The truth hurts

The truth hurts

“IMS scrips for Afrezza have been lackluster to say the least, so we spoke with five primary care and endocrinology specialists with high volumes of diabetes patients to gauge their experience with and outlook for the product. Unfortunately it sounds to us that while awareness is high and some patient blogs on the internet describe some very exciting and differentiated results, Afrezza is being viewed as a very niche product. Physicians envisioned growing use in their practices, but not dramatically so. We believe MNKD has vastly over-estimated the commercial potential for the drug and are lowering our penetration estimates. Even our revised assumptions may be too aggressive so our discount rate is increasing from 10.5% to 11%. Our new PT is $1.50/share, which is roughly 60% down from current levels.”

These words come from PiperJaffray analyst Joshua E. Schimmer, MD who downgraded shares of MannKind (NASDAQ:MNKD) this morning. Words that will likely infuriate the many Afrezza/MannKind zealots who just cannot accept the fact that Afrezza is nothing more than a niche drug.  That while some patients have reported good results using Afrezza that this drug isn’t for every insulin using patient. That the obstacles we have been noting are very real and hurting sales.

While it’s unlikely that this latest downgrade will change the opinions of these zealots they won’t be lost on our friends at Sanofi (NYSE:SNY). As we have noted in the past reality is beginning to set in at Sanofi. The company has surly seen the same numbers Doctor Schimmer has and they aren’t encouraging. The clock is ticking and a major decision looms on the horizon. Just how long can Sanofi continue to support Afrezza? Just how long will be it be before the financial issues facing MannKind make the situation untenable? Can Sanofi afford to throw even more resources, both human and financial, into a product which looks more and more like a million rather billion dollar product.

Frankly Diabetic Investor is just a little surprised that Olivier Brandicourt hasn’t thrown in the towel already. He could easily do so given that the Sanofi/MannKind partnership was forced upon the company by the former beheaded CEO Chris Viehbacher. That his boss, our good buddy Serge, has stated that it’s time for accountability. The reality is Sanofi has everything to gain from cutting ties with MannKind and very little to lose.

Such a move would send a signal that the company is serious about changing how the diabetes franchise does business. It would go a long ways towards improving employee morale, which continues to be a major problem. It would show that accountability isn’t just a buzz word. It would send a signal to analysts and stakeholders that the company can admit their mistakes and is willing to take corrective action. Finally we believe it would show everyone that there really is a new sheriff in town.

Now it’s possible the company will take the easy way out and allow Afrezza to die a slow and very quiet death. Olivier could let this play out so it becomes even more obvious that this just isn’t working out, that he gave it every chance to succeed and wasn’t giving up too soon. Yet we believe this would be a major mistake given the dismal state of the diabetes franchise. A franchise which is facing multiple challenges not just poor Afrezza sales. By acting quickly and decisively Olivier would establish a valuable precedent, that performance matters.

The worst possible scenario would be to continue to support Afrezza. To continue to state that in time performance will improve. As Ronald Regan once stated; “What should happen when you make a mistake is this: you take your knocks, you learn your lessons, and then you move on.”