|
|
Post by otherottawaguy on Jun 25, 2014 11:52:50 GMT -5
A Featured Presentation On Mannkind Corporation's Revolutionary Diabetes Treatment
Published: Tuesday, 24 June 2014 11:18 Written by Doctor Hung V. Tran, MD, MS
Table of Contents
I.360 Catalyst Keys
II.Background
III.Poised To Capture The Growing $21 Billion Global Insulin Market
IV.Revolutionary In Diabetes Treatments
V.The ADA Is Pushing For Early Insulin Treatment Pitting Afrezza In The Complete Dominancy In Diabetes Treatment
VI.Advantageous Negotiations Regarding Partnerships or Acquisitions
VII.CEO Mann Alleviates The Issue of Dilution Plaguing Many Development-Stage Biotech Firms.
VIII.Persistent Efforts Often Leads To Big Reward
IX.Afrezza Is Completely Superior To Exubera.
X.45 Percent Ownerships By CEO Mann Demonstrate Strong Votes Of Confidence.
XI.The Recent Transactions Were Inconsequential
XII.Independent Research Revealed That Doctors Are Highly Receptive To Afrezza
XIII.Company Valuation
XIV.The Anatomy Of An Epic Short-Squeezed
XV.Conclusion
XVI.References
I. 360 Executive Catalyst Keys
■Afrezza would became the most dominant player in the rapidly expanding $21 billion insulin market, which rapid acting analogues comprises of $9 billion.
■Growing at the estimated 12.4 percent CAGR, the global insulin market is expected to become $45 billion by 2020.
■The first revolution in diabetes treatments commenced with Doctor Banting and Best, who isolated insulin from a healthy dog's pancreas to successfully treat another dog with diabetes.
■The second revolution in diabetes treatment resulted from Doctor Mann's insulin pump. The pump is implemental in managing Type 1 diabetes.
■Afrezza would catalyze for third revolution in diabetes treatment, inclusive of not only Type 1 and Type 2 diabetes but also pre-diabetes.
■Obesity often cause to insulin resistance, leading to pre-diabetes. Without treatment, pre-diabetes would progress to Type 2 diabetes. Research shown that pre-diabetes is a highly prevalent condition. Perhaps more patients have pre-diabetes than clinically diagnosed diabetes per se. Obesity and pre-diabetes tend to occur together due to their correlated etiology.
■The American Diabetes Association (ADA) is pushing for early insulin treatments. Early insulin treatment prevents diabetes complications stops the progression from pre-diabetes to diabetes.
■Patients who have never been on insulin are reluctant to try insulin injection. Hence, this position Afrezza to be the drug of choice, thus, pitting Afrezza to dominate this increasingly vast market.
■Treating diabetic complication is ineffective, costing the taxpayer $245 billion annually and contributing to the increasing US healthcare spending. Afrezza would reduce this striking figure. Therefore, the FDA should be motivated to approve the drug.
■To gain approval the drug only needed to meet its primary endpoints in the Phase III study with statistical significant and Afrezza demonstrated stellar results in reducing the Affinity Trials 1 and 2 primary endpoints in reducing hemoglobin A1C.
■Back in April 2014, the Advisory Committee (ADCOM) voted the near unanimous vote of 14 - 0 and 13 – 1 highly favoring Afrezza, as treatment for Type 1 and Type 2 diabetes, respectively. Keep in mind that the FDA nearly always follows the expert committee's recommendation.
■Mannkind is in the advantageous position for partnerships and buyout given the ADCOM votes and the upcoming FDA approval. The CEO and Founder might sell the company at the right price. Mannkind already hired the expert merger and acquisition firm, Greenhill & Co., to facilitate the strategic process.
■Afrezza is superior to Exubera in all aspects including convenience, pharmacokinetics, dosing, as well as, doctors and patients affinity or receptiveness toward the drug. Exubera market failure caused doubts pertaining to Afrezza's success, which created the perfect buying opportunity for shareholders. Nonetheless, it's only a matter of time until the market becomes cognizant of Afrezza tremendous value. Independent research revealed physicians are highly receptive toward prescribing Afrezza.
