We live in a business world characterized by an immediate, never-ceasing deluge of information. A veritable tsunami of opinions, perspectives, scoped analysis, and technical speculation hits us in the face every hour of the day, seven days each week, for 365 days out of the year. On any given subject, you name the position and chances are that someone, touted as an expert in some circle or circles, has argued it as if it were fact or a foregone conclusion. But history is written by the contrarians, by underdogs and innovators who understood the raw force of demand present in the markets of their time, and assembled the requisite capital, expertise, materials, and technology to execute.
While the talking heads have been busy this week panning diabetes and cancer-focused inhalable therapeutics, developer MannKind Corporation (NASDAQ: MNKD), after an EPS miss for Q4 that shrugged off the Zacks Research consensus of only a $0.05 loss, it is important to look at the bigger picture. The big picture here is about the core technologies and how they can address unmet and underserved demand in the market. It’s a long-term success story in the making and it is a good one. It’s not just under reportage of how significant French biopharma giant Sanofi’s (NYSE: SNY) marketing agreement pullout in January was in terms of overall financial performance for the company and its commercial success with its novel inhalable insulin product Afrezza, or that to many observers Sanofi was clearly dragging their feet with marketing efforts, it’s that MannKind is far more than some one-trick pony.
Nevertheless, Afrezza is a damn good trick considering the projections for diabetes incidence rates worldwide, with seven million more patients per year added to the rolls, and the fact that both the drug and delivery mechanism are categorically different than anything that has come to market hitherto. Afrezza is an ultra-rapid-acting insulin in powder form created for primary use as a pre-meal adult insulin in type one and two diabetics, engineered to be used in conjunction with existing treatments in order to help squash post-meal blood spikes. While famous for being the first company daring enough to throw its hat in the inhalable insulin ring since the spectacular failure of Pfizer (NYSE: PFE) that culminated back in 2007’s Exubera market withdrawal, MannKind is also the company that engineered the Technosphere® formulation and drug delivery platform behind the efficacy of Afreeza (based on acid-induced self-assembly of fumaryl diketopiperazine molecules), an extremely versatile breath-powered drug delivery platform that allows for inhalable variants of indications currently available only via injection.
The capacity to formulate Technosphere microparticles from a wide range of drugs with varying physicochemical characteristics does far more for MNKD than to merely enable its inhaler-based delivery technologies, like the proprietary, small form factor (and therefore discrete), yet hugely efficient Dreamboat® inhaler (http://dtn.fm/6aXEI). This technology opens up the potential for MNKD to become a formulation and delivery mechanism powerhouse for numerous existing drugs. Technosphere microparticles present vastly improved bioavailability characteristics and avoid the common problem with many drugs, which experience dosage degradation in peripheral circulation. While simultaneously avoiding the hepatic (of or relating to the liver) first-pass effect typical in orally administered drugs (and most readily observable in drugs such as morphine), where a significant portion of the administered drug is lost before it ever reaches the target, due to intestinal and hepatic degradation of the dose. The highly efficient and versatile Technosphere platform is able to produce formulations which closely mimic the pharmacokinetics of intraarterial administration (injection directly into an artery), and also offers a bold new pathway for vehicle-controlled (much like a placebo, but with better data fidelity/feedback) clinical studies to be conducted using “blanks,” or Technosphere microparticles onto which no drug in the 500 to 140,000 Da range of molecular weight (note the breadth of molecular weight range) has been adsorbed.
Some intelligent analysts in the investment community have noted similar issues for MNKD’s flagship product that cropped up during the poor reception of Pfizer’s Exubera, such as the novelty of inhalable insulin for both doctors and insurers leading to slow adoption rates, as well as bureaucratic red tape that hindered uptake by users, even when they knew about and wanted to switch to an easier to use form of insulin. A few analysts have even speculated that the entrenched logistics behind the gargantuan diabetes care devices market, which is on track to hit nearly $11 billion in North America alone by 2019 (according to a recent report published by Mordor Intelligence) and includes glucose monitoring and delivery devices such as syringes, may even be actively sandbagging the emergence of an inhalable insulin, as it represents something of an end-run on much of the space. Whether or not Sanofi helped maintain the status quo and never had any intention of really getting Afrezza into the hands of what will likely be some 380 million diabetics by 2025, or whether the EPS consensus was faulty – one thing is certain: Afrezza has failed to make the impact that its ease of use, pharmacokinetics, and the glowing comments of its lucky recipients would otherwise indicate.
