Red Acre: MNKD 8/18

[Chris]

Mannkind (NASDAQ:MNKD)
On Wednesday Mannkind held their quarterly conference call and presented positive top-line results for the two recently completed phase 3 trials of Afrezza, the company's inhaled insulin product. When the 3 press releases were issued in the pre-market, MNKD briefly jumped as high as $9.30 per share before trading down to eventually close the day at $7.59. MNKD closed the week at $5.77, drop of 23% from it's price just a week ago and 30% below the price when we issued our Red Acre Insight recommending booking gains on MNKD back on August 5th. Our readers properly picked the trading action with 51% of poll respondents sayng MNKD would pop to around $10 before selling off.

Key highlights from the Type 1 trial include

The Gen2 arm of the trial was non-inferior to Insulin Aspart in terms of change in HbA1c over the treatment period (-0.21 % vs -0.4%).
Afrezza patients had fewer hypos than Aspart users (9.8 per subject-month vs 13.97 per subject-month)
Afrezza patients lost weight while Aspart patients gained weight
Fewer patients in the Afrezza arm achieved treatment goals of HbA1c < 7% or 6.5% compared to Aspart, this difference was statistically significant
Pulmonary changes between the Gen2 inhaler arm and the MedTone inhaler arm were comparable with no significant differences
30.5% of patients using the Gen2 inhaler and 20.8% of MedTone inhaler patients experienced coughing when using Afrezza leading to discontinuation rates of 5.7% and 2.9%
MNKD did not report the HbA1c results for the MedTone inhaler arm of the trial. While MNKD claims that the primary endpoint of the trial is simply proving the Gen2 inhaler arm of the trial to be non-inferior to Aspart, the primary endpoint from the clinicaltrials.gov description for the trial says:

Effect of treatment as measured by change in glycated hemoglobin (HbA1c): Comparison of baseline HbA1c to end of treatment HbA1c after 24 weeks

There is no mention of the gen2 inhaler in this primary outcome. In other words, FDA will be looking at the MedTone arm data as well. The omission from the press release could be because the data is too fresh and the analysis hasn't been done, OR it could be because the data are not as good as the Gen2 Arm. Until the MedTone arm data are released, this is a potential overhang. While the proportion of patients achieving HbA1c below 7% or 6.5% is not a pre-specified outcome measure of the trial, it is an important statistic for marketability. In this case, it works against Afrezza to the extent that doctors weigh achieving treatment target over the incidences of hypoglycemic events.

One point regarding coughing which was not addressed in the press release and conference call. The difference between the Gen 2 arm and the MedTone arm in incidence of coughing was statistically significant (p=0.0367) (using chi-squared test). The discontinuation rates due to coughing between the arms was not statistically significant. While this is not a trial endpoint, since part of the purpose of this trial was to bridge the pulmonary safety data between the MedTone inhaler and the Gen 2 inhaler, this type of difference will certainly be looked over by the FDA.

Key Highlights for the Type 2 trial include

Afrezza showed a 0.4% average HbA1c benefit compared to placebo and this results was statistically significant
Significantly more patients reached HbA1c targets of < 7.0% or <6.5% for Afrezza compared to placebo
Patients in the Afrezza arm gained an average of 0.49kg while placebo arm patients lost on average 1.13 kg
Afrezza arm patients had more hypoglycemic events than placebo arm patients
There were 2 cardiovascular adverse events in the Afrezza group and 3 in the placebo group
The weight gain with Afrezza is typical of patients on insulin, snacking to avoid hypos leads to weight gain when using insulin. Originally Mannkind was hoping to demonstrate a 0.5% HbA1c benefit and in certain investor presentations management had suggested that a 1% benefit over placebo could be seen.

The results from both trials, overall, make Afrezza approvable (provided the MedTone arm has no undisclosed surprises). Nevertheless, MNKD traded down heavily after the data came out. The sell-the-news effect for MNKD has largely to do with the company's precarious balance sheet as we outlined ahead of the data. On Friday MNKD issued a press release indicating that the company had qualified for the second $40 million tranche of the $160 million Deerfield debt facility. While this buys 4 months of runway, it also adds to the company's outstanding debt.

MNKD indicated during their conference call that they have engaged Greenhill & Company to advise the company in a formal partnering process for Afrezza. Whether or not MNKD can land a partner who will make the commercial investment necessary to cause a paradigm shift in diabetes treatment remains to be seen. If the Type 2 HbA1c advantage over placebo was much greater (in the 1% to 1.5% range) we would be much more bullish on MNKD's prospects. The data from these trials just do not seem, in our view, compelling enough to attract a partnership on great terms.

We believe MNKD may find long-term support at the $5 to $5.50 level. The 200-day exponential moving average is currently $4.93. We sold the last of our MNKD position in the pre-market on Wednesday when the stock was trading in the $8.80 - $8.75 range therefore we have no position in MNKD.


www.onenewspage.us/n/Business/74vzemy0n/Red-Acre-Investments-Week-Ending-August-16.htm

[jpg]

Hopefully Mannkind will be able to find a partner who understands HbA1c reduction and intensity of reduction of HbA1c is but one piece of the puzzle.