■Conservative valuations revealed that Afrezza should be valued around $51 per share.
■The Billionaire CEO and Founder, Doctor Mann, owns roughly 45 percent stakes. If the Mannkind ship goes down, the captain would go down with shareholders. It is reassuring when the management aligned their interests with shareholders.
■Recent insider transactions were through the pre-arranged, 10B5-1 plan. Hence, they had no bearing on the company's prospect.
■With 68 million shares shorted, the upcoming binary event would trigger an epic short squeezed that would wipe out short portfolios.
II. Background
MannKind Corporation, a small biotechnology company based in Valencia, California, has planted the catalytic seed for the revolutionary diabetes treatment more than a decade prior. The Company's efforts are materializing into life-saving treatment for million patients suffering from diabetes.
In this featured presentation, I will provide an integrated research analysis on Mannkind through the distinctly comprehensive paradigm of an MD, researcher, financial analyst, and an investor.
Source: Finviz
III. Poised To Capture The Growing $21Billion Global Insulin Market
The market for diabetes mellitus is gigantic, and it's getting larger by the days. Research estimated that over 25 million or 8.3% of the U.S. population have diabetes in 2011. In addition, there are roughly 1.9 million new cases each year. Research showed that the $21 billion global insulin market, in 2013, is growing at 12.4 percent annually, and it would become $45 billion by 2020.
Source: Grandview Research
Overweight and obesity are quite common in the U.S. and modernizing nations like China. Obesity causes insulin resistance which leads to pre-diabetes and subsequently Diabetes Mellitus Type 2. The cost to diagnose diabetes in the U.S. amounts to the burdening of $245 billion. This figure is comprised of $176 billion from direct medical cost plus $69 billion in reduced productivity.
IV. Revolutionary In Diabetes Treatments
The first revolution in diabetes treatment commenced when Doctor Frederick Banting injected an isolate from a healthy dog's pancreas called "Isletin" to save another dog with diabetes. Since this monumental event, we've mass-manufactured insulin and further developed the drug that became the standard of care for diabetes treatment.
Source: Nobel Prize
The second revolution occurred when Dr. Alfred Mann, Mannkind CEO and Founder, invented the insulin pump for his previous company, MiniMed. The Serial Entrepreneur later sold MiniMed to Medtronic for $3.7 billions.
Source: MedTronic
The third revolution in diabetes care is brewing with Dr. Mann's Afrezza® – the novel super rapid-acting insulin, revolutionary in its ability to mimic the natural action of the human pancreas. Afrezza revolutionary performance was made possible by leveraging on Mannkind's proprietary Technosphere® platform. This new mode of drug delivery could have wide applications in delivering other medicines for treating other diseases.
By inhalation through a small whistle-like device called the Dreamboat, Afrezza is rapidly absorbed from the lungs into the bloodstream, and works within minutes before mealtime. This is exciting news for million of patients suffering from diabetes, because Afrezza overcame many problems limiting existing treatments.
Conventional injection of short-acting insulins, NovoLog and Humalog, required more than 15-30 minutes prior to mealtime to exert optimal effects. Also, needle injections are painful, not to mention the needles' stigma and inconvenience, that would hinder patient compliance.
Due to the aforementioned rationales, newly diagnosed patients are likely reluctant to start insulin injection as well. While it's plausible that lifelong diabetics are not needle aversive, physicians still encountered patient's compliance as the major problem leading to diabetic complications. The aforementioned stigma, as well as, the cumbersome of having to inject needle in public surely contributed to the treatment adherence quandary.
Afrezza is convenient, and frankly stated, "easy-to-use" due to its ingenious ergonomic design. One could carry this small whistle-like device in a purse or a pocket. In addition, there's no need to excuse oneself to utilize the public restroom for embarrassing needle injections. The convenience of this inhalable insulin, Afrezza, thus, would improve patient compliance, alleviate frustrations for doctors, and prevent further complications for patients such as limb amputations, blindness, kidneys and heart damages.
When approved, Afrezza would also mitigate the rising U.S. healthcare spending by minimizing the $245 billion spent on treating diabetic complications annually. Further, Afrezza is not an expensive drug but rather would be sold comparable to generic insulin.
