Motley article

[trenddiver]

Is MannKind Corporation in a Death Spiral?
The embattled biotech faces touch challenges. Are they too tough to overcome?

Keith Speights (TMFFishBiz) Dec 10, 2015 at 9:02AM
Dreamboat

IMAGE SOURCE: MANNKIND CORP.

Is the dreamboat envisioned by MannKind Corp. (NASDAQ:MNKD) turning into something more akin to the Titanic? I've been a proponent of the biotech for quite a while, but it's hard to remain positive about MannKind in light of the massive weight of problems the company faces. Some investors are probably now asking a tough question: Is MannKind in a death spiral? Here are three factors that make it possible the answer is "yes."

1. Afrezza sales are tanking
MannKind and marketing partner Sanofi (NYSE:SNY) announced the U.S. launch of inhaled insulin Afrezza on Feb. 3, 2015. Here's how sales have looked so far.

Afrezza Product Shipments Thru

DATA SOURCE: MANNKIND CORP.

It would be one thing if Afrezza sales were climbing more slowly than expected. Instead, product shipments are sinking like a lead balloon. The trend ain't a friend for MannKind or Sanofi.

The biggest issue behind the troubling picture is reimbursement. Too many payers still don't have Afrezza on their formularies. And many insurers that do pay for Afrezza mandate prior authorization before a patient can use the drug.

Is good news on the way? Probably not soon. Sanofi lowered guidance for its diabetes products and specifically pointed to lower-than-expected market penetration for Afrezza and Lyxumia. MannKind executives have mentioned anecdotal evidence that Sanofi's direct-to-consumer marketing campaign has generated patient enthusiasm that could lead to higher sales. That's what they said in the second quarter, too, though -- yet Afrezza shipments continued to fall.

2. Cash is burning
Even if we assume that Sanofi's efforts to woo payers and patients will ultimately pay off, the clock is ticking for MannKind. The biotech is burning through cash at a rate of over $10 million per month. As of the end of September, MannKind had cash and cash equivalents totaling just under $33 million. It doesn't take a math whiz to see the problem.

MannKind did manage to pull off a neat financing trick by listing on the Tel Aviv Stock Exchange. The maneuver resulted in an additional $36.2 million coming in, net of associated fees. MannKind also can access another $30 million through a loan agreement with The Mann Group and receive up to $38 million through its at-the-market equity distribution program.

Putting all of this together means that the biotech should be able to stretch out its cash for maybe another 12 months or so. Something will have to happen prior to then, though.

MannKind could issue more shares, but the company is reluctant to dilute even more -- especially with a short interest of 47%. There's also the option of borrowing more money from billionaire founder Al Mann yet again. If the outlook for Afrezza doesn't improve, however, you have to wonder if even that well could run dry.

3. Questions are swirling
Speaking of Al Mann, that leads to another huge question for MannKind: Who's going to run the company? Mann was named interim CEO recently after Hakan Edstrom left the company. I think it's fair to say that Al Mann is the only 90-year-old running a publicly traded biotech.

It has also not escaped investors' notice that Sanofi could bail out of the partnership to market Afrezza. The French drugmaker retains the option to terminate the relationship by notifying MannKind as early as January. I doubt that will happen anytime soon -- but the mere fact that it's even a possibility at this point is troubling.

Death spiral?
Declining sales, depleting cash, and departure of a CEO. Is MannKind in a death spiral? Despite the abysmal news, I don't think the biotech's fate is sealed yet.

For one thing, I suspect that some payers could open up reimbursement in 2016. Afrezza does, after all, have a lot going for it with its rapid absorption into the body and convenience factor. It's also quite possible that direct-to-consumer marketing helps build word of mouth among diabetic patients. And MannKind just might find another company interested in using its Technosphere platform, the delivery mechanism for Afrezza, for other drugs.

I think that as long as Al Mann believes Afrezza has a chance at success, he'll provide the cash to keep MannKind going. His conviction could also be helpful in finding a new CEO.

