Afrezza Approval – No time to exhale

Afrezza Approval – No time to exhale

Late yesterday afternoon the FDA approved Afrezza from MannKind (NASDAQ:MNKD) albeit with a black box warning. Apparently investor weren’t thrilled as shares of the company feel nearly 10% finishing the day down slightly over 5%. Diabetic Investor actually finds the investor reaction ironic as anyone who’s been following this saga should have known of the issues with Afrezza.

The harsh reality is even had the company received an approval with no black box warning commercializing Afrezza wasn’t an easy task. Lost in all the fanfare of Afrezza being inhaled rather than injected is the difficulty the company will have not just building a sales effort but the cost to make the drug. All along the company has stated they anticipated receiving premium pricing under the theory that payors would buy the argument that patients would be more compliant with their therapy because they didn’t have to inject. Diabetic Investor has never bought this argument not in today’s reimbursement environment with cost control being the order the day. Yet the fact remains without premium pricing MannKind will be in world of hurt due to the high cost of making Afrezza.

We hate to be redundant here but from day one Diabetic Investor has consistently stated that Afrezza while a nice product is no wonder drug. A big issue is where Afrezza fits within the treatment paradigm. The general feeling among the endocrinologists we talked with was Afrezza would be an add on therapy for Type 2 patients who are failing to achieve good control.  This is hardly surprising but it does place Afrezza among a host of options physicians have for add on therapies. Given that Diabetic Investor anticipates that Afrezza will not receive preferred formulary status it will then become a more expensive option.

Even though Afrezza is vast improvement over Exubera, it will have to emerge from the dark cloud created by Exubera. Like it or not when a physician hears inhaled insulin their first thought is Exubera and its bong like delivery system. So not only will sales reps have to overcome the formulary issue they will also have to overcome the Exubera issue.

In all honesty no one should be surprised by the approval or the black box warning. It was pretty obvious after the panel meeting that the drug would be approved. It was also pretty obvious from all the data on the drug that the market for Afrezza would be limited for patients with existing pulmonary issues.  The bottom line is that Afrezza is really nothing more than a niche product that will be forced to compete with a host of cheaper and proven add on therapies. This is the reason Diabetic Investor has always believed this is a million dollar drug not a billion dollar one.

Looking toward the future Diabetic Investor would caution investors who believe this approval will make MannKind an attractive takeover target. Yes this is the wacky world of diabetes where anything can and usually does happen but companies don’t like spending billions for what is nothing more than a nice product. Any potential suitor who does a minimum of due diligence will quickly understand the issues Afrezza faces in the marketplace. They will see a difficult reimbursement environment. They will see the high cost to make Afrezza and an equally high cost of building a sales organization.

The true story about MannKind is really no different than that of the now defunct Exubera. Back when Exubera was approved everyone assumed it would be a major hit. Everyone figured that Pfizer (NYSE:PFE) had a major hit on their hands, that Exubera would sell itself just because patients would no longer have to inject. They overlooked the many well-known flaws with Exubera and concentrated solely on the fact that Exubera was inhaled rather than injected. It wasn’t until Exubera was placed in real world did they realize this one so-called advantage was meaningless.

Now Diabetic Investor doesn’t believe Afrezza will be a $4 billion failure as it is a much better product than Exubera. However we don’t see it being anything all that special either. Quite frankly we don’t understand what all the fuss is about. Yet we remain convinced that investors will make the same mistake they made with Exubera. We also wouldn’t be surprised MannKind was acquired as whoever is dumb enough to buy this company will make the same mistake Pfizer did. If there is one thing that can be counted on in this wacky world of diabetes is that history repeats itself and rarely does anyone learn from past mistakes.