V. The ADA Is Pushing For Early Insulin Treatment Planted Afrezza's Complete Dominancy In Diabetes Treatment
The American Diabetes Association (ADA) is pushing for earlier insulin treatment to slow the progression of diabetes. Timing is critical for diabetes treatment since early treatments prevent diabetic complications of small blood vessel as well as nerve damage in the eyes, feet, kidneys, and heart. These complications are significant concerns for doctors and patients due to the body's impaired ability to heal itself when diabetes is not well-controlled. As an MD, I witnessed countless patients with poorly controlled diabetes, whom eventually succumbed to the wrath of diabetic complications of losing their feet, vision, and/or kidneys.
According to diabetes treatment guidelines, clinicians would start a patient on oral medication when they have failed the recommended diet and lifestyle modifications. When oral medications alone are not adequate in controlling blood sugar, doctors will add insulin injection to the treatment regimen. Many patients who have not been on insulin treatment are reluctant to try insulin injection due to needle phobia, inconvenience, and its associated stigma.
Afrezza, removing all of the namely above barriers, encourages early use of insulin that potentially preventing and/or reversing the disease course per se. By using Afrezza, million of diabetic patients would be able to live their life as if they do not have the disease at all. Given the stellar performance from Afrezza aligning with ADA's efforts in early insulin treatment, the FDA should approve Mannkind's inhalable Afrezza.
VI. Advantageous Negotiations Regarding Partnerships or Acquisitions
Mannkind hired an investment firm, Greenhill & Co. - a firm specialized in merger and acquisition to guide the company with partnership negotiations. With stellar trials results plus the near unanimous recommendation for approval by the Advisory Committee, Mannkind is now in highly advantageous negotiating positions. Furthermore, this high ground would become increasingly advantageous when the company gains FDA approval.
Major players in the diabetes arena include Elli Lilly, Sanofi, and Novo Nordisk. Thus, any of these players would provide Mannkind with resources including funding, manufacturing, and marketing to ensure the successful launch for Afrezza.
Even without a partner, Doctor Mann has the available insulin supply and already laid down the company's manufacturing infrastructure in Danbury, Connecticut. However, The CEO and Founder might sell the company after Afrezza approval, if the price is right.
VII. CEO Mann Alleviates The Issue of Dilution Plaguing Many Development-Stage Biotech Firms
A developmental biopharmaceutical requires significant capital financing, which is often done by issuing more shares. This is because it takes many years and intensive resources to successfully bring a drug to the market. This issuance of new shares, termed "dilution," devalues the stock shares price which is analogous to "inflation" reduces monetary value via the process of printing more money.
Mannkind does not significantly dilute shareholder values like many developmental biopharmaceuticals. With Dr. Mann holds more than half of his fortune in Mannkind, it is logical that he would refrain from devaluing his own fortune unless when dilutive financing was deemed prudent. It is luxury in the world of biotechnology to find a company with the backing of the billionaire philanthropist CEO and Founder like Dr. Mann.
Source: Forbes
VIII. Persistent Efforts Often Leads To Big Rewards
Since Mannkind received the complete response letters (CRL) twice, the company paid its due in following the FDA's guidelines. As followed, Mannkind conducted the Affinity Trials 1 and 2 in adherence to the Agency's protocols.
On August 13th 2013, MNKD published their phase III top-line results, having both trials significantly met their primary end points - in reducing a blood marker for diabetes status coined Hemoglobin A1C - required for FDA approval.
Historically, the Agency sometime delayed the approval for certain essential drugs and medical devices. Notwithstanding, the corruption by the FDA scientist in recent year, plus issue of medication shortage, prompted policy changes within the administration. These developments materialized into shortened approval time, increased number of approval, and decreased drug shortages. Hence, these enhanced FDA policies should loosen the overly rigorous process and favoring Afrezza approval.
It's also notable that companies which are persistent in resubmitting their NDA, as a rule-of-thumb, would eventually gain FDA approval for their drugs. This third time is highly likely the charm for Mannkind's Afrezza approval.
