Things just keep getting wackier
Yesterday there were a few news items that illustrate just how wacky things are getting in the diabetes space. The first piece of news comes from MannKind (NASDAQ:MNKD) who in press release stated; “MannKind Corporation (Nasdaq: MNKD) today announced the commencement of an offering of up to 8,000,000 shares of its common stock. The common stock being offered represent shares of MannKind common stock that MannKind will lend to Bank of America, N.A. Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), an affiliate of Bank of America, is acting as sole book-running manager for the offering.”
The release goes onto state; “In connection with the common stock offering, MannKind will enter into a share lending agreement with Bank of America, pursuant to which MannKind will lend shares to Bank of America. Merrill Lynch intends to sell the borrowed shares in the common stock offering and to use the resulting short position to facilitate short sales and privately negotiated derivative transactions by which the investors in a concurrent private offering of $100 million aggregate principal amount of MannKind’s Senior Convertible Notes due 2015 (or $115 million if the initial purchasers exercise their overallotment option in full), which is being made only to qualified institutional buyers, may hedge their investment in the notes. MannKind will not receive any proceeds from the offering but will receive a nominal one-time loan fee.” (Highlighting added by Diabetic Investor)
While Diabetic Investor is no expert on such sophisticated financial moves this one just doesn’t pass the smell test and reeks of the past financial shenanigans. For once it appears the Street is agreeing with Diabetic Investor as in early trading MannKind shares are down over 7%.
The issue with MannKind has never been the safety or effectiveness of Afrezza™, the issue with MannKind has always been one of overcoming the Exubera factor. No one in their right mind would say that patients prefer to inject insulin if they could inhale it. However, the Exubera disaster has made the road for Afrezza and any other non-injectable form of insulin a difficult one.
While MannKind did not create the Exubera issue, they have not helped themselves either. A perfect example of this is their bluster when it comes to promoting Afrezza and ability to find a credible partner. Simply put the company has over-promised and under-delivered on both counts. The company also fails to acknowledge the realities of the market should the FDA finally approve Afrezza at the end of this year. From the beginning Diabetic Investor has said Afrezza would be nothing more than a niche product and have little reason to change our thinking now.
This announcement by MannKind comes on the same day the JDRF announced several new initiatives for their artificial pancreas project. According to a release yesterday; “JDRF is funding investigators at leading academic institutions to test novel insulin formulations and delivery systems that may speed insulin action – making it work faster than the insulin currently used by people with diabetes around the world today. The objective is to use faster-acting insulin in an artificial pancreas system to more closely mimic a human pancreas in sensing blood sugar and secreting insulin in response.”
It just so happens that MannKind is one of the companies that’s about to get some JDRF money. The release also states; “In addition to modifying the insulin molecule, another way to speed insulin action may be to improve the route of delivery. Currently, insulin is delivered subcutaneously (under the surface of the skin); this contributes to the slow action compared to insulin made in the pancreas. JDRF will provide grant funding to Dr. Howard Zisser at the Sansum Diabetes Research Institute to conduct studies there with AFREZZA®, a rapid-acting insulin being developed by California’s MannKind Corporation; inhaled at mealtime, AFREZZA achieves peak insulin levels quickly.”
MannKind isn’t the only company mentioned in the release as it appears the JDRF is taking a page out of the federal government’s playbook and is throwing money at many different companies and technologies.
While there are many who believe that this quest to develop an artificial pancreas is worth the time and money expended; Diabetic Investor is not yet among them. Not because we don’t think an artificial pancreas is doable, it is. The real question is should the JDRF ultimately succeed will it be a hallow victory, or put another way will we actually see better outcomes in the millions of patients with diabetes or will the improvements seen be limited to a handful of patients.
Like the government who prefers to throw money at problems first and ask tough questions latter, the JDRF is throwing lots of money around but failing to ask some very tough questions. Here are just some of the questions Diabetic Investor believes should be asked and answered:
1. Who is going to pay for what surly will be a very costly system? As it stands an insulin pump plus a continuous glucose monitoring system, two key components of an artificial pancreas, cost upwards of $10,000 in year one and carry with them annual supply costs of over $3,000 per year. An artificial pancreas is likely to cost at least that much and mire likely will cost much more, all in an environment where everyone is trying to limit costs. THE JDRF will argue that better outcomes will offset this increased cost but that will take time and money as they will need study data to back up this claim. Even if successful there is no guarantee insurers will reimburse for such a system as quite frankly there are cheaper alternatives available, which when used properly achieve the same results.
2. Want benefits, if any, will extend to the 15 million and growing non-insulin using patient population? Granted the JDRF is not focused on these patients but the reality is, these patients are just as costly to our healthcare system and economy as insulin using patients and they are no less worthy of getting some help managing their diabetes. Too often we lose sight of this fact and this bias towards insulin using patients just makes the problem worse.
3. Just what is the regulatory path at the FDA? Remember this is an agency that has become increasingly conservative and is taking a hard look at how medical devices are approved.
4. Who decides when enough is enough? In some respects this quest to develop an artificial pancreas reminds Diabetic Investor of the quest to develop a non-invasive glucose monitoring system. Millions of dollars and countless hours have wasted in this quest and still today there are people stupid enough to believe that it can be done and someone will actually pay for it. Sometimes it’s better to acknowledge that even if successful, some technologies just won’t fly in the real world, which is where most people live.
Now before everyone jumps into the deep end of pool and starts believing that Diabetic Investor is against what the JDRF is working on; stop it right there. Done properly it is very possible the artificial pancreas project will yield several advancements in diabetes care, just as our space program yielded several current day technologies that we know take for granted. However, just as the space program feel out of favor when costs exceeded benefits, the JDRF needs to be diligent in their efforts and willing to ask and answer some very tough questions.
Back in 1964 then President Lyndon Johnson stated; “This administration today, here and now, declares unconditional war on poverty.” Back in 1971 the President Nixon stated; “I will also ask for an appropriation of an extra $100 million to launch an intensive campaign to find a cure for cancer, and I will ask later for whatever additional funds can effectively be used. The time has come in America when the same kind of concentrated effort that split the atom and took man to the moon should be turned toward conquering this dread disease. Let us make a total national commitment to achieve this goal.”
Here we are today with billions spent on both fronts and neither poverty nor cancer has gone away or is less of a problem. Yes there have been major advancements on both fronts and perhaps one day neither will exist. However, the JDRF would be wise to brush up on their history before making major promises and expending even greater resources on this their quest.