Is this the end?

Is this the end?

Tomorrow we will not only know who are next President is but also just how long MannKind (NASDAQ: MNKD) has left. The company reports earnings tomorrow after the market closes and we aren’t expecting much in the way of good news. A key indicator to watch is just how much cash the company has left. Quite frankly no matter how much cash they have it’s just a matter of time before the company implodes or is bought for pennies on the dollar. Just as the pundits will pontificate over the election results allow us to pontificate a little as to why MannKind failed.

First and foremost, the company did not fail because Afrezza was a bad insulin, on the contrary it worked quite well. So why then did an insulin that work effectively fail?

  1. Not better than

From the beginning the late Al Mann, founder of the company, tried to position Afrezza as a BETTER short-acting insulin, not just an insulin that was inhaled rather than injected. Al knew that if Afrezza was to be a blockbuster its major selling point couldn’t be the fact it was inhaled rather than injected. He knew it had to outperform Humalog and Novolog. Unfortunately, the clinical data showed that Afrezza was as good as but not better than Humalog and Novolog.  Which basically meant it’s one compelling selling point was that it was inhaled rather than injected.

  1. Wrong target

Al also knew that if Afrezza was to reach blockbuster status the target market would have to be insulin using Type 2’s, not Type 1’s. The general belief was these patients would folk to Afrezza because they would no longer have to suffer the pain of injecting. It was also believed that because Afrezza was inhaled rather than injected it would expand the insulin using population. As it turned it was not Type 2’s who embraced Afrezza but intensively managed Type 1’s, patients who wanted to keep their glucose levels in a tight range. Patients who had a deep knowledge of their diabetes.

  1. Manufacturing Costs

Unlike injectable insulin manufacturing costs for Afrezza did not decrease as volume increased. It takes 11 units of liquid insulin to manufacture 1 unit of inhaled insulin. From the get go the company had a huge hurdle to overcome.

  1. Reimbursement

When Sanofi (NYSE: SNY) the company’s partner, accepted Tier 3 and did not do whatever they could to get Afrezza to at least Tier 2, the game was over. The simple fact is payors would not pay a premium for a product whose lone selling point was that it was inhaled rather than injected. Especially when injectable insulin was so much cheaper. Had Afrezza proved to be more effective than injectable insulin this may have been different but as we noted clinical studies showed it was on par but not better than injectable insulin.

Given the high manufacturing costs Sanofi could not heavily discount Afrezza as if they did they would basically be losing money with each sale. Nor could they heavily rebate the product for the same reason.

  1. Sanofi

The harsh reality is that the only reason Sanofi partnered with MannKind in the first place was to divert attention away from the troubles in their diabetes franchise. The now beheaded Ex-CEO went against the advice of his own due diligence team who told him not to do the deal, that MannKind was a sinkhole that would never show a profit. The fact is Viehbacher knew that Lantus sales were slowing, he correctly saw the handwriting on the wall and wanted to change the narrative.

The truth is the company was never fully committed to Afrezza, they knew they couldn’t make any money and more than likely was going to cost them money. They knew that Toujeo did stand a chance and better to allocate resources here than Afrezza.

Give Olivier credit for not allowing this partnership to turn into another Exubera disaster. Give him credit for seeing that this product was going nowhere in a hurry and that if the partnership was not terminated it would continue to drain Sanofi.

Yet even with these five factors what doomed Afrezza more than anything was unrealistic expectations and flat out stupidity. Afrezza was no wonder drug as so many of the MannKind zealots claimed it was. Yes. It worked but it did not work any better than existing and much cheaper injectable insulin. This basically left Afrezza with one bullet in the gun, it was inhaled rather than injected and that was simply not a big enough bullet.

What surprised Diabetic Investor is that people who should have known better believed all these hurdles facing Afrezza could be overcome easily. That they ignored how the business aspects of diabetes would impact what they saw as therapeutic benefits of Afrezza. Seriously at some point one just might think these people would understand that diabetes is a BUSINESS.  That things like reimbursement matter.

Listen we can give the many investors who didn’t have diabetes a pass for investing in MannKind. As to most non-diabetics it seems like a no-brainer that patients would favor inhaled over injectable. These people do not understand the dynamics of the insulin market nor do they understand why more patients don’t use insulin. To them these patients seemed like a target rich environment, that the only reason they weren’t on insulin is that it was injected. That once that obstacle was removed these patients would embrace Afrezza.

What they failed to understand is that the biggest obstacle wasn’t that insulin had to be injected. No, the biggest obstacle was in the patient’s eyes moving to insulin therapy was a personal failure. That they did something wrong. It didn’t help these patients that their physicians kept threatening them that if they were not adherent to their therapy they would put them on insulin. Insulin was and is looked upon by many patients who would benefit from it as the enemy.

Still we can give these non-diabetics a pass. What we cannot fathom is how many supposedly smart people who have diabetes wouldn’t see this. How they ignored all those pesky facts and touted Afrezza as if it was the greatest thing since sliced bread or soft soap.

Momma Kliff had a saying for these people; “There is no cure for stupid.”