IX. Afrezza Is Completely Superior To Exubera
While insulin inhalation is not a novel concept, Pfizer had their inhale insulin, Exubera, on the market but withdrew due to the drug's dismal sales. It's not far reach from the imagination to believe the market is apprehensive that Afrezza would meet the same fate as Exubera. Interestingly, my surveying with patients revealed that nearly all patients look forward to having Afrezza.
Source: Mannkind Corporation
X. Pharmacokinetics of Afrezza Resemble The Action of Human Pancreas
Though both drugs, Afrezza and Exubera, are inhale-insulins, Afrezza is superior in 360 views. For instance, Exubera delivered insulin through a bong-like device, which was both aesthetically unappealing and impractical at social settings. In addition, there's dosing issues associated with Exubera. Moreover, the drug did not demonstrate the superior pharmacokinetics intrinsic to Afrezza.
Source: Mannkind Corporation
XI. High Insider Ownderships Voiced Strong Votes Of Confidence
In practicing due diligence, I made it a habit to monitor insiders transaction. It's comforting for shareholders when CEO Mann is "putting his money where his mouth is" by holding 45 percent of the 388 millions shares outstanding without selling a single share.
XII. Recent 10B5-1 Transactions Were Inconsequential
In 2013, the market was concerned regarding CFO Matt Pfeffer's transactions which prompted me to call him for clarification. Mr. Pfeffer clarified that there was no direct insider sales initiated on his behalf. Moreover, he then stated that his transactions were done through company's 10b502 plan a year prior.
In the recent month, June 2014, similar market concerned regarding the management transactions. Nevertheless, such transactions were also intiated through 10b502 evidencing that these pre-arranged sales did not suggest any true negativity regarding the company's prospect.
Source: OpenInsider
XIII. Independent Research Revealed That Doctors Are Highly Receptive To Afrezza
With Afrezza's revolutionary developments unfolding in the diabetes treatment, Mannkind should be moving up by leaps and bound given its power to capture the multibillion dollars diabetes market. However, the market are not well adept to handle uncertainties. While doctors could be reluctant to prescribe Afrezza to their patients due to its unfamiliarity, because it's a new drug after all. Nonetheless, Afrezza is quite easy to use. The beauty in genius design lies in simplicity and Afrezza is the perfect fusion of ingenious design with simplicity. During my previous work as an MD, I treated many diabetic complications first-hand in the hospital, outpatient and wound clinic settings. Due to patient noncompliance with injectable insulin, I informally surveyed physician colleagues and learned that most would prefer prescribing Afrezza over conventional diabetes treatment. Moreover, nearly all of the patients that I either treated or encountered were fascinated by the idea of having a pocket-sized super rapid-acting inhalable insulin.
XIV. The Company Valuation
I calculated the RAAs market share of $9 billion by utilyzing revenues from the three major pharmaceuticals including Lilly, Novo, and Sanofi.
Assuming Afrezza could capture 33 percent of the $9 billion RAA market, this would yield the figure $3 billion. ($9 billion x 33 percent = $3 billion)
Using the conservative factor 7 (market cap per revenue), for a small cap pharmaceutical based on comparative market analysis, I multiplied 7 by $3 billion revenues to arrive at $21 billion revenues.
To quantify Mannkind share price differential, I took $21 billion divided by $4.1 billion to obtain the factor 5. ($21 billion / $4.1 billion = 5).
Calculating true PPS. I multiplied the current share price of $10.73 by factor 5, which equaled to $51 PPS ($10.73 x 5 = $51).
These calculations are based on conservative metrics of using the factor 5 instead of 10 or 12. Additionally, I also did not account for the potential treatments for pre-diabetes, which are increasingly common, which resulted from increasing number of patients afflicted by obesity.
Given Afrezza superiority over any insulin available on the market, it's highly probable that Afrezza would have an edge over competitors. Nonetheless, Mr. Market can be quite illogical at times. The market under appreciated Mannkind PPS before the Advisory Committee decision only to see its faulty conclusions and saw more than 100 percent share price appreciation in one day. The day in which many short-sellers were burned.
It's interesting to note that even Warren Buffett –The Oracle of Omaha –could not predict the share price in the short term with precision. Nevertheless, time will ultimately prove the true merits of the visionary, Doctor Alfred Mann, as well as, the fruits of the managements.
