The Insulin Cartel

[geomean]

One thing has puzzled me about insulin. Why is it so expensive? I’m sure many here already know the answer but I was helped by this article. www.t1international.com/blog/2019/01/20/why-insulin-so-expensive/ I’m creating this thread to discuss this cost question as well as more detailed and nuanced aspects of the insulin cartel.

1.Does MNKD source it’s insulin from others?

2. Must Mannkind maintain such high prices for Afrezza?

3. Would it make business sense for MNKD to drop it’s price in order to gain market share?
(In my mind, if Afrezza was the same price as other forms of insulin, it would likely gain substantial market share.)

4. Does Sanofi hold some kind of commercial power over Mannkind as a result of the marketing history between the companies?

5. Is Mannkind a party to anti-competitive agreements that leave it exposed to price fixing claims?

6. Wouldn’t it be fun to be a shareholder in a company that disrupts the price gouging practices of the insulin cartel?

[sr71]

Mar 2, 2021 17:50:13 GMT -5 geomean said:

One thing has puzzled me about insulin. Why is it so expensive? I’m sure many here already know the answer but I was helped by this article. www.t1international.com/blog/2019/01/20/why-insulin-so-expensive/ I’m creating this thread to discuss this cost question as well as more detailed and nuanced aspects of the insulin cartel.

1.Does MNKD source it’s insulin from others?  Yes, exclusively from Amphastar.

2. Must Mannkind maintain such high prices for Afrezza?  Most likely, since it more expensive to manufacture Afrezza from raw insulin plus technosphere.

3. Would it make business sense for MNKD to drop it’s price in order to gain market share?  
(In my mind, if Afrezza was the same price as other forms of insulin, it would likely gain substantial market share.)  It's been discussed here on Proboards from time to time, but the consensus is that the other current hurdles to widespread adaptation (e.g., insurance coverage, blackbox warning, no FDA-approved superiority trials, ADA standard of care, proper dosage training, etc.) need to be addressed first. Maybe some of the soon-to-be recent funding could be used to address those issues.

4. Does Sanofi hold some kind of commercial power over Mannkind as a result of the marketing history between the companies?  Definitely not.  There has been bad blood between the two companies since Sanofi nearly bankrupted Mannkind following ADA approval.

5. Is Mannkind a party to anti-competitive agreements that leave it exposed to price fixing claims?  Highly doubtful.  If I'm not mistaken, Afrezza is the most expensive insulin on the planet, and cannot compete effectively enough today to be capable of anti-competitive behavior.

6. Wouldn’t it be fun to be a shareholder in a company that disrupts the price gouging practices of the insulin cartel?  Bring it on!  And welcome to the wacky world of Mannkind.  I sincerely hope that you will be a long-term participant on this board.

Geo - Excellent article.  I'm taking my best shot in answering your questions (above).

[peppy]

Mar 2, 2021 17:50:13 GMT -5 geomean said:

One thing has puzzled me about insulin. Why is it so expensive? I’m sure many here already know the answer but I was helped by this article. www.t1international.com/blog/2019/01/20/why-insulin-so-expensive/ I’m creating this thread to discuss this cost question as well as more detailed and nuanced aspects of the insulin cartel.

1.Does MNKD source it’s insulin from others?

2. Must Mannkind maintain such high prices for Afrezza?

3. Would it make business sense for MNKD to drop it’s price in order to gain market share?
(In my mind, if Afrezza was the same price as other forms of insulin, it would likely gain substantial market share.)

4. Does Sanofi hold some kind of commercial power over Mannkind as a result of the marketing history between the companies?