Don't get me wrong. I'm not upbeat about MannKind's future. There are simply too many hurdles to overcome. However, I think the biotech at least has a shot at turning the corner. I've always liked underdogs. And MannKind definitely remains an underdog for now.

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Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.



COMMENTS


AUTHOR

Keith Speights

TMFFishBiz

Keith began writing for the Fool in 2012 and focuses primarily on healthcare investing topics. His background includes serving in management and consulting for the healthcare technology, health insurance, medical device, and pharmacy benefits management industries.

ARTICLE INFO
Dec 10, 2015 at 9:02AM
Health Care
STOCKS

Sanofi (ADR)
NYSE:SNY
$41.92 $0.32 (-0.76%)

MannKind Corp
NASDAQ:MNKD
$1.55 (0.00%)
READ MORE

[trenddiver]

Pretty realistic assessment of MNKD situation by Motley Fool contributor.

[compound26]

Dec 10, 2015 9:48:52 GMT -5 trenddiver said:

Pretty realistic assessment of MNKD situation by Motley Fool contributor.

Pretty realistic assessment? How about their No. 1 claim?

1. Afrezza sales are tanking

Afrezza's sales are NOT tanking.  That is a ridiculous claim and distortion of facts.  By any means the scripts (the sales) are growing, even though not at a fast pace as we would want.

Yes, the Mannkind quarterly shipments to Sanofi did not increase, but quarterly shipments are not sales of Afrezza.  Mannkind's shipments to Sanofi are decided and influenced by a lot of things and sampling, inventory, and channel filling are a big percentage of the shipments in the initial quarters. Shipments are not sales.  And Afrezza sales are NOT tanking. Afrezza sales are growing, month by month, as based on Symphony and IMS.

[mssciguy]

appears that Adolf Feuerstein is moonlighting at Motley Fool.

There were incorrect entries in Wikipedia articles for Al Mann and Mannkind. I fixed one, someone else fixed the other (thanks!)

Both made the same statement about "dwindling sales" -- complete lie.

Remember the debates in philosophy class about good and evil... does evil really exist? Yes, clearly. There are some very dark forces at work here.

[trenddiver]

Dec 10, 2015 9:56:21 GMT -5 compound26 said:

Dec 10, 2015 9:48:52 GMT -5 trenddiver said:

Pretty realistic assessment of MNKD situation by Motley Fool contributor.

Pretty realistic assessment? How about their No. 1 claim?

1. Afrezza sales are tanking

Afrezza's sales are NOT tanking.  That is a ridiculous claim and distortion of facts.  By any means the scripts (the sales) are growing, even though not at a fast pace as we would want.

Yes, the Mannkind quarterly shipments to Sanofi did not increase, but quarterly shipments are not sales of Afrezza.  Mannkind's shipments to Sanofi are decided and influenced by a lot of things and sampling, inventory, and channel filling are a big percentage of the shipments in the initial quarters. Shipments are not sales.  And Afrezza sales are NOT tanking. Afrezza sales are growing, month by month, as based on Symphony and IMS.

I agree that the shipments were way off base, but the rest of it seemed to be a realistic assessment.  

[mssciguy]

the title of this post is FUD itself. We were suckered into repeating the lies.

A Goebbel's propaganda tactic. If the lie is repeated often enough, it will soon be true.

Seriously these guys are playing very dirty pool.

[liane]

Dec 10, 2015 10:10:36 GMT -5 mssciguy said:

the title of this post is FUD itself. We were suckered into repeating the lies.

A Goebbel's propaganda tactic. If the lie is repeated often enough, it will soon be true.

Seriously these guys are playing very dirty pool.

Fixed the title to a more neutral stance.

[Deleted]

Dec 10, 2015 9:56:21 GMT -5 compound26 said:

Dec 10, 2015 9:48:52 GMT -5 trenddiver said:

Pretty realistic assessment of MNKD situation by Motley Fool contributor.

Pretty realistic assessment? How about their No. 1 claim?

