Gomer speaks

Gomer speaks

Ok Diabetic Investor has just about had enough and it’s time to throw down the gauntlet. Yes we know there are many who believe Afrezza is the greatest thing to happen to diabetes since the discovery of insulin. These same true believers seem to think that Sanofi (NYSE:SNY) will all of sudden do something they have never done before and successfully launch a diabetes product that isn’t named Lantus. That a trier 3 formulary position will not hurt sales. That a disgruntled sales force that has been very publicly bashed and whose morale is lower than whale droppings will be motivated to sell.

No what really gets Diabetic Investor going are these hedge funds, large investors, money managers who know a lot about managing money but next to nothing about diabetes. These players have a stake in MannKind (NASDAQ:MNKD) and they will do anything to get other suckers to come in and drive shares higher. The only problem is well after these professionals have made their money and gone onto other stocks the poor suckers who followed their advice are left hold the bag when the stock tanks. Now we aren’t naïve and know this happens all the time but when it comes to MannKind we just can’t stand the lengths these people will go to as they dupe investors with their uniformed views on the diabetes market.

The last example comes from Forbes and an article entitled “Afrezza Breathes Life Into MannKind” by Ken Kam. In his post Mr. Kam interviews Nate Pile, who according to the post “is a Marketocracy Master and the Editor of Nate’s Notes which Mark Hulbert ranks #1 for the last 15 and 10 year periods, and #2 for the last 1, 3, and 5 year periods. Nate’s Marketocracy portfolio was up almost 34% last year, but perhaps more impressively, he has beaten both Warren Buffett and the top performing U.S. mutual fund manager for the last decade.” That’s all very nice unfortunately Mr. Pile is more like Gomer Pile when it comes to knowledge of the diabetes market.

According to Gomer; “To be sure, the advantage that gets talked about first – and usually with the most enthusiasm –  is the fact that it is inhaled rather than injected, and while this will admittedly play a bigger role with newly diagnosed diabetics going forward, than it will with existing patients who are already used to injecting themselves several times a day, my own very small (and admittedly unscientific) survey suggests that a sizable portion of this patient population would also be more than happy to skip the injections, despite the fact that the needle sticks have become ‘tolerable’ as smaller and smaller needles have become available over the years.”

More from Mr. Pile; “So, assuming Afrezza does, in fact, get priced competitively versus existing delivery systems… but also ends up promoting better patient compliance (which, in turn, means fewer complications)… I believe it will end up being a winner in the eyes of insurance companies.”

“One of the most valuable lessons I’ve learned over the years is that it almost always pays to “follow the smart money”… and, in this case, I am more than happy to have my own money invested alongside Al Mann’s $960 million.”

Finally; “I believe we’re looking at losing $2-$4 on the downside, if things don’t work out, but making $25-$40 (or more?) on the upside, if things do go our way. I like that set-up a lot.”

Like so many the first “advantage” mentioned by Gomer is the obvious one – Afrezza is inhaled rather than injected. He then lists all the things that MUST go right for Afrezza to even stand a chance.

While we would agree there was a time when Al Mann had the magic touch why is it that no one bothers to ask why he HAD to invest almost a billion dollars to keep this product alive. Honestly if Afrezza was really that great isn’t it common sense to believe that Lilly (NYSE:LLY), Novo Nordisk (NYSE:NVO) or any other company who knew that diabetes was growing at epidemic rates, does it make sense they too would have invested in MannKind. However in one sense Mr. Mann is getting off cheap as Pfizer (NYSE:PFE) blew $4 billion on Exubera so maybe Gomer is right better to lose only a billion than $4 billion.

Yet the icing in the cake comes with the flair only a pump and dumper can muster – the downside is losing $2 to $4 – while the upside is $25-$40 PLEASE. Now Diabetic Investor has always known that Mr. Mann had brass ones but this statement by Mr. Pile gives a new meaning to chutzpah. Folks this stock hasn’t seen $20 a share since way back in 2006. Go ahead take a look at a MannKind stock chart and follow what can at best be called a roller coaster ride. The simple fact is Gomer and many like him are constantly pumping MannKind as soon they will dumping and on their way.

Like we stated earlier we know this happens all the time however with MannKind we just can’t stand it. Even our wine drinking friends in France folks who aren’t exactly known for their brilliance when it comes to diabetes have very low expectations. And did we mention it was their ex-CEO who went against the advice of his own due diligence team to get this deal done. (Perhaps there is a reason he is now the ex-CEO.)

Finally Diabetic Investor has seen this exact situation with Exubera, yes way back in the day everyone and we mean everyone was touting Exubera as a multibillion product, a sure blockbuster. The general thought process was the same as it is today with Afrezza, there is no way inhaled insulin can fail. And just as Afrezza is partnered with Sanofi, Pfizer, not exactly a lightweight, was behind Exubera. Diabetic Investor was the lone voice in the wilderness warning that Exubera would be a huge failure.

Now Afrezza fans will say but wait the delivery device is much better than the Exubera bong; a very true statement. However even with a better delivery system the results will be similar, something more likely given the very poor formulary position. The fact is Afrezza will never amount to more than a niche product with millions in sales NOT billions. Given the higher than average manufacturing costs and current reimbursement environment it’s doubtful that Sanofi will ever see a profit on the product. Will they eventually pull Afrezza from the market as Pfizer did with Exubera; time will tell.

The bottom line here is investors have a choice, they can believe the hype, invest their hard earned money and then watch as shares nosedive or they can follow the oldest adage in the book; “If something sounds too good to be true, it probably isn’t true.” Frankly Diabetic Investor has seen this show before and other than Law & Order we’re not fond of reruns.