Memorandum

MannKind 4Q13 – Prepping for April 1 FDA advisory committee; no partnership update; Afrezza to launch with two doses – February 19, 2014

Executive Highlights

  • MannKind is preparing for the April 1 FDA advisory committee meeting for Afrezza. There is no indication from the FDA that the April 15 PDUFA date will be pushed back.
  • Partnership discussions are ongoing and management is “pleased” with the progress. MannKind believes a ~1,000 rep sales force (!) will be required to cover the market.
  • Afrezza will launch with two cartridge doses: an equivalent to three-units of a rapid-acting analog and an equivalent to six units. Nine and 12-unit dose equivalents will be filed following FDA approval.

This afternoon, MannKind reported 4Q13 financial results in a call led by CEO Mr. Al Mann. Though management shared some additional granularity on several topics, there was no significant news on the company’s two big near-term milestones: the FDA’s review of Afrezza (including the April 1 advisory committee and April 15 PDUFA date) and the status of ongoing partnership discussions (see our review of potential partners in the appendix). However, we did appreciate more detail on the launch of Afrezza, especially discussion of the product’s dosing. In addition, management shared some very high-level qualitative research findings from PCP and endocrinologist interviews – results were fairly positive, especially for use of Afrezza in early stage type 2 diabetes. Management believes the data project a “multi-billion” market opportunity for Afrezza in the US. On the finance front, things are in fine shape for the time being – MannKind has adequate resources to fund operations until at least 3Q14.

See our summary of the call’s top five highlights below.

Top Five Highlights

1. Management expressed confidence with the ongoing FDA review of Afrezza – the process leading up to the April 1 (tentative) FDA advisory committee and April 15 PDUFA date is unfolding “as anticipated.” Management has had the “usual Q&A” with the FDA and has responded to all submission-related requests in a timely fashion. At this time, “there is no indication” that the April 15 PDUFA date will be pushed back. However, we would not be at all surprised if it is, simply because of the first-in-class nature of this product, the potential for advisory committee discussions to float in many different directions, and the sheer size of the filing (700,000 pages). Prep for the advisory committee is “well underway,” though MannKind does not have a sense of what the questions will be until the briefing documents are released. The company is “looking forward” to the advisory committee, as it represents an opportunity to discuss Afrezza’s safety and efficacy in a public forum.

  • CEO Mr. Al Mann commented that the FDA advisory committee was called for two reasons. First, the FDA’s leadership changed, and the previous team had not indicated a need for an advisory committee. We aren’t sure who at FDA would have previously said an FDA advisory commmitee was not necessary. Second, Mr. Mann stated that FDA guidance requires that “first-in-class” products should be put to an advisory committee. We have thought this to be true for some time, though this was the first time that management publicly acknowledged this fact. In this particular case, MannKind is asking the FDA to approve the “very first ultra fast insulin” (Afrezza peaks in 12-15 minutes and is “almost gone” in 2.5-3 hours). The newly-shared second reason provoked the ire of an investor in Q&A, as management never mentioned the “first-in-class” reasoning in prior comments. Apparently, this point was not a focus of past agency discussions, and thus, management did not anticipate an advisory committee would be called for this reason. This again reminds us how truly variable conversations with the FDA are … we cannot imagine that the FDA would have been prepared to approve Afrezza without an advisory committee.
  • Following the tentatively scheduled April 1 advisory committee (which has not been officially confirmed) and the 1Q14 financial update in April, the “next major occasion” to talk about Afrezza will come at ADA 2014 in June, the company said. Notably, MannKind will share full data from the recently completed phase 3 studies of Afrezza. Though “some investors wanted earlier disclosure” of the full data set, MannKind management said the company was waiting to publish detailed results to respect the editorial policies of ADA and scientific journals. It will be interesting to see what additional information is disclosed there.

2. Despite repeated investor attempts in Q&A, management was tight-lipped about partnership discussions – talks are currently ongoing, “many opportunities are being explored,” and management is “pleased with the progress.” This is similar to what management has previously said. Investment bank Greenhill & Co has been coordinating the process. As it has previously stated, MannKind will not announce anything until there is something definitive to disclose. In Q&A, management shared its view that an ~1,000-rep sales force would be needed to adequately cover the entire market. See some very brief thoughts in the Appendix on potential big pharma partners – Lilly, Merck, and Sanofi all strike us as potential options, among others.

  • Mr. Mann spent several minutes of prepared remarks discussing the company’s intellectual property position – Afrezza has patent protection in the US until 2030-2031, meaning approval this year would give MannKind (and a future partner) an impressive 15+ years of market exclusivity. The company has filed over 550 patents around the world, and another 470 are pending. The patents are incredibly wide-ranging, covering everything from the carrier particle to the manufacturing to the inhaler to methods-of-treatment. Certainly, the very strong IP position is a huge asset as MannKind enters partnership discussions.

3. Under the current NDA, Afrezza will launch with two cartridge doses: one is equivalent to three-units of a rapid-acting analog, and the other is equivalent to six units. MannKind will file a supplemental NDA post-approval for a nine-unit equivalent cartridge (the study is already completed), to be followed by another supplemental NDA for a 12-unit equivalent cartridge. The company’s ultimate objective is for patients to use a single cartridge to cover their meals. Management believes that by using a max of 1-3 cartridges at a meal, the three- and six-unit cartridges will cover 80% of patients’ needs (i.e., 3-18 units of insulin). The company has another manufacturing process that takes Afrezza “up to very high dose levels,” but that is not ready for submission yet. MannKind has previously shown dose linearity, so cartridges can be mixed and matched as needed in whatever combination might be required to get to the proper dose for any given patient. On the pricing front, insurers pay for insulin based on the number of units, though end users pay the same amount regardless of dose.

