This is going to be one huge hangover

This is going to be one huge hangover

Watching shares of MannKind (NASDAQ:MNKD) fall day after day is like watching someone who partied just a little too much suffer the dreaded hangover. Here we are just a few days removed from the company’s announcement that they had partnered with Sanofi (NYSE:SNY), news which initially sent shares of MannKind higher, with shares now declining for the third consecutive day. Looking over the news reports everyone seems to struggling with how this could be happening.

In a great piece by Adam Feuerstein of posted yesterday he notes that shares of MannKind have declined over 24% since the FDA’s approval of Afrezza. He states; “MannKind (MNKD) shares are bouncing a bit Wednesday but the stock is down significantly since Monday’s announcement that Sanofi (SNY) has signed on to sell the inhaled, rapid-acting insulin device Afrezza. Why? Because even in biotech where the “blue sky” potential for experimental drugs so often sends stock prices soaring, no company can escape the gravitational pull of balance sheets and income statements. The slump in MannKind’s valuation since Afrezza’s approval is a great example of why biotech investors can’t ignore fundamental financial metrics forever.”

As Mr. Feuerstein accurately points out MannKind has a host of issues; issues which won’t be solved by their deal with Sanofi. Yet it amazes Diabetic Investor the length to which several analysts have gone to explaining why this is actually a great deal. Why in the long run the Sanofi/MannKind partnership will eventually push Afrezza to blockbuster status. Views which are in direct contrast to almost everyone in the biotech or diabetes world.

The fact is most analysts don’t understand the wacky world of diabetes and try as they might they fall into the same trap as everyone else. Namely they believe that Afrezza has to be a hit just because the drug is inhaled rather than injected. They ignore the lessons which should have been learned when Exubera failed and cost Pfizer (NYSE:PFE) $4 billion. Like so many they believe that Afrezza is vastly superior to Exubera and therefore will avoid the many issues Exubera had.

They conveniently ignore the fact that Afrezza is not superior short-acting insulin. They ignore MannKind’s own studies found that Afrezza produced the same results as the current crop of injectable short-acting insulin’s. From day one Al Mann, the company’s founder and main benefactor, has tried to convince everyone that Afrezza was better insulin that just happened to be inhaled rather then injected. Mann knew from his many years in the wacky world of diabetes that if Afrezza was to succeed in the marketplace it had to do a better job than Humalog or Novolog. He knew that if the only advantage Afrezza had being inhaled rather than injected it would not be the major hit many believed it would be. For all his quirkiness Mr. Mann is many things but stupid he isn’t.

To Diabetic Investor it’s almost as if everyone thought this deal with Sanofi would wash anyway MannKind’s previous sins. That somehow this deal would distract from the company’s poor financials. That it didn’t matter Afrezza carried a black-box warning or that many are very concerned with post-market studies and what might be discovered.  As one noted diabetes researcher told Diabetic Investor long ago when asked about the possible side effects from long term usage of Afrezza; “You don’t get lung cancer from just one cigarette, you get lung cancer from long term usage of cigarettes.” Now this doesn’t mean there will be issues with long term usage of Afrezza, however many are concerned.

The simple truth is since the day the deal with Sanofi has been announced all eyes have been on MannKind. Given how shares continue to fall its obvious investors don’t like what they see. The question now becomes will investors turn their attention to Sanofi? Will they start asking why this company is about to shell out almost a billion dollars for a product that has limited market potential. Ironically shares of Sanofi have been up these past few days as it seems investors see this deal as net positive for the company, why we’re not sure.  Maybe investors feel the company can easily afford to blow a billion bucks and even if this deal doesn’t work out the company will be just fine.

Given how Sanofi has performed in diabetes, that other than Lantus it’s been a series of failures. Investors just don’t seem to care, Lantus has made Sanofi a boatload of money and while the many failures are notable they don’t seem to be cause for concern.  To Diabetic Investor this indicates that diabetes is not the only wacky world and that investors are just as wacky. They are getting it right with MannKind, but missing the boat on Sanofi.