Management actually sees the Sanofi split as a plus, with MNKD regaining control of its baby and being able to give it the much needed tender loving care it requires marketing-wise, in order to ignite a revolution among diabetics at the point of purchase. Let’s not forget that inhalable insulin represents a sea-change for everyone in the healthcare ecosystem either, especially the end users, who have been conditioned to think about insulin as an injectable drug over countless decades. Afrezza only launched in February of 2015 and with lukewarm marketing efforts (including huge delays, direct-to-consumer ad vaporware, and allegations about a hiring freeze on sales reps for Afrezza), as well as the drug being somewhat hamstrung initially on the insurance side of the equation, it’s no wonder MannKind can’t wait to get their hands on the reigns again. The company has even launched a significant effort to master the sales approach and pricing strategy it will need to make Afrezza the blockbuster that management and its diehard investors have longed for.
But let’s not concern ourselves too long with the mystery as to why an inhalable insulin, which a majority of users generally felt helped them more readily address the lifestyle complications associated with administering diabetic medications, (whether because it was inhalable, the inhaler was tiny, or it allowed them to dose right at the table in a restaurant, etc.) failed to go viral – and get back to the core takeaway that most investors should be focused on: the intrinsic value of the company’s IP, and its current market position.
Greek poet and mercenary Archilochus once said that the “fox knows many tricks, but the hedgehog only one: one good one,” referring to the spiny mammals’ ability to curl itself into a ball of spikes as being somewhat superior to the complex trickery and cunning of the fox. It is an apt comparison for MannKind’s market position with Afrezza, but investors should be looking closely at the company’s underlying platform technologies for drug formulation and delivery, as well as things like the Receptor Life Sciences collaboration and license agreement, designed to exploit the company’s inhaled formulation technologies. Similarly, the retention of Michael Castagna (Pharm.D) as CCO, to spearhead the Afrezza commercialization campaign and liaise directly with CEO Pfeffer, speaks volumes about how seriously the company intends to leverage its exceptional market position in inhalable insulin. Former VP of Global Lifecycle Management and Global Commercial Lead for a nine-drug portfolio at biotech giant Amgen (NASDAQ: AMGN), as well as Executive Director for Bristol-Myers Squibb’s (NYSE: BMY) immunology franchise during the launch and re-launch of its Orencia rheumatoid arthritis offerings, Castagna is by all accounts the right man to plant the Afrezza flag in spectacular fashion.
The EPS miss is logical given everything that transpired in late 2014 and during 2015, there is far more to the company than most talking heads consider and MNKD’s Technosphere dry powder delivery platform and formulation technologies could reshape the industry as we have known it, via patient-friendly, and needle-free devices for a wide variety of drugs, presented in ultra-rapid absorption form. But if you listen to the loudest voices who are screaming that the sky is falling all over again with Afrezza and that MNKD is doomed with its inhalable insulin play, you would think that the company’s flagship was all there is to this story. Naturally, many investors are quite often wed into a failed marriage of associations as a result of listening to such loud voices and end up struggling like muppets, ultimately weighed down by a dead-end momentum play portfolio.
Not knowing where to turn for accurate, over-the-horizon radar, which looks at the underlying fundamentals of a company, the vast majority of investors eventually become traders. They become caught up in the process of neurotically shaving points based on the latest buzz, never holding onto anything longer than the officially prognosticated, CNBC pundit consensus-verified sell-by date. This is probably why the smallcap and microcap space scares the hell out of so many people, especially when it comes to biopharma R&D plays whose ramp up phase is notoriously costly, which are really long-haul bets on the tech fundamentals in most cases (and let’s face it, the average talking head knows very little about biotechnology). Whether the sector big boys like it or not, we have crossed the Rubicon with inhalable insulin, and Afreeza is likely here to stay. The patients love it, it seems to help them regulate their glucose levels more easily, it’s easier to deploy, and it appeals to self-conscious consumers (or even those who simply prefer to be discreet). Reasons alone enough to keep Afreeza on the scene, but it is the efficacy of the underlying formulation technology when it comes to addressing post-meal spikes in a smoother fashion that will probably make it a late-game comeback kid.
Take a closer look for yourself, visit www.MannKindCorp.com