The PUDFA Play

The PUDFA Play

Two important PUDFA dates are closing in and how the FDA acts will have an impact on where share prices go. The first date comes this Friday when we should learn the fate of Bydureon the once-weekly GLP-1 from Amylin (NASDAQ:AMLN), Lilly (NYSE:LLY) and Alkermes (NASDAQ:ALKS). The second comes in late December when we’ll learn the fate of Afrezza, the inhaled insulin from MannKind (NASDAQ:MNKD).

As Diabetic Investor has written previously Bydureon has the potential to become a paradigm shifting therapy. Few therapy options combine all that Bydureon has to offer – solid glucose control, few hypoglycemic events, simple dosing, no need to monitor glucose levels, the potential for weight loss all administered just once a week. Perhaps the hidden value with Bydureon is no other drug launch has been so anticipated by the physicians who will be prescribing it.  These physicians who are on the front lines treating patients with type 2 diabetes understand the importance of therapy compliance and see Bydureon as the answer.

Even with this advanced buzz, Bydureon is not a sure fire hit. Like its predecessor Byetta, there are concerns over pancreatitis. Also like Byetta, Bydureon is an injectable, albeit just once a week. While the initial delivery system for Bydureon is not as cumbersome as Diabetic  Investor anticipated and the needle is not the size of a titan missile as many have claimed, the reality is the there will be a fair amount of patient education involved and there will be patients who will be turned off by the size of the needle. Finally, although there is no scientific evidence to support a black box warning like the one that was given to Victoza, the FDA has become ultra conservative and a black box warning over thyroid cancer risk is possible.

Taken as a whole here is what Diabetic Investor believes will happen this Friday?

1.      Bydureon will be approved

2.      Chances  of a black box warning similar to what was given to Victoza 75%

3.      Label language regarding pancreatitis

We also believe investors should not place a great deal of emphasis on early sales figures. Even with the physician buzz, it will take some time for physicians to become comfortable not just with the drug but how it’s delivered. The real sales uptick will occur when Bydureon comes in a patient friendly pen delivery device that just so happens to have a smaller needle. This is when Bydureon could move from a solid performer to blockbuster and mega-blockbuster status.

Given this set of circumstances Diabetic Investor sees Alkermes and Amylin getting the biggest pop from a Bydureon approval, with Alkermes showing a larger percentage gain. Depending on the label and possible warnings Amylin shares could actually go down, although we don’t believe this will be the case. It should be noted that the physicians, endocrinologists’ and primary care, have expressed little concern should the FDA issue a black box warning over thyroid cancer risk. The see the risk of thyroid cancer as very low and balanced against Bydureon benefits feel this risk is well overblown.

While Lilly will see some action with approval, Diabetic Investor sees more risk than reward here. The reality is Lilly needs Bydureon to be a mega hit as their diabetes franchise is in danger of becoming irrelevant. Novo Nordisk (NYSE:NVO) and Sanofi-Aventis (NYSE:SNY) own the insulin space as Lilly is now firmly in third place, they have stopped the bleeding but there is little hope they will ever regain the share. The company has nothing in their diabetes pipeline that is as compelling as Bydureon, and quite frankly should Bydureon run into any unexpected hiccups Lilly’s presence in diabetes will forever be lost.

As Diabetic Investor has noted before the future for treating type 2 diabetes is moving firmly in GLP-1’s direction and with the FDA becoming ever more conservative first mover advantage, always a big factor, has become a huge factor. This is the reason Roche will allow their GLP-1 to die a slow and quite death and why Novo is quickly trying to reposition Victoza as a weight loss drug. The reality is Lilly has a chance with Bydureon to own the GLP-1 space as there will no serious competitors for at least two more years. If you’re looking for a parallel in the diabetes drug market look at how Merck (NYSE:MRK) has done with Januvia, the reality is Merck owns the DPP-4 category and the competition is regulated to also ran status.

Looking longer term it’s just a matter of time before Lilly ends up buying Amylin outright, just as they did when they bought Icos after Cialis proved itself in the marketplace. Given where Amylin is trading Diabetic Investor sees them very attractive and when add in the Icahn factor a takeover takes on a real possibility. This won’t happen overnight but the domino’s are set up and could fall. The one major caveat being all bets are off if some unknown side effect comes along. While there is nothing in data to indicate this when it comes to diabetes drugs investors are always wise to remember names like Rezulin and Avandia.

Turning our attention to MannKind and their PUDFA date which is schedule for late December, Diabetic Investor would recommend investors play this stock with the quickness of an old west gun fighter. Although Diabetic Investor does not believe Afrezza will ever amount to anything more than a niche product, the stock is fun to trade and when timed right non-greedy investors can make some money. Before we go any further we should point out there is a huge amount of risk here and there is better than a 50/50 chance this stock could become worthless if the FDA does not approve Afrezza, which by our estimates is possible.

Given MannKind is an event driven stock, the old adage of buy on bad news, sell on good news is in full force here. Another cautionary tone when trading this stock, don’t believe a word the company says. For years we’ve been hearing about a partnership and for years no partnership agreement. For years we’ve heard that Afrezza will revolutionize diabetes care and amass billions in sales; all we can say here is we heard the same thing with Exubera. Perhaps most damning of all is that unlike Bydureon, the physicians who would be prescribing Afrezza have an overly negative opinion of the drug.

As hard as MannKind tries there is no way they can run from Exubera’s shadow. Even physicians who have seen the Afrezza’s delivery device, an enormous improvement over the Exubera bong, don’t see a need for the product. Perhaps more telling is their answer to this question; given the choice between Bydureon and Afrezza, which drug are you more likely to prescribe to your type 2 patients who are not adequately controlling their diabetes? Who would have thought an injectable therapy option would win by more than an 8 to 1 margin.

As noted earlier these physicians are on the front lines and they know even when inhaled and not injected Afrezza is insulin. Along with insulin therapy comes a host of issues, most importantly the patient needs to be educated, monitor their glucose levels on a regular basis, weight gain and the risk of hypoglycemia – just to name a few. Even if you believe Afrezza has a low risk of hypoglycemia and is weight neutral, it does not take away the fact it is insulin and many patients will accept insulin therapy as they see it as a personal failure. Physicians have also contributing to this feeling as for years they threatened their patients that if they don’t take their pills they’ll put them on insulin.

Several physicians who prescribe both Byetta and Victoza, have told Diabetic Investor patients don’t see GLP-1 therapy as an admission of failure, as it’s not insulin. Add in the fact that both drugs promote weight lose and the patients attitude quickly changes from – “Yikes I have to inject” to “when I can get started” – as we noted when Byetta was first approved do not underestimate the power of weight loss.

It almost seems ironic that MannKind could be doomed by something their founder Al Mann, once told Diabetic Investor, when Exubera was coming to market. Back then he noted that Pfizer (NYSE:PFE) was making a major mistake promoting Exubera as an inhaled insulin and not as better treatment option for patients with type 2 diabetes. Fast forward to today and one can’t help but notice that every chance Mr. Mann gets he’s demonstrating his device and promoting the fact Afrezza is inhaled and not injected. Given the millions he’s invested in MannKind, Diabetic Investor isn’t surprised that he would do whatever he can to get a return on his investment, even if it means falling into the same trap that ended up costing Pfizer $4 billion and one huge embarrassment.

Al Mann has done some great things for diabetes and should be commended for his work. However, with MannKind and Afrezza he will not ride off into the sunset. Sadly this once great gun slinger has meet his match.