5. Is Mannkind a party to anti-competitive agreements that leave it exposed to price fixing claims?

6. Wouldn’t it be fun to be a shareholder in a company that disrupts the price gouging practices of the insulin cartel?

Insulin, which is both a hormone and a protein, is a balled-up string of chemicals called amino acids.
Human insulin's sequence of 51 amino acids differs from that of pork insulin by a single amino acid and by three amino acids from beef insulin.
In 1978, researchers at a burgeoning biotechnology company called Genentech announced that they had introduced a human gene for insulin into a safe strain of E. coli bacteria, which then produced the protein. Genentech partnered with Lilly, which brought engineered human insulin to the market in 1982 under the brand name Humulin, the first recombinant DNA drug product in the world.
Biotechnology allowed people with diabetes to take insulin that is virtually identical to the body's version. But that was just the beginning for insulin medications. Having the ability to tweak the insulin gene, scientists started to develop new-to-nature forms of insulin—called insulin analogs—such as insulin lispro (Humalog) and insulin glargine (Lantus). Analogs have become increasingly popular among prescribers and patients. Engineers build desirable properties into analogs by tweaking their amino acid sequences in ways that force the body to process them faster or slower than plain human insulin. These new attributes give people with diabetes more options for controlling blood glucose.
Lilly agreed to take Diabetes Forecast on a tour of parts of its Indianapolis insulin production complex. Covering 1.38 million square feet, or 18 soccer fields, the Lilly facilities in Indianapolis are constantly generating Humulin and the insulin analog Humalog.
At Lilly, insulin-making E. coli is grown in 50,000-liter tanks called fermentors. There are more than 5,000 tanks on site.According to Lilly, a batch of insulin from one fermentor could produce a year's supply of insulin for thousands of people. "Our facilities are designed to produce insulin crystals in multiple metric-ton quantities," Walsh says.

The E. coli have humble beginnings. Small tubes of the bacteria have been stored in a freezer at minus 70 degrees Celsius (minus 94 degrees Fahrenheit) for decades. Lilly produced a granddaddy batch of E. coli, now referred to as the "master cell bank," sometime in the 1980s. It has gone on to seed every batch of Humulin to this day. Whenever Lilly wants a fresh stash of Humulin, workers go to the freezer, pull out a tube from the master cell bank, thaw it out, and stimulate the bacteria to grow.
Starting with a mere half gram of bacteria, the microorganisms begin to replicate prodigiously, doubling their numbers every 20 minutes or so. Once a tube gets too crowded, the bacteria are moved into larger and larger domiciles, from flask to bigger flask and from tank to bigger tank. All the microorganisms need to flourish is a source of water, sugar, salt, and nitrogen, which their handlers generously supply. In addition, the bacterial broth contains an additive that helps keep any contaminating microorganisms at bay, says Walsh. Typically, the E. coli are engineered to be resistant to a particular antibiotic, such as ampicillin, so that adding ampicillin to a broth will kill off everything but the prized protein producers. After several days of reproduction, the bacteria are now ready to start their real job—making insulin.

Until this point, the bacteria have been kept from making insulin by a repressor protein that sits near the insulin gene. To jump-start insulin production, the researchers free up the insulin gene by adding a chemical called an inducer to the giant vat of teeming bacteria. The critters promptly begin to churn out insulin, holding the protein in clumps inside themselves. After a fixed period, typically a few hours, it's time for the harvest and the hard work of isolating the insulin from mounds of bacterial trash.
The first step in the purification scheme is to separate the bacteria from the broth. That's done with a centrifuge, a machine that spins very fast, forcing the bacteria into a pellet at the bottom of a vessel. The broth is then removed and replaced with a liquid containing a substance that breaks down cell membranes, helping release the insulin from its bacterial prison.

At this point, the insulin still isn't actually insulin. It's "proinsulin," a longer inactive precursor of insulin. Insulin makers use an enzyme to carve out a section of proinsulin, leaving behind just the 51 amino acids of insulin proper. (The part that is snipped out is called C-peptide. It's a hormone in its own right, and doctors sometimes measure it in the blood of people with type 1 diabetes to see whether their bodies are still making some insulin.)

The next phase of industrial purification involves an array of giant columns made of a clear material and filled with an opaque resin. Except for their size, the columns look much like standard laboratory equipment.
When describing the girth of an industrial purification column, a smiling Lilly scientist stretched his arms out widely, bringing to mind an insulin-producing Parthenon. The columns are filled with various substances designed to separate insulin from other molecules based on differences in their electrical charge, acidity, size, and other characteristics. The insulin emerges from the columns alone.
At the end of its march through the mammoth columns, the insulin is quite pure. Yet, during processing, the insulin's chain of amino acids gets all tangled, rendering it inactive. To fix this, the researchers use yet another special mix of enzymes to iron out the wrinkles and get insulin into its proper form.