XV. The Anatomy Of An Epic Short-Squeezed
Despite positive developments, there are still 68 million shares shorted or roughly 17 percent of shares outstanding. When the market realizes Afrezza potential, and in combinations with an FDA approval, partnership or a buyout, the bull will start kicking in full force – similar to the Bull Run in Madrid – creating a guillotine short squeeze phenomenon.
Source: Nasdaq
As follows, the July 15 binary event could wipeout many short portfolios. I strongly believe that shorting Mannkind nearing its binary event would be more dangerous than shorting either Jazz or InterMune. Needless-to-say, those investors who heavily shorted InterMune earlier in the year ... either filed Chapter 11 or ceased investing altogether.
XVI. Conclusion
According to The Father of Value Investing, Benjamin Graham, Mr. Market's mood is fickle." Based on his labile mood, he would quote a great company either too low or too high at times. Mr. Market quoted Mannkind shares in the range $4 to $5 when I first published and recommended the stock. Mannkind shares, recently, have traded up – north of $10 – due positive development as forecasted. Inspite of using extremely conservative appraisal, the company true value should be at the minimum of $50 per shares. Since the stock's intrinsic value is much lower than its current market capitalization, the PPS would match its true value in the future as the catalyst materializes. Pertaining to Mannkind, the catalytic event such as a buyout, partnership or FDA approval could easily double the stock.
The positive ADCOM indeed unlocked significant value for shareholders. Needless to say, an FDA approval for any company holding the treatment to the multibillion dollars diabetes market would unlock the ultimate reward for long-term shareholders. Nevertheless, it's important for investors to realize that investing research is an imperfect science with interweaving elements of art. Hence, I could not guarantee that Afrezza would be approved. Nonetheless, Afrezza has over 90 percent chance of approval based on my extensive research on the company.
In his famous book "Common Stocks and Uncommon Profits," the Father of Growth Investing, Phillip Fisher, cited Shakespeare "there is a tide in the affairs of men, when taken at the flood will take to fortune." After the decade long of perseverance, the tide is approaching for "the intelligent investors," as well as, the million patients suffering from diabetes. Peter Lynch also stated that "you do not need many 'multibaggers' to have an outstanding portfolio that Wall Street would envy." Therefore, I believe that you could still outperform the market by holding only several stocks like Mannkind, InterMune, Intercept, Jazz, Michael Kors, or Chipotle.
As the final note, I wanted to remind readers that an investor should stick to his or her circle of competence, exercise due diligence, build a strong stomach for stock prices fluctuation, believe in Mannkind's genius like CEO Mann or CFO Pfeffer, and get ready to celebrate this incoming revolutionary era in diabetes treatment.
Disclosure: I am long on MNKD. I wrote my first PRO article on Mannkind through Seeking Alpha. The stock had appreciated more than 100 percent since my publication in 20013. I strongly believe that the company is still highly undervalued based on conservative valuation models, and the upcoming catalyst would be one of the most powerful seen in the world of biopharmaceutical.
References:
1.http://www.nobelprize.org/educational/medicine/insulin/discovery-insulin.html
2.http://www.medtronic-diabetes-me.com/insulin-pump-therapy.13.html
3.http://www.nasdaq.com/symbol/mnkd/short-interest
4.http://openinsider.com/search?q=mnkd
5.http://www.mannkindcorp.com/
6.http://www.mannkindcorp.com/news-and-events-media-room-photos.htm
7.http://www.forbes.com/profile/alfred-mann/
8.http://finviz.com/quote.ashx?t=mnkd
9.http://www.nobelprize.org/educational/medicine/insulin/discovery-insulin.html
10.http://www.grandviewresearch.com/industry-analysis/insulin-market
11.http://finance.yahoo.com/q/ks?s=MNKD+Key+Statistics
12.http://www.diabetesforecast.org/2014/05-may/whats-next-for-insulin-no.html
13.http://www.uptodate.com/contents/overview-of-medical-care-in-adults-with-diabetes-mellitus?source=search_result&search=diabetes+treatment&selectedTitle=2~150
|
|
