Based in Valencia, Calif., and founded in 1991, MannKind Corporation (MNKD) is a development stage biopharmaceutical company. It is engaged in the discovery, development and commercialization of therapeutic products for diseases like diabetes. The company's lead and only late stage pipeline candidate for this year is Afrezza, an inhalation powder which is an ultra insulin therapy for the treatment of adults with type 1 or type 2 diabetes to control their hyperglycemia. Currently, it is in late-stage clinical trials and a final decision from the U.S. regulatory body is expected by April 15, 2014. There is great concern revolving around this decision, as MannKind has already received two complete response letters (CRL) for Afrezza from the FDA, and it was requested to conduct two phase III trials with the next-generation inhaler. Further delay in approval or another setback related to this candidate could be a great danger for the company. Over and probably excessive dependence on Afrezza — as the company discontinued any other reasearch in other candidates — is something to worry about. The company has generated no revenue last year round and its shares have experienced a total annual loss of $0.64 so far.
In a developmental biotech company such as MannKind, a drug approval can be a transformative event, but this type of stocks are inherently risky due to the fact that in reality most of its value is tied to an FDA's decision. Untill that happens, their finances remain shaky ground as the clinical trial process is long and expensive. This is the case of MannKind and the long, exhausting endurance race its being running to get approval for Afrezza. Will the company make it?
The Promised Land
Anyone who knows anything about the pharmaceutical business knows that difficulties and uncertainties are inherent to the research, development and introduction of new products. The failure rate is high and the process of bringing a drug from the discovery phase to regulatory approval can take over a decade and can cost more than $1 billion. As to this point, MannKind has already invested over $2 billion in the development of Afrezza, of which $361 million were spent in the two years after the second CRL was received.
Also, anyone who knows anything about this business knows that companies do so because there is usually huge blockbuster potential behind each new drug. According to the International Diabetes Federation, the number of people with diabetes approximates 366 million. The disease is spreading to all corners of the world due to changes in lifestyle and consumption habits, and by 2030 is expected to reach a total number of 550 million people. In 2012 alone, the global market for diabetes care products aggregated approximately $40 billion and it has continued to grow at a roughly 10 percent annual rate in recent years. Diabetes market, the promised land. In the U.S. only, more than 25 million people suffer from this disease. However, the race to get there is long and exhausting, and not all make it.
In the past, other inhaled insulins have not been very successful. In 2006, Pfizer (PFE) launches Exubera, the first FDA approved inhaled insulin. Pfizer stopped marketing the drug in October 2007 as it only had made $12 million in sales in the first three quarters of that year. Other companies then also decided to discontinue their own inhaled insulin programs. This means that even if Afrezza clears its way into FDA approval and makes it into the market, it will be hard to convince physicians to prescribe this drug over other existing and "safer" ones. Also, it will have to compete with the market leaders, such as Novo Nordisk (NVO) which derives 78 percent of total sales from diabetes care products.
Nevertheless, if approved, Afrezza offers some advantages over traditional needle-based insulin therapy -which now dominates the market. Its convenience is the key. Plus, it aids rapid uptake into the bloodstream following inhalation. The lack of competition in the inhaled insulin market is a positive for Affreza and should enable the drug to gain market share on approval.
Although the company is overly relying on Afrezza, there is to say that MannKind has inked some deals in the recent past. These were primarily aimed to furthering its pipeline development but with less risk and with less research and development expenditure directly for the firm. In November, 2012 it signed a license agreement with Colby Pharmaceutical Company granting the latter exclusive rights to its early stage cancer program. Currently, the firm is also looking for partners regarding Afrezza. Last year in July, it entered one with Deerfield that ensured financing worth $160 million for MannKind. Also, in October 2012, the company raised $86 million (net) through the issuance of shares and has almost $120 million left under its credit facility. This has removed some concerned about a financial crisis in the company, although it hasn't done so throughly.
In the FDA's Hand
In the end, the FDA approval will define this company's destiny. It has surely been an exhausting race thus far. Speculation's been inevitable and optimists say that it seems inconceivable that MannKind would have gone through all of its efforts if there were some damaging information that would lead to an FDA rejection of the new drug application. Numbers tell us, however, that the company desperately needs an FDA approval and later blockbuster sales to get its finances back in shape. Gurus have refrained from investing in this stock in the recent past, except for Murray Stahl (Trades, Portfolio), who increased his stakes in the company by almost 85% over the last reported quarter (fourth quarter 2013). Maybe, if you were one of the lucky ones who got their shares cheap in the early stages of the run-up, you should be thankful, not worry too much and wait and see. For those of you who haven't, maybe you should think twice before investing in a stock with high risk, shaky financials and a future that remains uncertain.
Disclosure: Damian Illia holds no position in any stocks mentioned.