Not buying this

Not buying this

Why is it Diabetic Investor couldn’t help but think that the management at MannKind (NASDAQ:MNKD) are giving used car salesman a bad name. This feeling overcame us while listening to the company’s third quarter earnings call. While the call included the normal MannKind over the top statements that Afrezza is the best thing to hit the market since sliced bread and soft soap and will do everything expect cure cancer. There was even more bravado as now that they are partnered with the soap opera once known as Sanofi (NYSE:SNY) they seem to believe that Sanofi management is really excited to have a MannKind as a partner.

As we reported last week at the height of the soap opera, Chris Viehbacher now the Ex-CEO of Sanofi basically forced this deal down the throats of management most of whom who were against the deal. We’d say that MannKind management believing now with Viehbacher gone that this team that was originally against this deal are all of sudden enthusiastic about the deal shows they are either out to lunch or living in lala land.

Keep in mind that our interruption of the call may be somewhat colored as we’ve listened to this manure for years now. Prior to the deal with Sanofi, MannKind was the poster child of a company that consistently over-promised and under-delivered. In that respect they are a perfect fit for Sanofi, a company that when it comes to diabetes, or should we say diabetes other than Lantus, couldn’t open a bottle of wine that came with a twist off top without screwing it up.

Seriously for anyone to believe that this is a match made in heaven, that Sanofi will make every effort to make Afrezza a priority, that MannKind will execute on their end and that the two companies will work in harmony, think again. Keep in mind that Sanofi is the same company that came up with the brilliant idea of selling special lunch bags for patients with diabetes. This is the same company whose management team believed that patients who were using the now dead iBGStar would pay more money for a special attachment after Apple changed the connection port on their new iPhone.

But let’s put the past aside and look at another reason why this partnership might never get off the ground. As everyone knows Sanofi is looking for a new CEO and Chairman which according to the rumor mill the leading candidates have diabetes connections.  Let’s also remember that MannKind basically was throwing themselves at every diabetes company as they desperately needed to find a partner. That every diabetes drug company that took a look passed on the deal and it wasn’t until an equally desperate Sanofi came along that a deal got done.

Diabetic Investor is convinced based on MannKind’s convoluted financials that had not Sanofi come along the company would have run out of cash. Perhaps this is one of the reasons the Sanofi due diligence team told Viehbacher not to walk away from this deal but he should run away and run fast. We further suspect that Viehbacher knew his job was in jeopardy, that the goose that lays the golden eggs was about to become a dead duck and he needed to do something, anything to distract stakeholders from the disaster that was happening in the diabetes franchise.

With Viehbacher now gone and Sanofi expected to bring in a change agent with diabetes experience it’s quite possible that this new person could reexamine the deal and decide it’s just not worth the effort, not to mention the capital investment needed. A critical date here is November 20 when the company holds their analyst day, a day which according to MannKind management Afrezza will be big part of, the star of the show so to speak. Many observers believe that Sanofi will announce Viehbacher’s replacement as early as this week. Given the timing of all these events it will be interesting to see if the new person, only in charge a short time, makes the first of several changes and knocks Afrezza out if it’s starring role.

The fact is if Sanofi isn’t careful here the deal with MannKind could easily become a sinkhole and endless drain of capital with little chance for a reasonable return on investment. This is not unlike what happened with Johnson and Johnson (NYSE:JNJ) and Animas. The simple fact had JNJ not bought Animas the company may not have survived. As an investor/partner with the company JNJ had little choice but to buy Animas outright or risk seeing the company fail. This exact scenario could play out here.

Now for anyone out there who seriously is buying manure that’s been spread about Afrezza and how it will become a mega-blockbuster, we suggest they go back and listen to Sanofi’s last earnings call. We strongly suggest they pay close attention to the remarks made about insulin pricing. We then suggest they remember that Afrezza isn’t cheap to make and all along Al Mann was touting how payors would pay a premium for this product. These are the same payors who have basically forced Sanofi to lower the price or increase rebates for Lantus.

Way back in the day, way before Afrezza Diabetic Investor was the lone voice in the wilderness stating that Exubera, the last attempt at inhaled-insulin would be a colossal failure. Nearly every analyst at the time was projecting that Exubera was a shoe-in to become the next diabetes blockbuster, after all how could it fail with the mighty Pfizer (NYSE:PFE) marketing the drug. Well fail it did costing Pfizer $4 billion in the process.

Yes Afrezza is a vastly better product than Exubera and won’t run into the same obstacles as Exubera. Unfortunately Afrezza will run into a new set of obstacles not the least of which being getting on formulary and not being regulated to Tier 2 or 3 statuses. The drug is coming to market at a time when payors are in no mood to pay a premium for what really is an unproven drug. Inhaled or not, payors care about one thing and one thing only – cost.

In the end the story comes full circle as Exubera and Afrezza share something in common as both drugs bet the ranch on not that they were better insulin’s that happened to be inhaled rather than injected , rather they were insulin which were inhaled rather than injected. Diabetic Investor suspects Afrezza won’t suffer the same fate as Exubera as it will see some sales. We do however believe that Sanofi could well suffer the same fate as Pfizer and that alone may cause the company, with a new CEO, new Chairman to pull the rug from under this ill-advised partnership before it’s too late.