Confidence, hubris or more BS

Confidence, hubris or more BS

Yesterday MannKind (NASDAQ:MNKD) announced their 2013 fourth quarter and full year results and has becoming standard operating procedure for the company everything is great. Yet unlike previous calls when the company, in particular founder their founder and main funding source Al Mann, talked about AFREZZA as the greatest thing since sliced bread and soft soap yesterday’s call contained some new material as the company seems ever more confident the FDA at long last will approve AFREZZA.

Now it’s important to note that as confident as they seem the FDA approval is by no means a certainty and the company must overcome an FDA panel meeting which is appropriately scheduled for April Fool’s Day. A day which is near and dear to Diabetic Investor and to our many regular readers as it has seen some of our best posts ever. Honestly someone must really like Diabetic Investor as if a MannKind FDA panel meeting on April 1st isn’t layup for truly great post we don’t know what is- but we digress.

Getting back to the matter at hand here is small sample of some of the new ground that was covered during yesterday’s call by Mr. Mann-

“One topic we have not really talked about much is our patent position. When MannKind started our clinical trials program for AFREZZA over a dozen years ago, we had the potential for only a handful of patents, and those would have provided protection only until 2020. The technology and its application in AFREZZA have enormous potential. Recognizing that significance in our intellectual property, our scientists and engineers have worked hard to expand and diversify our patent portfolio.

Today, Technosphere technology, including AFREZZA, is protected around the world by dozens of patent families that have produced over 550 issued patents, with another 470 patent applications pending.

Our current longest-lived patents outside the U.S. will expire in 2029 and 2030, but to compensate for prosecution in the U.S., terms of some of our issued patents have been adjusted and will not expire until 2032.

Let me give you just a small flavor of the scope of our vast intellectual property position. Over the last few years, we have fine-tuned the carrier particle used to deliver insulin and various other active drugs, and we have generated patent claims that cover those optimal particles. The optimal particles have better aerodynamic performance so that the powder gets out of the cartridge more fully and with more of it in the size range, so that much more of the powder gets quickly into the deep lung.

There, at the pH of the moist pulmonary tissue, the powder dissolves in a few seconds, and the insulin and the inert Technosphere carrier then transfer rapidly through the pulmonary membrane into arterial blood. The insulin is then very quickly available for glucose control and the carrier moves out and is disposed of in urine, unchanged.

Separately, in scaling up our manufacturing, we have prepared patents on novel processes and equipment developed for making Technosphere particles, for loading the particles with the active ingredient and for filling the powder into the cartridges. “

As we have recently seen with Sanofi (NYSE:SNY) suing Lilly (NYSE:LLY) over Lilly’s biosimilar version of Lantus, the battle over intellectual property in the diabetes space is not for the faint of heart. However for MannKind this mention of their patent portfolio reveals something new about the company as it sends a signal to investors that even if AFREZZA is not approved by the FDA or gets delayed by the FDA there is still value in the company. As we have seen before in the wacky world of diabetes it’s not uncommon for one company to acquire another just to own intellectual property. Years ago this is why Roche acquired Amira Medical, another company that was supposed to have the greatest thing since sliced bread and soft soap but whose product never made it. Diabetic Investor isn’t saying that MannKind and AFREZZA won’t make it to market but this scenario is not unrealistic.

Given that Diabetic Investor has been rather hard on MannKind, deservedly so we might add, let’s for once give the company the benefit of the doubt and actually believe the FDA will approve AFREZZA and that it really is the greatest thing since sliced bread and soft soap. The next question becomes can the company successfully commercialize AFREZZA. Now here are some classic comments from Mr. Mann-

“This latest market study utilized a very conservative scenario. The new product was not specifically identified as AFREZZA, but only as Product X, an inhaled ultrarapid-acting insulin delivered with a small inhaler in a prandial therapy which would produce an [HgbA1c] glycemic control that was noninferior to today’s best rapid-acting insulin, through its lower incidence of hypoglycemia and less weight gain.

One of the more interesting findings in this study was that many PCPs stated an intention to use that product, which is AFREZZA, as a second line of therapy in type 2 diabetes with very high blood glucose such as with an HgbA1c over 9%, and most PCPs also expected to use it instead of a third oral drug in type 2 patients.

Endocrinologists were a little more conservative for patients at that early stage, but some saw an insulin, which was AFREZZA, to be a good option for patients newly starting on insulin, and also as a clear replacement for rapid-acting analogs where their patient is already using insulin. Similarly, all PCPs expected that their use of current rapid-acting analogs would decline significantly in favor of this product, which was AFREZZA.”

While Diabetic Investor does not dispute the results of this marketing study we are not surprised by them either. Listen in a perfect world it does make sense that physicians and patients for that matter would rather inhale insulin than inject insulin. But we don’t live in a perfect world we live in a world where insurance coverage and formulary placement factor into whether a drug is successful. We live in a world where the last version of inhaled insulin, Exubera, was a colossal failure and no matter what MannKind says this failure will hurt AFREZZA should it be approved. We live in world where without a well healed partner with vast diabetes experience MannKind won’t survive, even AL Mann does not have unlimited resources.

It’s interesting to note another statement made by Hakan Edstrom MannKind’s President, Chief Operating Officer, Director made when asked about reimbursement –

“If you remember what we stated was that we do see a price parity with pens, insulin pens, and those are already at about a 20% premium over, say, regular injected insulin. So that is a working assumption that you could count on.”

Diabetic Investor isn’t sure what world Mr. Edstrom is living in but if he seriously believes that AFREZZA will command huge premium we want what he’s been smoking.

Folks even if approved AFREZZA is not a front line therapy option, likely would not receive preferential formulary placement or command a huge premium over what’s already available on the market. As we have stated over and over pricing pressure in the diabetes drug market continues to intensify as payors continue to demand and receive lower prices from drug manufactures. This does not mean there isn’t a place for AFREZZA in the treatment paradigm, there is. However AFREZZA is really nothing more than a niche product with limited sales potential, this is a million not billion dollar drug.

Still it’s always great to hear the company go on and on about how great AFREZZA is or how they will soon have a partner. Diabetic Investor hasn’t quite figured out whether this is just good old-fashioned confidence, normal corporate hubris or just more horse manure. Using history as guide we’d venture to guess that when it comes to MannKind the stables don’t smell that great.