As an investor in MannKind (MNKD) for many years, I would like to discuss the merits of the company’s lead product, an inhalable insulin called AFREZZA, and also its stock. To be sure, betting on the FDA rather than MannKind has earned short-sellers tidy sums over the years. However, the thought that an inhalable insulin has no place in the pharmacopeia for diabetes is ludicrous. That position only suggests that there is a lack of understanding of the worldwide diabetes epidemic and the therapeutic options that are currently available. I suggest reading the most comprehensive scientific analysis of AFREZZA to date — it was published last November by Keith Markey, Science Director at Griffin Securities.
If you take the time to read it, you’ll see that today’s medicines are inadequate to prevent the serious complications associated with diabetes and are incapable of slowing disease progress.
Several factors give AFREZZA the potential to address these unmet medical needs. For one, the drug is based on the physiologic, natural and most effective compound known to control glucose levels, natural insulin. Every formulation of insulin ever commercialized thus far has relied on a zinc-stabilized hexameric version of the hormone and that preparation takes time to be absorbed. MannKind uses a patented delivery molecule called Technosphere to stabilize natural monomeric insulin and a simple, proprietary device to deliver the powder into and quickly out of the lungs rapidly entering the bloodstream.
Thus, AFREZZA delivers the very same natural insulin used by the body in response to food consumption when it is almost immediately available and delivers it in a manner that closely replicates its release from the healthy pancreas. MannKind has consistently found that its drug causes fewer episodes of hypoglycemia. Indeed, one clinical study showed that type 2 diabetics could take their normal dose of AFREZZA at the start of a meal and then even skip the meal entirely without suffering dangerously low glucose levels. As a result, AFREZZA should give most diabetics considerable latitude in matching the amount of insulin taken prior to a meal with the number of calories subsequently consumed. In fact, that trial showed that with the very same dose prescribed for a patient, that patient can eat nothing or almost anything up to a huge, carbohydrate-rich meal without experiencing serious high or low glucose values.
Another study has shown that AFREZZA can be administered two hours after a meal to help prevent hyperglycemia, should conditions warrant. No other diabetes medicine offers such flexibility. There is one other aspect of AFREZZA that needs to be considered and that is its ease of use. Most type 2 diabetics postpone the use of insulin as long as possible. AFREZZA does not require the injections that so many diabetics fear and it does not cause the weight gain that comes with today’s insulin formulations. But then, I nearly forgot --- many short-sellers simply refuse to believe the results obtained from AFREZZA clinical trials.
The two trials that MannKind is conducting go beyond simply providing evidence to gain regulatory approval of AFREZZA. The MKC-171 trial has been designed with FDA guidance not only to demonstrate that two inhalers (an early generation and more recent model) are equivalent in a clinical setting, but also to show that AFREZZA is superior to widely-used short-acting insulin analog in controlling postprandial glucose levels and with fewer episodes of hypoglycemia. But even if it merely increases patient compliance and reduces hypoglycemia, the drug would constitute a significant improvement in diabetes care. Moreover, this trial will satisfy the requirements of the European Medicines Agency, thus setting the stage for AFREZZA’s entry into Europe.
The MKC-175 study with guidance from FDA is designed to prove AFREZZA’s clinical benefit to early-stage, type 2 diabetics who are insulin-naïve when it is added to their existing regimens of one or two oral antidiabetes drugs. Since the first medicines prescribed for type 2 diabetics usually are inadequate within 1-3 years after initiation of therapy, the MKC-175 trial will open most of the diabetes market to AFREZZA. More important, MannKind’s drug has the right attributes to be used as an intensive therapy to prevent the hyperglycemic episodes that gradually destroy the pancreatic beta cells, thereby causing disease progression, and that lead to serious diabetes-related complications.
It is true MannKind will need to raise additional funds to sustain operations, including the clinical trials, until AFREZZA’s launch. The financing efforts that have been undertaken thus far might be considered unorthodox, as management has sought to raise funds in the debt market. But current stockholders should appreciate the work as an attempt to avoid a dilutive equity financing. So far, the debt deal has not been completed. But Al Mann, who is the company’s CEO and largest stockholder with nearly $1 billion invested personally, has extended the terms of a credit line into March 2013. Meanwhile, MannKind has been talking with potential marketing partners, and the CEO has reported that considerable progress has been made. Such an agreement might come with an upfront payment, but even if it didn’t, it would certainly have a positive effect on the stock price. And that would lower the cost of capital in the equity markets and it might even facilitate a bond deal.
Overall, MannKind is working on behalf of its shareholders. The ongoing clinical trials are designed to support AFREZZA’s approval both in the U.S. and also in Europe to expand the market to include early-stage type 2 diabetics, and to provide evidence of superiority over short-acting insulin analogs in preventing hyperglycemia, hypoglycemia and weight gain, and to show better average control (i.e. A1cs).
Financing efforts have focused on non-dilutive or minimally dilutive sources of capital, while partnering discussions have been held to secure international marketing support for AFREZZA. It doesn’t seem like investors can ask for much more at this point.