Is A New MannKind Possible?

MannKind (MNKD) has for quite some time been known as a company founded by a billionaire who was looking for what he envisioned as the best possible solution for getting needed insulin to diabetics. The idea and cause were both noble. Up until this point MannKind has had struggles at every crossroad. From getting Afrezza approved to raising cash, the story has been a frustrating one for investors.

Perhaps what MannKind needs is a vision that goes beyond Afrezza. At the moment, other compounds are essentially inklings of ideas. What I am talking about is essentially a reinvention of MannKind. In biopharma, part of the ability to raise money comes from having a good idea that needs to be proven out. Investors will get behind such an idea. It happened with Afrezza. The problem is that Afrezza is no longer viewed as an infant with all the potential in the world anymore. It is viewed (at least by quite a few) as a troubled teenager that sometimes does good, sometimes does bad. Potential exists, but realities point (perhaps) to that potential being limited.

What if MannKind were to do with Afrezza what some may consider unthinkable. What if MannKind were to sell it off in exchange for a small royalty and a manufacturing contract? In some ways, this may give Afrezza its best chances at marketing success. Exhibit number 1 is Arena pharmaceuticals (ARNA).

Arena was a development company with a passionate founder seeking to resolve the issue of obesity. The company developed a novel compound that had a good safety profile and worked in the brain to curb addictive behavior. That drug was called Belviq. It saw challenges getting approved, but ultimately did. Big Pharma’s Eisai (OTCPK:ESALY) waltzed in, partnered with Arena, and took on global rights. Arena got $150 million up front, had the chance to earn $1 billion in milestones, and received 35% of net sales. Investors were elated. Then came the harsh reality. The treatment paradigm for obesity did not favor Belviq. Sales were not high enough to justify the split. Neither Eisai nor Arena could make money. At some point Eisai walked away from big parts of the deal, leaving Arena in the position of moving from a research and development company to a pharma company that had responsibility to sell and market the drug.

Like Afrezza, Belviq had a passionate following. It had its group of investors that saw it as a solution for obesity, smoking cessation, drug addiction, pre-diabetes, and more. The problem was that Arena was poorly funded and had no real ability to market the drug in a world where big pharma companies throw around their mass like it was going out of style.

At some point, Arena made a very wise business decision. It sold off Belviq to Eisai in exchange for some cash, a supply contract, a manufacturing contract, and a small royalty. Arena would go back to being a drug development company. Thankfully Arena had a pipeline with some depth and novel compounds to work with. Wall Street saw the potential of this pipeline and began funding Arena. Instead of raising tens of millions to keep trying to market Belviq, Arena was raising hundreds of millions in order to move the pipeline forward.

MannKind does not have the deep pipeline, but it does have Technosphere, which can be used to deliver drugs through the lungs rather than a pill, patch, or needle. Investors can debate the merits of Technosphere, but that is not what I want to focus on. What I want to focus on is whether the story of a MannKind pushing a pipeline is “sexy” enough to whet the appetite of enough investors to give the company a fighting chance.

In pharma we always see companies wanting to extend the shelf life of a drug. One method of doing that is to develop an extended release formulation. What if MannKind were to market itself as a company capable of allowing such extensions via quick release? Some drugs are better as extended release, but some are better as quick release. A wild example would be an erectile dysfunction drug that takes an hour to see its onset of action. What if 1 hour could be reduced to 15 minutes? Another might be acute pain. Wouldn’t it be better to obtain instant results? Perhaps a solution for nausea is another concept.

What if MannKind were to go to the street with the following sales pitch:

“We want to raise $250 million as we re-invent our company into one that develops quick release solutions for existing drugs. We want to partner with sector leaders and assist them in bettering their own pipeline via inhaled solutions. We intend to invest $100 million into proof of concept studies with 10 market leading solutions over the next three years. Our proof of concept with treprostinil is about to conclude phase 1 studies, and we anticipate identifying potential partners to bring continued studies and ultimately FDA approval.”

This is a much different story than the company currently has. The current story goes something like this:

“We want to raise money to try to expand Afrezza in the US and abroad. It has been on the market for 3 years and has not really gained any traction. We feel that with the necessary funds we can market the drug effectively. We currently have a targeted sales force and that has delivered modest growth. If fully funded, we could expand that sales force, advertise, and push this product to the market. We will also try to work on the pipeline, but the lack of funding makes any material progress difficult.”

Let’s face it. Part of raising money is having a great story to tell, and potential. Afrezza is actually an old story at this stage. It has proven to be a modest asset that is actually seeing its value erode (by many measures) as the quarters pass by.

MannKind has the tools in place to manufacture multiple drugs at the same time via Technosphere and the dream-boat inhaler. To date, the issue of partnering Technosphere has been that companies are hesitant to pony up the proof of concept. The only real solution to this issue is MannKind stepping up and doing the initial studies. What if MannKind could create a bit of worry among competitors in the space. What if MannKind could get one or two big players out of 10 compounds to take the bait? A MannKind competitor in dry powder inhaled solutions, Liquidia, has already landed Glaxo (NYSE:GSK) in a deal, so clearly the possibility exists.

One major issue that MannKind has with this type of concept is a lack of leverage. If it “sells off” Afrezza without lining up a “sexy story” first, it could make the move more difficult. That being said, it seems to be on a path of breaking up the Afrezza franchise to multiple players. This adds a lot of complexity to the idea of selling it off to a big player. The smaller players might be able to make a difference, but they will be fighting the exact same fight that MannKind has faced. There is a reason that a deal for Brazil brought no upfront money, and a deal for India brought just $2.2 million. At this juncture there is not a lot that is “sexy” about Afrezza in terms of an investment. With the current direction, if Afrezza struggles for the next two years like it has for the last 3 years, the fundamental story will be much unchanged.

There are some investors passionate about Afrezza. If that is you, ask yourself this question. Do you want Afrezza to have the best possible chance of success even if it is with a company that you are not invested in? If you struggle with that answer, then odds are that you are intertwining your emotion about a product with your emotion about an investment. That is always a dangerous place to be. These days, Arena investors, even the ones that were passionate about Belviq, are a pretty happy bunch. They can now, in hindsight, see the wisdom of the moves management made and are now more savvy about pharma investing than they used to be.

Inevitably there will be critics of this suggestion. I ask those critics to do the following. Model out Afrezza net revenue for the next four quarters and track the progress of the company against your expectations. If the company is not hitting what you thought it would, then be critical of yourself as well as the investment. The goal of investing is to make money and time your investments right. Do not be afraid to buy or sell as long as you have the courage to look at things with a critical eye and hold yourself to the standards you outline. Stay Tuned!

Disclosure: I am/we are long ARNA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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