The final step before the insulin is ready for packaging is crystallization. The insulin is mixed with zinc, which helps it form stable crystals, and dried until it's nothing but a powder of glistening crystals. In due time, the crystals can be rehydrated in solution and poured into the vials, cartridges, and pens that are shipped around the globe.


www.diabetesforecast.org/2013/jul/making-insulin.html

[longliner]

Mar 2, 2021 18:51:43 GMT -5 sr71 said:

Mar 2, 2021 17:50:13 GMT -5 geomean said:

One thing has puzzled me about insulin. Why is it so expensive? I’m sure many here already know the answer but I was helped by this article. www.t1international.com/blog/2019/01/20/why-insulin-so-expensive/ I’m creating this thread to discuss this cost question as well as more detailed and nuanced aspects of the insulin cartel.

1.Does MNKD source it’s insulin from others?  Yes, exclusively from Amphastar.

2. Must Mannkind maintain such high prices for Afrezza?  Most likely, since it more expensive to manufacture Afrezza from raw insulin plus technosphere.

3. Would it make business sense for MNKD to drop it’s price in order to gain market share?  
(In my mind, if Afrezza was the same price as other forms of insulin, it would likely gain substantial market share.)  It's been discussed here on Proboards from time to time, but the consensus is that the other current hurdles to widespread adaptation (e.g., insurance coverage, blackbox warning, no FDA-approved superiority trials, ADA standard of care, proper dosage training, etc.) need to be addressed first. Maybe some of the soon-to-be recent funding could be used to address those issues.

4. Does Sanofi hold some kind of commercial power over Mannkind as a result of the marketing history between the companies?  Definitely not.  There has been bad blood between the two companies since Sanofi nearly bankrupted Mannkind following ADA approval.

5. Is Mannkind a party to anti-competitive agreements that leave it exposed to price fixing claims?  Highly doubtful.  If I'm not mistaken, Afrezza is the most expensive insulin on the planet, and cannot compete effectively enough today to be capable of anti-competitive behavior.

6. Wouldn’t it be fun to be a shareholder in a company that disrupts the price gouging practices of the insulin cartel?  Bring it on!  And welcome to the wacky world of Mannkind.  I sincerely hope that you will be a long-term participant on this board.

Geo - Excellent article.  I'm taking my best shot in answering your questions (above).

SR71, odd as it sounds I am not as sure as you about #4.  I recall a rumor of an agreed upon price prior to the knife in the back (CEO swap) and the reverse split that would put the buyout price at about $60. per share in todays world $12. pre-split.  No idea if it was real, it coincided with the folks from the Afrezza trial meeting in San Diego. It has stuck in my mind ever since.  If they pay $60. per share bring it Frenchy (not one penny less)!!

[sr71]

I hadn't heard that rumor before, but it must be water under the bridge by now. A $60 buyout today seems about right, especially since pigs fly, LOL.

[geomean]

Thanks SR71 for your insights.  I had never heard of Amphastar.  It’s a very impressive enterprise and it’s BOD looks top notch.   It’s history in the Insulin API market and volatile revenue stream from Mannkind were especially interesting, as well as the amount of data regarding its relationship with Mannkind (as a major customer) set out in its SEC filings.  Amphastar’s latest Annual Report filed in June 2020 with the SEC recites:

”APIs

We began to manufacture and sell two API products, RHI API and porcine insulin API, as a result of our acquisition of Merck Sharpe & Dohme’s, or Merck’s, API manufacturing business in Éragny‑sur‑Epte, France, or the Merck API Transaction, in April 2014. The purpose for the acquisition was to enhance our vertical integration strategy as we target certain finished products for the injectable insulin market. However, we continue to sell RHI API to third parties, which helps fund our vertical integration strategy, including the ongoing technology transfer and supply arrangement between Merck and AFP.

Supply Agreement with MannKind Corporation

On July 31, 2014, we entered into a supply agreement with MannKind Corporation, or MannKind, or the Supply Agreement, pursuant to which we agreed to manufacture for and supply to MannKind certain quantities of RHI API for use in MannKind’s product Afrezza®. Under the Supply Agreement, MannKind agreed to purchase annual minimum quantities of RHI API in an aggregate amount of approximately $146.0 million, over five years from calendar years 2015 through 2019.