1. Afrezza sales are tanking

Afrezza's sales are NOT tanking.  That is a ridiculous claim and distortion of facts.  By any means the scripts (the sales) are growing, even though not at a fast pace as we would want.

Yes, the Mannkind quarterly shipments to Sanofi did not increase, but quarterly shipments are not sales of Afrezza.  Mannkind's shipments to Sanofi are decided and influenced by a lot of things and sampling, inventory, and channel filling are a big percentage of the shipments in the initial quarters. Shipments are not sales.  And Afrezza sales are NOT tanking. Afrezza sales are growing, month by month, as based on Symphony and IMS.

Has there been any sucessful drugs that took just as slow a path as afrezza that ended up going HAM?

.

[compound26]

Dec 10, 2015 16:16:35 GMT -5 @reverselo said:

Dec 10, 2015 9:56:21 GMT -5 compound26 said:

Pretty realistic assessment? How about their No. 1 claim?

1. Afrezza sales are tanking

Afrezza's sales are NOT tanking.  That is a ridiculous claim and distortion of facts.  By any means the scripts (the sales) are growing, even though not at a fast pace as we would want.

Yes, the Mannkind quarterly shipments to Sanofi did not increase, but quarterly shipments are not sales of Afrezza.  Mannkind's shipments to Sanofi are decided and influenced by a lot of things and sampling, inventory, and channel filling are a big percentage of the shipments in the initial quarters. Shipments are not sales.  And Afrezza sales are NOT tanking. Afrezza sales are growing, month by month, as based on Symphony and IMS.

Has there been any sucessful drugs that took just as slow a path as afrezza that ended up going HAM?

Yes, look nowhere other than insulin pump, an elder "child" of Al Mann.

Pursuant to this article (published in 1995), “MiniMed, which has been selling the insulin pump since 1985, has long had trouble making money, in part due to large amounts spent on research into new systems of diabetes treatment. Yet, we also know that MiniMed was successfully sold to Medtronic in 2001.

Let’s take at a look at what kind of problem MiniMed faced.

Quoting the article, “it's hard to conceive of a more difficult product to develop and market: The pumps must be virtually flawless because their users' health depends on their reliability. But their sales are complicated by their cost--about $4,000 per pump--doctors' skepticism, and the reluctance of diabetics themselves to change their lifestyles.”

“Granted, MiniMed's annual sales have almost tripled to $36.3 million in 1994 from $12.5 million in 1990, but in 1994, MiniMed lost $900,000, compared to a loss of $1.6 million in 1993. However, in the second quarter ending June 30 of this year, the company reported a profit of $101,000.”

So for Minimed, they started to sell insulin pump in 1985 and in 1990 (five years after launch), their annual sales were still at $12.5 million. Yet, we know that, in the end, Al succeeded in turning insulin pump into a viable option for diabetics.

[dreamboatcruise]

Interesting. Maybe this is the sign of a bottom. The Motley Fool is really digging deep into the territory of bold face lies when they are portraying Afrezza sales as tanking based on the fact that inventory build in the channel obviously occurs early and then trails off. I guess they take that "Fool" thing pretty serious, assuming that their readership are idiots.

FUD based on uncertainties of the future is one thing because the bad eventualities are possible if not probable, but when the share price is pushed down by bold face lies about current facts... even I might consider buying a few more shares.

[compound26]

Will Anyone Catch MannKind's Hail Mary?

Potential news of a new partnership might send shares of MannKind temporarily higher, but don't expect it to be enough to turn the drugmaker's fortunes around.

www.fool.com/investing/general/2015/12/13/will-anyone-catch-mannkinds-hail-mary.aspx


Given the struggles that MannKind (NASDAQ:MNKD) has faced since launching Afrezza, its inhaled insulin diabetes treatment, the company's management team has begun to (somewhat desperately) refocus its attention on finding new product candidates that may be able to utilize its Technosphere technology.