Red Acre's logic is black and white looking at a small data set from a limited amouns of trials. One number sadly seems to be the only data of importance.to them. Physicians prescribe medication in an 'anthroplogically interesting' way that can't be easily captured by simply looking at HbA1c. If it was all about the HbA1c and nothing else many many more diabetics would be on sc insulin a few times a day or at least daily. Cearly that is not happening for many reasons which could be overcome by Afrezza if afrezza is explained wiselly. Hopefully Mannkind knows this is where they need to push BP buttons to show Afrezza will be a blockbuster. In my opinion as a physician with in interest in medical anthropology and patterns of medical practice this is the essence of what Mannkind needs to explain to get a good partner on good terms.

Physicians prescribe drugs in predictable fashion. Afrezza will or would become popular with prescribers because it does away with so many of the things which make starting patients on insulin so difficult.

-No lengthy injection lecture to give patiemts. Yes diabetics clinics help deal with this issue but telling patients they have to inject is not pain free... I have rarely seen a paint freak out over an inhaler. Countess needle phobes. Tell them it really doesn't hurt, the needle is really small etc. They hate it. They get used to needles but few like them... I will just mention calory counts: how many patients really do this? Or do this consistently well? And check their sugars well and often when they should?

-simple and safe dosing instructions. The safer part cannot be forgotten as a second selling point. Anyone who starts a patient on insulin especially worries about those first doses and 'will the patient get it?'. Will it work out safely? Who will be called if it doesn't? I could go on with the worries but my point is simply that Afrezzza will make the prescriber a lot less nervous then with fast acting sc insulin and it's never ending tail.

Not that I am some marketing expert but Afrezza could be explained as 'insulin with training wheels' that, like when riding a bike help you avoid the falls (severe hypos) and gets you biking faster with less fear. In the case of Afrezza I suspect most patients wouldn't ever want to give up on the trsining wheels...

All this to say that Red Acres was right on short term price movements (which they helped set with their timing of releases) and may be right on short term price (who knows...) but I am pretty certain they have little understanding of what will set Afrezza apart and make it a medical and commercial success. Again hopefully 'smart BP' and Mannkind will see this.

JPG

[liane]

jpg,

So glad to have you over here on the board!!! I too am a physician - though not in primary care - so I've not had to manage insulin therapy (except back in my intern days, but that's another story). I agree with everything you say as to safety, efficacy, and ease of use. Afrezza will revolutionize diabetes care. Diabetes care and insulin therapy are complicated topics to the general public. WS will exploit this to create FUD for as long as possible. Red Acre and others will look for any nuance in the data to further their agenda. You'll notice Red Acre states they sold in the pre-market during the pop last Wednesday. My bet is they buy back in at a huge discount and then promote the heck out of MNKD.

liane

[vdhingra]

Thanks for those post Chris and JPG. A question that has been troubling me (and was touched upon above): what to make of -0.21% reduction vs. baseline; (ignoring the insulin aspart comparison) doesn't that mean that in-itself Afrezza has no AIC advantage ? I'm a finance guy, so bare with me if question sounds naive. I'm also hoping that Mgmt comes out and lays to rests any Medtone related doubts on trial results (that is an overhang).

[opc]

vd, check out the Trial results thread. Should answer your questions.

[Chris]

Sorry I couldn't provide a link, I received this via email and this article hasn't been publicly published yet (I'll provide a link as soon as it becomes available). But if you're really interested in it, send me a PM and I'll forward you the email.

[jpg]

Hi ,

Like OPC said there is an expensive breakdown of trial results in another tread.

My take on the 0.21 vs 0.4% thing is first of all who was studied?
This trial wasn't as if we were looking at insulin naive patients. And this is essential to keep in mind. They were already taking something. Why would they improve in the rapid acting group by 0.4%? That was the sophisticated protocols and monitoring/ titration by experts.

Using sophisticated and powerful insulins patients were managing by experts and state of the art protocols with either basal and 'fast acting but relatively long tailed insulin' or basal and 'ultrafast acting (Afrezza) and short tailed insulin' and using HbA1c as a measuring tool. Who got the most overall insulin (active insulin units/ hour if you will)? I'm pretty certain the no Afrezza group got more overall insulin hour and therefore had more side effects (weight gains and severe hypos). HbA1c is an overly simplistic measure of diabetic management. It is like saying someone going from Vancouver to Seattle drove at an average of 50 km per hour failing to mention the 160 km per hour done for part of the trip and the 1 hour wait at the border crossing.

As for your Medtone question: it isn't needed for approval except for safety bridging obviously. I think there is a bit more insulin in the Medtone and they originally calculated a 30% reduction I think? Maybe that was to much and the medicine did a bit better on HbA1c? They have started a 30 unit Dreamboat study which might be based on the fact more patients then they thought needed to use a 10 and a 20? Again this is all pure speculation on my part and is irrelevant in my opinion (except when trying to speed fear like certain Research' outfits did Friday.

Hopes this helps,


JPG