The MannKind agreement was amended several times between 2014 and 2019. In August 2019, we amended the Supply Agreement with MannKind whereby MannKind’s aggregate total commitment of RHI API under the Supply Agreement was modified and extended for an additional two years through 2026, which timeframe would have previously lapsed after calendar year 2024. As a result of this amendment, MannKind paid us an amendment fee of $2.75 million, which we recognized in net revenues in our consolidated statement of operations for the year ended December 31, 2019.

MannKind may request to purchase additional quantities of RHI API in excess of its annual minimum purchase commitments. The amendment can be renewed for additional, successive two-year terms upon 12 months’ written notice, given prior to the end of the initial term or any additional two-year term.

For the years ended December 31, 2019, 2018 and 2017, sales of RHI API to MannKind totaled $4.4 million, $8.1 million and $3.2 million, which fulfilled the 2019, 2018 and 2017 commitment of RHI API under the amended Supply Agreement, respectively.

Concurrent with the amendment of the Supply Agreement, we amended the Option Agreement with MannKind, whereby the amendment to the Option Agreement extends the timing for payment of the capacity cancellation fee for 2017 and decreases the amounts payable as capacity cancellation fees for 2018 and 2019.

In addition to, and in consideration for the updated timeframe and other changes contained in the amendments to the Supply Agreement and Option Agreement, the amended Supply Agreement provided us the right of first refusal to participate in the development and commercialization of Afrezza® in China through a collaborative arrangement.”
from ir.amphastar.com/node/9701/html pg 11

This level of publicly disclosed details on this part of the Mannkind COGS is helpful as we can go back and compare the cost of the Amphastar inputs to the total COGS of Mannkind over time. I’ll take a closer look at that later.  

Afrezza gross profit for the fourth quarter of 2020 was $6.4 million compared to $3.1 million in the same period of 2019, an increase of $3.3 million, or 105%, that was driven by a combination of increased Afrezza revenue and a reduction in cost of goods sold.  Here is a Mannkind chart on COGS provided in its last earnings CC.

Mannkind reported COGS in 2019 as $17.2 Million.  Amphastar reported that it sold $4.4 Million of insulin to Mannkind, for roughly 25% of Mannkind’s COGS. In comparison to Mannkind’s 64% gross margin in 4Q20, Sanofi reported “... (in) the fourth quarter of 2019, the gross margin ratio of segments were 72.8% for Pharmaceuticals (up 0.7 percentage points)” www.globenewswire.com/news-release/2020/02/06/1980751/0/en/Sanofi-delivers-strong-2019-business-EPS-growth-of-6-8-at-CER.html

[geomean]

BTW, Amphastar has operations in the PRC and several of it’s senior management appear to be from Taiwan.

[cretin11]

Good research, Geo. If I recall correctly, the amount of insulin needed was grossly overestimated by MNKD, therefore the contract with Amphastar obligated us to purchase a minimum amount of insulin that turned out to be far in excess of what we could use and sell with Afrezza. Sanofi deserved a big part of the blame for that in the early years, and in recent years MNKD has obviously failed to move the product sufficiently. So it cost us $$ to amend the contract, and we were fortunate Amphastar was willing to do that.

As for the part you highlighted about China commercialization, I recall many of us were excited by that provision and hopeful it meant something. However, nothing has materialized on that front.

[anderson]

Dont forget MNKD has tons of the old Phizer insulin used to make Exubera in cold storage. They also have the rights to produce it for inhaled purposes, so if Afrezza ever really takes off they can get that API through the FDA approval process and build their own insulin plant and vertically integrate. So where does Amphastar fit it....well Amphastar bought the Merck insulin plant in I believe France, which was used in the original API that MNKD got FDA approval for. So when time and money permit it would always be good to have a backup supplier of insulin API. Maybe they could get a government grant to build a insulin plant in the US for national security purposes.

[cretin11]

Did we ever learn whether that old Pfizer insulin was usable, as opposed to being “expired” or something to that effect? It’s been a moot point due to anemic sales, but it would be a welcome issue for us to have.

