The greater fool theory alive and well at MannKind

The greater fool theory alive and well at MannKind

It’s been quite some time since we last took a look at MannKind (NASDAQ:MNKD), a company which seems to have more lives than a cat, so we thought it might be a good idea to revisit the company as its share price is on a tear. Nearly a year ago on May 18, 2012 shares closed at $1.60 and for all practical purposes the company appeared headed for extinction. Yet as of yesterday shares closed at $3.76, an amazing turnaround in the span of just 11 months. Even more amazing looking at the history of the company.

One just might think with such a dramatic turnaround that the company had received FDA approval for their lead product, Afrezza®, however that is not the case as the company is still conducting additional clinical trials requested by the FDA. Trials that won’t be completed until later this year meaning we won’t hear anything from the FDA well into next year.

Normally in a situation like this where a company has virtually no revenue and major expenses, one might also think their lead product has blockbuster potential, again not the case with Afrezza. While company founder Al Mann continues to tout Afrezza as the greatest thing since sliced bread and soft soap, the truth is Afrezza even if it gets approved by the FDA, by no means a certainty, it will be nothing more than a niche product at best.

But let’s be generous, some would say foolish, and actually believe that Afrezza will make it all the way through the FDA and actually come to market. Just what can we expect and what will the insulin market be like when it gets here. The major selling point for Afrezza is that it’s a better form of inhaled insulin than Exubera. While there is some truth to this, the fact is Afrezza should it come to market will have to prove this point over and over. The fact is physicians still associate inhaled insulin with Exubera and will need some major convincing that Afrezza isn’t Exubera. This convincing will cost money, money MannKind doesn’t have.

This is one of the most overlooked factors when investors, more like suckers, buy into the MannKind myth. Lilly (NYSE:LLY) and Novo Nordisk (NYSE:NVO) have spent millions building brand awareness and formulary position for their short-acting insulin’s. So much so that when Sanofi (NYSE:SNY) tried to enter the short-acting market with Apidra the company couldn’t make a dent in the market. MannKind and whoever is dumb enough to partner with the company will have to spend millions just to have a chance at gaining share. A task which will be even more difficult as Mr. Mann has consistently stated that Afrezza would command a premium price based on the fact it’s inhaled and not injected. He’s also claiming Afrezza works better than the injectable competition, a belief not shared by everyone in the diabetes community including Diabetic Investor.

But again let’s give the company the benefit of the doubt and by some miracle they do find a partner who likes to waste millions  of dollars. Let’s also assume that Afrezza somehow finds its way onto payors formularies and physicians will actually recommend this unproven and unknown product to their insulin using patients. What are the chances Afrezza will be reimbursed at the same rate as injectable short-acting insulin; ZERO. Keep in mind that should Afrezza actually make it to market it will hit the market about the same time bio-similar short-acting will be arriving. Bio-similar insulin’s which will cost less than the branded insulin’s and ultimately force the major players to either cut their prices or risk losing valuable market share. Even without a bio-similar short-acting insulin the major branded companies are already using price as a weapon to gain share and as we’ve seen before in this market there is no turning back. We’ve said it before and we’ll say it again insulin is becoming a commodity where price trumps performance.

MannKind then could be in a similar situation to what Novo is facing, offering a premium priced product into the market just when payors are demanding further price concessions. Sure Afrezza will receive reimbursement but that reimbursement will carry a higher overall price for the patient who will be given a choice, pay more out of pocket to use Afrezza or pay much less out of pocket to stick with injectable short-acting insulin.

Try as he might Al Mann cannot get around the fact that when it comes to inhaled insulin  it doesn’t matter if Afrezza is the best insulin ever invented, which it isn’t. The fact is the suckers who invest in MannKind believe Afrezza will be a blockbuster because it’s inhaled rather than injected. Now Diabetic Investor doesn’t necessarily fault Al Mann for his belief in Afrezza, after all he’s invested nearly a billion dollars of his own money into the company, so it makes perfect sense he would make grandiose over the top statements about its potential. The fault does not lie with what he says or the fact that none of what’s been said about the company or Afrezza has even come close to coming true; no the fault lies with the investors who are dumb enough to believe the hype and by into the inhaled insulin myth.

Consider that Pfizer (NYSE:PFE) lost over $4 billion on Exubera and this is company with far greater resources than MannKind.

Diabetic Investor has tried to warn everyone that MannKind is nothing more than a disaster waiting to happen. That it would be wiser to invest in lottery tickets than shares of MannKind. Yet just as there are baseball fans who believe the Chicago Cubs will win the world series, sometime in the next century or so. There are investors who believe in the inhaled insulin myth. As a good friend of Diabetic Investor likes to say there is no cure for stupid.