Second Thoughts

Second Thoughts

As expected shares of MannKind (NASDAQ:MNKD) jumped this morning on news of their deal with Sanofi (NYSE:SNY). After closing at $8.13 this past Friday, shares opened this morning at $9.85 but have since fallen back to the $9 range. Now we have no idea where shares will end up at the close of trading today but it doesn’t surprise Diabetic Investor that investors are having second thoughts. That this deal may not be all that it’s cracked up to be.

As several loyal readers have pointed out in addition to the issues we noted this morning Afrezza was approved with a black box warning. A warning which states;

“Acute bronchospasm has been observed in patients with asthma and COPD using AFREZZA.

AFREZZA is contraindicated in patients with chronic lung disease such as asthma or COPD.

Before initiating AFREZZA, perform a detailed medical history, physical examination, and spirometry (FEV1) to identify potential lung disease in all patients. “

The full label can be seen at http://www.mannkindcorp.com/Collateral/Documents/English-US/Afrezza_PrescribingInformation.pdf

Ok let’s see if we’ve got this right as Diabetic Investor was up very early this morning and it’s quite possible that in our semi-awakened state we missed something. Sanofi is dishing out over $300 million in cash, could pay almost a billion dollars in milestone payments, is giving MannKind 35% of profits, is on the hook for another $600 million or so for post approval studies and will be spending even more millions to market Afrezza. Maybe just maybe investors are awakening to the fact that Afrezza better become a blockbuster or Sanofi has just flushed a ton of money down the toilet.

Listen we know there are many out there who believe that Afrezza is the greatest thing since Johnny Football became a Cleveland Brown. However just like Johnny Football there are several unanswered question about whether or not Afrezza has what it takes play in the pro game. As with Johnny Football time will tell whether Afrezza is the real thing or just another flash in the pan.

This is what makes this deal so crazy, as unlike the Cleveland Browns who have a seen a surge in ticket and merchandise sales since they drafted Johnny Football, there is no short term payoff for Sanofi. It will be years, if ever, before Afrezza can generate any substantial revenue.  Sanofi has real problems that exist today and an unproven product no matter how good it may look on paper won’t solve these very pressing problems. This is even more problematic when one considers the huge amount of capital Sanofi will have to invest just so Afrezza has the CHANCE to be successful.

Perhaps the best way to look at this is take a look at the short-acting insulin choices a Type 2 patient has- two very proven and well known offerings with Humalog from Lilly (NYSE:LLY) and Novolog from Novo Nordisk (NYSE:NVO). Yes they must be injected but they are also well known and more importantly less costly than Afrezza. Now even if one assumes that Afrezza will be on par reimbursement wise with Humalog and Novolog, a very dangerous assumption, will the fact that Afrezza is inhaled rather than injected make it a blockbuster?

Diabetic Investor has spoken with several well-known diabetes researchers, endocrinologists and diabetologiests. While opinions vary among this group no one in this group believed that Afrezza would be anything but a niche product. That Type 2 patients failing oral medications who are insulin naïve are the most likely candidates for Afrezza. Yet this is the same group of patients who will also have the option of using a GLP-1 as their add-on therapy. An option which yes is injectable but with Bydureon and Tanzeum only injected once a week.  The fact is Type 2 patients who are failing existing therapy regimens have numerous options to choose from.

This actually brings us full circle as nothing much has really changed here. The fact is everyone is banking on Afrezza not because it’s a better option, rather because it’s inhaled rather than injected. This is the same story we heard when Exubera came to market. Now Afrezza supporters will say that this drug is much better than Exubera and has a vastly superior delivery system, no argument there. However, Afrezza will be competing against a wider array of options than Exubera did and faces a much more challenging reimbursement environment.

The bottom line is that Afrezza is by no means a slam dunk to be successful, heck it’s not even a layup. The drug must overcome several notable and very real obstacles. There is no guarantee these issues will be successfully navigated by Sanofi, a company who has a checkered history in diabetes. However, there is one thing that is clear and undisputed; Afrezza isn’t the answer to the problems facing Sanofi. Not even close.

This is one time Sanofi should have taken a pass and said no thanks. Instead they are praying for the old Hail Mary pass paly to be completed. There’s a reason these desperate plays are called Hail Mary as they really don’t have a prayer of being completed.  The way things look today its Sanofi who needs to start praying for if this deal with MannKind is all they can come up with, they won’t be saying prayers they will be getting ready for a eulogy as it will be their diabetes future that gets buried.