[geomean]

Mannkind appears to have substantial unused manufacturing capacity.

From 2015 “ Mannkind's Danbury plant is currently operating one manufacturing line that can produce up to 120 million cartridges of Afrezza each year. Later this quarter production will be expanded to three manufacturing lines, tripling the capacity to about 360 million cartridges. The plant was designed to accommodate up to 12 manufacturing lines.” See www.processingmagazine.com/news-notes/article/15585249/mannkind-to-expand-afrezza-production-capacity

From 2019 “ MannKind Corporation (Nasdaq:MNKD), a company focused on the development and commercialization of inhaled therapeutic products for patients with diseases such as diabetes and pulmonary arterial hypertension, announced that it has completed construction of a new high-potency manufacturing suite in its Danbury Connecticut facility. This expansion provides the Company with the capability to produce dry powder formulations of highly potent active ingredients, such as epinephrine, on a commercial scale, in alignment with MannKind's strategic partnerships. The new suite will house bulk powder formulation and fill/pack operations for high-potency powders and adds to MannKind's extensive commercial manufacturing capability, which includes inhalation devices, large-scale compounding, particle formation, tangential flow filtration, cryogranulation, and high capacity (300 kg/day) lyophilization.

“This expansion will allow us to utilize more fully the capacity of our world class, FDA-approved manufacturing facility for dry powder inhalation products.” See www.globenewswire.com/news-release/2019/07/11/1881729/0/en/MannKind-Expands-Commercial-Scale-Manufacturing-Capabilities-for-High-Potency-Molecules.html

I haven’t reviewed its variable COGS yet, but based on the gross margin improvement it’s experiencing with added sales it looks like Mannkind may have some pricing power available in order to gain market share. It’s switch to specialty pharmacies also has price and margin advantages. What’s also interesting strategically is that it’s chosen to expand in non ODEC countries. That raises the question of whether those are opportunistic launches, or decisions based on other criteria. Most small firm pricing models suggest that market differentiation is a key profit maximization tool, where markets with high pricing power are maintained and those where it’s less get expanded into in order to increase overall gross margins.

[sayhey24]

Geo - the first question when you ask "why is INSULIN" so expensive is which insulin? When we are talking afrezza we are talking about human insulin and you can buy a month's supply from Eagle pharmacy for $99.

You can go into Walmart and buy "insulin" for $25. BUT all insulins are not the same and all non-afrezza prandial "insulins" are analogs and not human insulin and the analog make ups are patented.

[itellthefuture777]

Mar 2, 2021 17:50:13 GMT -5 geomean said:

One thing has puzzled me about insulin. Why is it so expensive? I’m sure many here already know the answer but I was helped by this article. www.t1international.com/blog/2019/01/20/why-insulin-so-expensive/ I’m creating this thread to discuss this cost question as well as more detailed and nuanced aspects of the insulin cartel.

1.Does MNKD source it’s insulin from others?

2. Must Mannkind maintain such high prices for Afrezza?

3. Would it make business sense for MNKD to drop it’s price in order to gain market share?
(In my mind, if Afrezza was the same price as other forms of insulin, it would likely gain substantial market share.)

4. Does Sanofi hold some kind of commercial power over Mannkind as a result of the marketing history between the companies?

5. Is Mannkind a party to anti-competitive agreements that leave it exposed to price fixing claims?

6. Wouldn’t it be fun to be a shareholder in a company that disrupts the price gouging practices of the insulin cartel?

To cut through the chase
Mannkind for $3 million dollars bought $10 billion dollars sales worth of Afrezza. So the raw insulin isn't expensive. So large pharma is operating at full capacity not low volumes which means they maximize their profits at high capacity runs. That however for them has flat lined to zero growth since 2014. On the other hand you have Mannkind at low volume higher price at low volumes..This os an attractive jewel..because at low volumes they are at a premium..that price stays the same and you go high volume at 400 caps a minute..it's all green acres for the pharma buyer..and mnkd's 33%..now 100%..take home message..we're sitting on a monster..packaged to sell/partner/outlicense/inlicense/lease/release/repurpose almost any drug of the 490 billion that went off patent..Technosphere platform is like the stem cell ..ot can become any drug..you could partner it a 1000 fold..Midas