Will MannKind’s Luck Change the Second Time Around?

by James Brumley | August 15, 2013 9:21 am

Well, you’ve got to give credit where it’s due. Where most companies — and most investors, for that matter — would have given up and gone home, MannKind (MNKD[1]) decided it would go back to the proverbial drawing board after its first FDA denial, and try again.

Good thing it did. The second phase 3 trial went well for Afrezza — MannKind’s inhalable drug for type 1 and type 2 diabetes — according to a company announcement Wednesday, and the stock jumped 10% as a result.

The reason for the big gain isn’t tough to understand. The only way for a diabetes sufferer to administer insulin treatments now is … well, was, via an injection. MannKind has taken the needle out of the picture, and replaced it with a simple inhaler. Given that (1) the insulin market is projected to be worth $32 billion by 2018, and (2) receiving a subcutaneous or intravenous injection is always a pain no matter how “used to it” diabetics become, it would be surprising if MNKD didn’t rally on the news.

To fully appreciate the Afrezza news, though, you have to get in the time machine and go back to early 2011.

Not the First Rodeo With the FDA

If the MannKind/Afrezza story seems vaguely familiar, it might be because it’s been told before … almost verbatim. But the ending looks like it’s going to be a little different this time around.

It was January 2011 when the FDA was scheduled to make its first yea-or-nay ruling on Afrezza. The first Phase 3 trials looked as encouraging then as this year’s Phase 3 numbers do now. In fact, it was widely presumed that Afrezza was a slam-dunk as far as the FDA’s approval was concerned. As evidence of that idea, an FDA employee named Cheng Yi Liang — who was later alleged by the SEC to have traded stocks in advance of 19 different drug approvals — had already taken his position in MannKind before the final FDA decision was due. How would he know how, or even if, to trade had he not had access to some sort of privileged information that an approval was on the way?

Incredibly enough, that wasn’t even the most questionable decision made regarding Afrezza’s first rodeo with the Food & Drug Administration.

The original announcement date was supposed to be Dec. 29, 2010. But on Dec. 25 of that year, hedge fund manager Martin Shkreli sent an email to at least 12 FDA employees explaining that the administration not only shouldn’t approve Afrezza, but had an obligation not to approve the drug.

If you think that’s unusual, you’re right; the FDA shouldn’t even be allowed to receive third-party opinions about pending drug approvals. While it’s not clear if Shkreli’s input in any way influenced the final ruling, clearly he thought his comments would be influential enough to bother sending. Indeed, the way things transpired after his e-mail are certainly suspicious.

On Dec. 28 — the day before the original 2010 PDUFA date — the FDA informed MannKind it needed to delay the decision. On the new announcement date of Jan. 18, 2011, the Food & Drug Administration denied the new drug application, citing “bioequivalency” concerns.

The end result was another two-and-a-half years’ worth of pretty much the same research MannKind had already done.

So What? And Now What?

What’s any of that history got to do with what’s going on with MannKind now?

Simply put, the company is right back to where it was before all the drama started back in late 2010. Remember, however, that Afrezza was seemingly on the verge of approval in 2010 — Cheng Yi Liang already had his front-running trade in place, the Phase 3 results looked good, and the arguments against the drug’s approval were relatively weak. One has to wonder whether Shkreli did end up instigating the denial. If so, the FDA isn’t likely to put itself into a situation where its credibility could be questioned again with the very same drug.

That being said, it can’t be underscored enough right now … Afrezza wasn’t approved this week. MannKind simply finished up the most recent Phase 3 trial. It hasn’t even filed a new drug application yet. Even at the earliest, it wouldn’t be until early/mid-2014 before the FDA gives Afrezza a green or red light.

On the flip side, veteran biotech traders know all too well that the market rewards drug development milestones, and is more than happy to bid up biotech stocks in advance of key news developments. Just be wary of jumping on board right now, as MNKD has advanced more than 200% during the past six months and is quite overbought as a result.

Still, this week’s news bodes very well for Mannkind and its shareholders, and once the volatility dust settles, this might be a buy-worthy idea.

Although some have questioned the demand for an inhaled insulin, the fact that a couple of other high-profile companies have tried — and failed — to bring a marketable inhaled insulin to the market validates the idea.

One of them was Eli Lilly (LLY[2]), which canned the development of its project in 2008 before ever even asking for approval. The other was Pfizer (PFE[3]), which actually brought Exubera to the market in late 2006, only to close the program down in late 2007 due to weak sales stemming from the drug’s high cost. Point being, MannKind isn’t the only company that thinks there’s a market for such a project — but its version of inhalable insulin appears to be the most marketable one yet.

Bottom Line

The final chapter in the story has yet to be penned, but with two separate encouraging Phase 3 studies under its belt — in addition to what’s expected to be a $32 billion market in just five years — MannKind is most definitely worth putting on your radar as a long-term idea.

The odds favor Afrezza’s approval. Just let the froth die down a bit first.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

  1. MNKD: http://studio-5.financialcontent.com/investplace/quote?Symbol=MNKD
  2. LLY: http://studio-5.financialcontent.com/investplace/quote?Symbol=LLY
  3. PFE: http://studio-5.financialcontent.com/investplace/quote?Symbol=PFE

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