The benefit of experience

The benefit of experience

Someone once said; “When a man with money meets with experience, the man with experience ends up with the money and the man with money ends up with the experience.” We are reminded of this quote after watching the recent upward movement in shares of MannKind (NASDAQ: MNKD). Yes, shares have been on a tear lately rising over 70% in the last month alone. Now many will interrupt this recent rise that the company has put the worst behind them and better days lie ahead.

That may be true but when it comes to MannKind and how shares move this isn’t the first time the company has moved this way. Keep in mind that MannKind began trading way back in 2004 and since that time the stock is down almost 75%. Go back to December of 2006 the stock actually hit $86 per share only to fall to under $11 per share in January of 2009. Move to September of 2012 and shares were hovering in the $10 area, fast forward to May 2014 when shares were trading at over $50. Two years ago, shares were trading over $18 and today closed at $3.54.

Needless to say, MannKind shareholders have experienced more ups and downs than someone riding an elevator in the Sears Tower, which is now actually called the Willis Tower but is still a 110-story, 1,450-foot skyscraper here is beautiful Chicago.

So, will it any different this around? Will MannKind be able to sustain this recent rise, add more and not coming crashing back down? Will Afrezza finally become the billion-dollar blockbuster drug that so many analysts thought it would be? Or will Afrezza become just another option with sales in hundreds of million range?

What so many seem to forget about MannKind and Afrezza this is not a story about whether Afrezza works or whether there is a place for the drug in the treatment paradigm. Afrezza clearly works and there is a place for it in the treatment paradigm, this has never been in dispute.

The issue with Afrezza and MannKind is and has always been can the company make money. That as Momma Kliff used say is a point of great debate. Way back in the early days company founder and main benefactor the late Al Mann, hyped Afrezza as a wonder drug targeted at insulin using Type 2’s. Even though Exubera from Pfizer was a complete disaster and had to be pulled from the market costing Pfizer a $4 billion loss and a fair bit of embarrassment. Undaunted Al insisted that Afrezza was the greatest thing to happen to diabetes since the discovery of insulin.

Investors bought into the hype and shares soared only to crash when the drug was having a tough time at the FDA. Shares moved back up upon FDA approval and the addition of Sanofi (NYSE: SNY) as a partner. Shares fell back to earth when Sanofi threw in the towel and ended their partnership with the company. Today the company continues to seek a new partner but has begun selling Afrezza on its own.

Lost in this history is the basic question we have asked since the beginning, can MannKind make money. Well so far anyway the answer is no. As we have noted Afrezza is handicapped from as higher than normal cost to manufacture as it takes around 11 units of liquid insulin to produce one unit of inhaled insulin. This is like asking the company to run the 100-yard dash but having them start 10 yards behind the competition.

Next there are three short-acting insulin’s – Novolog from Novo Nordisk (NYSE: NVO), Humalog from Lilly (NYSE: LLY) and Apidra from Sanofi. All of which work just fine and except for Apidra are well established in the marketplace. Oh, and did we mention they are much cheaper than Afrezza.

But wait Sanofi has a biosimilar short-acting insulin on the way as do others and as we have seen with Basaglar from Lilly in the long-acting market this will decimate the short-acting insulin market.

Believe it or not the issues don’t stop there as Afrezza isn’t being used by insulin using Type 2 patients, no Afrezza has found a home with intensively managed Type 1 patients. Patients who are highly engaged with their diabetes management and appreciate Afrezza quick time to action and short duration of action. Only problem this is not a very big patient population and Novo just got approval for their new ultra-fast short-acting which will be cheaper than Afrezza.

Quite frankly MannKind has a huge problem as payors just won’t pay a premium for what basically is a commodity. Payors do not care if Afrezza is inhaled or whether it works better than the competition. Payors care about money. As we noted this morning this is why UnitedHealth has excluded the long-acting insulins from Novo and Sanofi in favor of Basaglar from Lilly.

Think that it? Nope as with no partner MannKind has embarked on a risky and costly strategy using their own sales team. Yes, the additional feet on the street has begun producing but at very hefty cost. A cost that MannKind alone must adsorb. The company just does not have enough resources to compete with discounts and rebates the way their competition can.

So just to review Afrezza costs much more to make then the competition, has found a niche in the smallest patient population, MannKind has limited financial resources, has a new competitor from Novo plus a biosimilar on the way- other than that Mrs. Lincoln how was the play?

Given this set of facts and the company’s history we just aren’t sure that MannKind investors won’t once again get crushed after this upward swing ends. As Momma Kliff used to say and she has been quoted by many; “History is destined to repeat itself.”