How this will play out
As shares of MannKind (NASDAQ:MNKD) continue to plummet the question becomes how will this paly out. Keep in mind that lower than anticipated sales Afrezza is only one problem, MannKind faces some serious financial issues not the least of which being a looming $100 million debt payment. Given the precarious nature of their finances even the company acknowledges it is unlikely they would be able to go back to the capital markets for additional funds. Considering the slower than anticipated uptake of Afrezza it’s also unlikely the company can count on significant milestone payments from Sanofi (NYSE:SNY).
Put into the simplest of terms the clock is ticking and time is not on MannKind’s side.
Like it or not the future for MannKind is directly linked to how Afrezza performs. The company can talk all they want about other applications for the Technosphere technology but they lack the capital and time to develop these applications. With the exception of the MannKind zealots who see nothing but positives completely ignoring the many very real and very challenging issues facing the company, any objective analyst or possible partner sees what Diabetic Investor sees, a company struggling to stay afloat. A company whose existence is linked to one product, a product which is under-performing.
Diabetic Investor also finds it hard to believe that Sanofi would ride to the rescue should MannKind face a capital crunch. The company has already paid MannKind nearly $200 million in milestone payments, has already invested heavily into the Afrezza sales launch and is about to spend even more money on a direct to consumer advertising campaign. All for a drug which besides not doing that well is not profitable to boot.
Although the new leadership at Sanofi hasn’t said so explicitly when it comes to diabetes, the statements made so far indicate a strong preference for Toujeo not Afrezza. As we have stated previously although Toujeo is only incrementally better than Lantus, the drug it is designed to replace, it can be profitable. Unlike Afrezza, Toujeo has a built in user base with the millions of patients already on Lantus. Unlike Afrezza, Toujeo doesn’t come with any major baggage. Unlike Afrezza, it will not take years to know whether Toujeo is going to be successful.
While Sanofi management would never acknowledge this publicly, MannKind failing financially might be the best thing that could happen. It would give the company the perfect opportunity to end the partnership or extract concessions from the company. Given their track record we’d say ending the partnership is more likely as Sanofi isn’t known for playing hardball with partners. What almost everyone forgets here is that Sanofi really didn’t want this partnership in the first place, that had it not been for the now beheaded CEO Chris Viehbacher this deal would have never been done. That it was Viehbacher who ignored the advice of his own due diligence team who told him not to do the deal.
Think about this for just a moment. Afrezza by all accounts is underperforming expectations even after these expectations where lowered. Sanofi has already invested millions, is getting ready to invest millions more all for a drug which isn’t profitable and likely won’t be profitable for years, if ever. They have another drug in the same category, Toujeo, which stands a chance at being profitable. The new CEO Brandicourt can throw the ex-CEO under the bus by dismantling a deal he did. A move which would likely please Serge as there is nothing Serge likes better than being seen as doing the right thing by canning Viehbacher.
A MannKind financial crisis creates the perfect storm of events to get away from a deal that should have never be done in the first place.
The MannKind / Sanofi story will go down as just one more example of why we call this the wacky world of diabetes. As we noted when this partnership was first announced it was an act of desperation and distraction for Sanofi. Viehbacher knew that the goose that was laying the golden eggs, Lantus, was about to become a dead duck. He knew that it was just a matter of time before a generic version would be on the market. At the time he also wasn’t sure whether the FDA would approve Toujeo or ask for additional studies. By forcing through the MannKind partnership he could buy some time distracting analysts and Sanofi stakeholders from the bad news on Lantus. What Viehbacher didn’t plan on was getting canned.
MannKind on the other hand was thrilled Sanofi was desperate as every other potential partner who looked at Afrezza saw what we did, a drug with a host of issues and ultimately a niche product. Ironically MannKind was just as desperate as Sanofi just for different reasons. The fact is had Sanofi not come along the possibility existed that the company would not have survived. So basically what transpired was two desperate companies hooking up to save each other from embarrassment.
Al Mann the founder and main benefactor of MannKind once claimed that for Afrezza to be truly successful it must be viewed as a better short-acting insulin and not just as a short-acting insulin that was inhaled rather than injected. Al knew that if Afrezza was seen only as an inhaled insulin it would be constantly compared to Exubera. Yet as much as he wanted Afrezza to be better the company’s own studies showed that Afrezza was equal to but not better than Humalog or Novolog. Ultimately the one and only difference was it was inhaled rather than injected.
Now in the market what we’re seeing is Afrezza does work and yes there is place for it in the treatment paradigm. However as we noted many times the drug also has many issues which will adversely impact sales, issues which MannKind acknowledged during their last earnings calls. Issues which prompted Brandicourt to state that it will take for Afrezza to develop. Yet time is the one thing MannKind does not have. What MannKind really needed was for Afrezza to hit the lowered numbers which it did not.
Management knew that they could not hit the capital markets again if Afrezza sales didn’t look promising. They also knew that Sanofi likely wouldn’t bail them out if Afrezza sales didn’t do well. Simply put they bet the ranch that Afrezza would get off to a promising start, a bet they have lost.