On MannKind's early November earnings call, Hakan Edstrom (who stepped down as CEO later that month) made it clear that the company is actively seeking a partner. He also let investors know it could be on the verge of making an announcement, stating:

[W]e've had discussions with potential partners, however, there [are] still negotiations to be had. So I would say, I would hope that we could possibly announce something before the end of the year or within the next quarter.

If MannKind does announce a new partnership deal soon, that should help to distract investors' attention away from the trouble that it has had with Afrezza -- a drug which it partnered with French pharma giant Sanofi (NYSE:SNY) to bring to market.

Hunting for a[nother] partner

MannKind is making a serious effort to get its new program started and recently hired a new chief medical officer to begin the initial development. Management has indicated that it is already moving ahead with the formulation work on a compound that could be used to treat pulmonary hypertension. Beyond that, the company has another dozen or so projects that may hold commercial potential, and it's actively looking for more.

Edstrom went so far as to devote time on the conference call to market the idea, saying:

[T]o the participants listening to this call who have an interest in sharing the risk and the rewards of our product development effort, or who have a formulation or dry delivery challenge that our technology may address, I would say this: Let's talk.

But is it too little, too late?

While the announcement of a deal would likely gives shares a short-term pop, it would be quite a long shot to bet that such a deal would be able to right the ship. Edstrom confirmed that all of MannKind's potential drugs are still firmly in the pre-clinical stage, stating:

I would say they are certainly months away from going into a clinic. I mean, they are in the formulation stage right now, particularly on the pulmonary hypertension.

Pre-clinical drug testing requires a lot of time, comes with a huge failure rate, and, even if all goes perfectly, costs a lot of money. MannKind is in short supply of both time and money right now, which means it would need to ask any potential partner to bear a significant portion of the development costs. It's likely that MannKind would also ask for an up-front payment to get any program rolling, given that its cash position is so tight right now that that it has been forced to lay off staff.

When it gets down to it, that simply might be asking for too much. After all, any potential partner would have to be willing to overlook what a loser Afrezza has been for Sanofi. Sanofi threw a lot of resources into the treatment's debut to try to make it a success, and was even willing to finance MannKind's portion of the up-front losses related to the launch. If Sanofi had it all to do over, you can bet it would structure the deal differently.

Cash is getting tight

MannKind's finances continue to look bleak. Its cash position stood at $32.9 million as of September, down substantially from the $107.2 million it had on its books a year earlier. The company currently owes Sanofi more than $43 million related to losses from the Afrezza launch, and that number is bound to keep growing in the coming quarters.

Tapping the equity markets for cash isn't a great option either. U.S. investors are so unhappy with the company's performance that its management team recently chose to raise capital by listing its shares on Israeli exchanges.

After all, would you be willing to put money to work in a company with this 10-year track record?

This hail mary isn't likely to succeed

Given its spotty history, dwindling financial position and recent CEO departure, I have a hard time seeing any potential partner being willing to answer MannKind's calls for help. It could be game over for this once promising growth story.

A secret billion-dollar stock opportunity

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Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

[karl]

The Motley Fools are being proactive and pre-emptive, just like when they started saying that the only reason SNY may not pull the plug this January is to not forfeit the interest on the loaned money. They do not want to lose the argument.

[ezrasfund]

Dec 10, 2015 16:29:28 GMT -5 compound26 said:

Dec 10, 2015 16:16:35 GMT -5 @reverselo said:

Has there been any sucessful drugs that took just as slow a path as afrezza that ended up going HAM?

Yes, look nowhere other than insulin pump, an elder "child" of Al Mann.

Pursuant to this article (published in 1995), “MiniMed, which has been selling the insulin pump since 1985, has long had trouble making money, in part due to large amounts spent on research into new systems of diabetes treatment. Yet, we also know that MiniMed was successfully sold to Medtronic in 2001.

Let’s take at a look at what kind of problem MiniMed faced.

Quoting the article, “it's hard to conceive of a more difficult product to develop and market: The pumps must be virtually flawless because their users' health depends on their reliability. But their sales are complicated by their cost--about $4,000 per pump--doctors' skepticism, and the reluctance of diabetics themselves to change their lifestyles.”

