no matter how good the DTC campaign is or how many positive user reviews there are – and by the way there are also negative user reviews too – the four hurdles we outlined will not go away. Payors are not going to give Afrezza a better formulary position – the need for additional tests won’t go away – the concerns physicians have isn’t going away and the current short-acting insulin’s which work just fine will continue to be cheaper.

The Afrezza story has never been about whether or not the drug works, it does. The Afrezza story is about whether the drug can be commercially successful, based on everything we have seen so far it doesn’t look like it can be. Even with an uptick in demand manufacturing costs will not decrease, inhaled insulin is one of the few areas where scale does not translate into lower manufacturing costs. As we have noted in the past a company can manufacture 11 units of liquid insulin for the cost of 1 unit of inhaled insulin.

It’s important to note that according to their partnership agreement Sanofi and MannKind share profits and LOSSES related to Afrezza. About the only way Afrezza reaches profitability is improved reimbursement and this just isn’t going to happen. Not when Humalog and Novolog work just fine and are much cheaper.

The MannKind zealots will continue to insist that Afrezza is the ONLY insulin a patient should use, that every insulin using Type 2 should be using Afrezza, heck they believe every patient with diabetes Type 1 or 2 should be using Afrezza. They falsely believe that payors care about better patient outcomes and that the only way to achieve these better outcomes is by using Afrezza. They over-hype every positive user review and ignore any negative user reviews. The fact is these zealots operate under the hear no evil, see no evil principle.

Sanofi may not be the smartest kid in the class but Olivier and his team see the numbers and quite frankly they don’t like what they see. They have put their eggs in the Toujeo basket and made Afrezza a secondary priority.  What Olivier must decide now is just how long to remain committed to Afrezza, how much money needs to be spent before it becomes obvious that Afrezza is nothing more than a niche product not the blockbuster many believed it to be.

Keep in mind that in addition to the DTC campaign Sanofi is also supporting Afrezza with a co-pay card which further eats into margins. Add in the cost of the Afrezza sales force and one begins to wonder if the drug could make money even with better formulary position which as we said isn’t going to happen.

The final nail in the MannKind/Sanofi partnership just might have nothing at all with the poor dynamics we’ve outlined. As we noted in the past it was the now beheaded CEO Chris Viehbacher who against the advice of his own due diligence team pushed for this partnership. Olivier along with our good buddy Serge just might relish another opportunity to throw Viehbacher under the bus and end this partnership. Listen if there is one thing you can state about our wine drinking friends in France is there’s nothing quite like a good beheading now and then.  Viva La France.