  • These are the first details we can recall hearing on dosing, and it sparks a couple questions: 1) What fraction of type 1 patients will be able to use Afrezza, given the limited initial availability in three- and six-unit cartridges? 2) How simple will Afrezza be for PCPs? Could it make mealtime insulin “easy?” (i.e., like Sanofi’s Lantus did for basal insulin?) In line with prior comments, the hope is to launch Afrezza within six months of approval, and management expects to price at parity to insulin pens (an ~20% premium to insulin in vials).

4. CEO Mr. Al Mann shared very high-level results from a recent series of qualitative interviews with PCPs and endocrinologists. The research focused on the likely patient candidates for Afrezza, was conducted with a “highly regarded market research company,” and consisted of in-depth interviews at different locations around the country. Afrezza was not identified by name and was called an “inhaled ultra rapid-acting insulin.” Mr. Mann emphasized that the case presented to interviews was “very conservative” – Afrezza was positioned as non-inferior on A1c to today’s best rapid-acting analog, but with inhaled delivery (a small inhaler), less hypoglycemia, and less weight gain. “One of the more interesting findings,” according to Mr. Mann, was that many PCPs claimed they would use Afrezza as a second-line therapy in type 2 diabetes in patients with an A1c >9%. In addition, “most PCPs” expected to use Afrezza instead of a third oral drug in type 2 diabetes. Interestingly, endocrinologists took a “more conservative” for their early stage type 2 diabetes patients (not quantified); however, “some” saw using Afrezza in those newly starting on insulin and as a “clear replacement” for current rapid-acting analog users. Notably, “all PCPs” expected their use of current rapid-acting analogs would “decline significantly” in favor of using Afrezza. Based on this qualitative research and that shared in the 3Q13 call, management believes Afrezza has a “multi-billion dollar” sales projection in the US (in non-smoking adult patients without any pulmonary deficiencies). Mr. Mann did not share any further details from this new research, including specific numbers, sample size, question phrasing, etc.

5. Management believes current finances will fund operations until at least 3Q14, which should ideally take MannKind through approval; management said “and a partnership” and we think that could be possible or not – given the time that partnerships take. The big risk, of course, is if the FDA delays the PDUFA date to late 2014. Cash and cash equivalents at the end of 2013 totaled $70.8 million, down from $94 million as of September 30. MannKind has an additional $30.1 million in available borrowings under the amended loan arrangement with The Mann Group. Cash burn was $39 million in 4Q13, a number that will “potentially accelerate” as MannKind prepares for commercialization of Afrezza. In a plus for MannKind, Deerfield fully exercised its option to convert $40 million of debt into common shares of stock. As a result, the principal outstanding under that loan arrangement has now been reduced from $120 million down to $80 million; no further conversions are allowed under the agreement. This move is a big positive for MannKind and likely serves as a vote of confidence in the company’s prospects.

Appendix – Potential Partners

The table below offers our early speculation on potential partners – we underscore it is purely speculative on our part and we’ll be returning with expanded thoughts. 

Potential Partner

Motivating Factors

Demotivating Factors

AstraZeneca

-Expanding existing diabetes portfolio beyond incretins and compounds in early stage pipeline

-Gives opportunity for combining insulin and GLP-1 (albeit in a different form)

 

-No experience marketing insulin

-Busy following BMS acquisition, working on fixed dose combinations, new marketing of incretins

J&J

-Afrezza could be a logical addition in the type 2 diabetes treatment algorithm following Invokana, or to be used with Invokana and keeping patients from failing orals

-J&J would have a compound to pursue with its artificial pancreas work on the medical device side (Afrezza could be used as a “chaser” at mealtimes)

-No experience marketing insulin

-Occupied with market building for Invokana

Lilly

-Deep experience with insulin

-No near-term ultra-rapid-acting insulin in pipeline

-Hands full with two basal insulins, dulaglutide, and empagliflozin

Merck

-Januvia’s patent expiration/sales slowdown

-Experience with first-in-class commercialization (Januvia)

-Recent partnership with Samsung Bioepis and 2010 acquisition of Smart Cells signals commitment to insulin

-No experience marketing insulin yet (Samsung Bioepis timing unclear)

Novartis

-Strategic complement to Galvus franchise

-No US presence

Novo Nordisk

-Deep experience with insulin

-Comfort with exploring alternative delivery technologies (e.g., oral)

-Ultra-rapid-acting insulin aspart is currently in phase 3 (though Afrezza could be a complement)

-Does not typically partner

Pfizer

-Deal with Merck (ertugliflozin) shows willingness to partner

-Learnings from work with Exubera 

-Appears interested in expanding diabetes

-Costs of Exubera may render Pfizer more skeptical of inhaled insulin arena

Roche

-Following failure of aleglitazar, no late stage novel diabetes drugs

-Roche would have a compound to pursue with its artificial pancreas work on the medical device side (Afrezza could be used as a “chaser” at mealtimes)

-No experience commercializing insulin

Sanofi

-Deep experience with insulin

-No late-stage ultra-rapid-acting insulin

-Sanofi would have a compound to pursue with its artificial pancreas work on the medical device side (Afrezza could be used as a “chaser” at mealtimes)

-Focus on U300 glargine, Lyxumia, and LixiLan

Takeda

-Following failure of TAK-875, no late stage novel diabetes drugs

-Complement to Nesina franchise

-May be interested in marketing to obese patients who “should” be on insulin but avoid it due to traditional weight gain, etc.

-Will soon be occupied with commercializing Orexigen’s Contrave

-No experience commercializing insulin

 

 

--by Adam Brown and Kelly Close