“Granted, MiniMed's annual sales have almost tripled to $36.3 million in 1994 from $12.5 million in 1990, but in 1994, MiniMed lost $900,000, compared to a loss of $1.6 million in 1993. However, in the second quarter ending June 30 of this year, the company reported a profit of $101,000.”

So for Minimed, they started to sell insulin pump in 1985 and in 1990 (five years after launch), their annual sales were still at $12.5 million. Yet, we know that, in the end, Al succeeded in turning insulin pump into a viable option for diabetics.

Minimed lost $1.6 million in all of 1993. If MNKD was forecast to lose even $10 million this year everything would be OK. But MNKD is burning through over $100 million a year at this rate, and that is the crux of the problem.

[Deleted]

Dec 13, 2015 20:42:23 GMT -5 ezrasfund said:

Dec 10, 2015 16:29:28 GMT -5 compound26 said:

Yes, look nowhere other than insulin pump, an elder "child" of Al Mann.

Pursuant to this article (published in 1995), “MiniMed, which has been selling the insulin pump since 1985, has long had trouble making money, in part due to large amounts spent on research into new systems of diabetes treatment. Yet, we also know that MiniMed was successfully sold to Medtronic in 2001.

Let’s take at a look at what kind of problem MiniMed faced.

Quoting the article, “it's hard to conceive of a more difficult product to develop and market: The pumps must be virtually flawless because their users' health depends on their reliability. But their sales are complicated by their cost--about $4,000 per pump--doctors' skepticism, and the reluctance of diabetics themselves to change their lifestyles.”

“Granted, MiniMed's annual sales have almost tripled to $36.3 million in 1994 from $12.5 million in 1990, but in 1994, MiniMed lost $900,000, compared to a loss of $1.6 million in 1993. However, in the second quarter ending June 30 of this year, the company reported a profit of $101,000.”

So for Minimed, they started to sell insulin pump in 1985 and in 1990 (five years after launch), their annual sales were still at $12.5 million. Yet, we know that, in the end, Al succeeded in turning insulin pump into a viable option for diabetics.

Minimed lost $1.6 million in all of 1993. If MNKD was forecast to lose even $10 million this year everything would be OK. But MNKD is burning through over $100 million a year at this rate, and that is the crux of the problem.

was minimed only product was the pump? and that 1.6 mil relates to only pump or was offset by other products?

[Deleted]

Dec 10, 2015 16:29:28 GMT -5 compound26 said:

Dec 10, 2015 16:16:35 GMT -5 @reverselo said:

Has there been any sucessful drugs that took just as slow a path as afrezza that ended up going HAM?

Yes, look nowhere other than insulin pump, an elder "child" of Al Mann.

Pursuant to this article (published in 1995), “MiniMed, which has been selling the insulin pump since 1985, has long had trouble making money, in part due to large amounts spent on research into new systems of diabetes treatment. Yet, we also know that MiniMed was successfully sold to Medtronic in 2001.

Let’s take at a look at what kind of problem MiniMed faced.

Quoting the article, “it's hard to conceive of a more difficult product to develop and market: The pumps must be virtually flawless because their users' health depends on their reliability. But their sales are complicated by their cost--about $4,000 per pump--doctors' skepticism, and the reluctance of diabetics themselves to change their lifestyles.”

“Granted, MiniMed's annual sales have almost tripled to $36.3 million in 1994 from $12.5 million in 1990, but in 1994, MiniMed lost $900,000, compared to a loss of $1.6 million in 1993. However, in the second quarter ending June 30 of this year, the company reported a profit of $101,000.”

So for Minimed, they started to sell insulin pump in 1985 and in 1990 (five years after launch), their annual sales were still at $12.5 million. Yet, we know that, in the end, Al succeeded in turning insulin pump into a viable option for diabetics.

Actually I know this is fact bc my friend could not get the pump as fast as he wanted it when it first came out.