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.
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