MannKind (NASDAQ: MNKD) was founded in 2001 with a simple mission: to make treating chronic and acute diseases easier. The company's big idea was to develop technology that enabled drugs to be inhaled through the lungs instead of needing to be injected through the skin.
MannKind decided to focus its limited resources on the diabetes market since its founder -- a billionaire entrepreneur named Alfred Mann -- was well versed in the disease space. Mann believed that diabetes care could be revolutionized if insulin injections could be made obsolete. Since hundreds of millions of people worldwide have diabetes, many investors bought into his vision and believed that the business held sky-high growth potential.
Unfortunately, things haven't exactly worked out the way that the company had initially planned. A series of stumbles have taken their toll on its stock and long-term investors have seen the majority of their investment go up in smoke. Even today, the company remains in a precarious financial position.
But is MannKind's future finally starting to look up? Let's take a look back at this company's history to see if we can figure out an answer.
While MannKind's origins technically trace back to the early 1990s, the publicly traded company that exists today was formed in 2001 when three clinical-stage businesses -- Pharmaceutical Discovery Corp., AlleCure, and CTL -- were all merged together by Alfred Mann. Since Mann was a highly successful entrepreneur and a driving force behind the merger, the newly created company adopted his name.
MannKind quickly got to work on developing the technology that would enable a drug to be inhaled instead of injected. The company succeeded and dubbed its newly created drug development platform "Technosphere." This technology enables small molecule, peptide, or protein drugs to be turned into a dry powder formulation that can be inhaled and easily absorbed into the body through the lungs.
A focus on diabetes
During his career, Mann founded and funded 14 different companies. One of his most profitable exits came after he sold an insulin pump business called MiniMed to Medtronic in 2001 for $3.7 billion.
Mann's success with Minimed probably played a big role in his decision to focus MannKind's time and attention on the diabetes market. The sheer numbers also suggest that his instincts were right; the Centers for Diseases Control and Prevention estimates that roughly 30 million Americans have diabetes. That number jumps to more than 400 million when you include the rest of the world. A study published in The Lancet in 2016 showed that the global cost of diabetes exceeds $825 billion per year, so the market is enourmous.
But what is diabetes? At its core, diabetes is caused when a person loses the ability to properly regulate their blood glucose levels. This can happen when the pancreas doesn't produce any insulin at all (type 1 diabetes) or when they develop a resistance to the insulin that is produced naturally (type 2 diabetes).
Untreated diabetes can cause a range of short- and long-term health problems. In the short term, improper blood glucose levels in the body can lead to blurred vision, fatigue, irritability, frequent urination, extreme hunger, and in some cases death. Over the long term, untreated diabetes can greatly increase the risk of developing cardiovascular disease, eye disease, kidney disease, intestinal disease, and more. Thankfully, with proper care, many people with diabetes can prevent or delay the onset of complications.
One of the primary ways to treat diabetes is by injection of artificial insulin into the body every single day. Historically, this was accomplished with a needle and syringe or a pen.
As you can imagine, this isn't a popular solution for many patients. That's why MannKind believed that if insulin could be made inhalable, it would be welcomed by the diabetes community with open arms.
Inhaled insulin's troubled past
On the surface, inhaled insulin sounds like a no-brainer idea. However, history suggested that the company was going to have an uphill battle should it succeed in bringing a drug to market.
In 2006, pharma giant Pfizer (NYSE: PFE) introduced the world's first inhaled insulin. Called Exubera, Pfizer believed that this drug held blockbuster potential and spent lavishly to promote it.
Unfortunately, Exubera went on to become one of the biggest commercial flops in pharmaceutical history. The device was too bulky to be used on a regular basis and the dosing schedule was complicated. Safety concerns were also raised because patients who used Exubera experienced a measurable decline in lung functionality. Pfizer ended up admitting defeat after Exubera had been on the market for less than two years and booked a multibillion loss.
Other pharma giants decided to follow Pfizer's lead. Both Novo Nordisk (NYSE: NVO) and Eli Lilly and Co. (NYSE: LLY) decided to abandon development on inhaled insulin products of their own in part because of the Exubera debacle. Their rationale was that inhaled insulin was simply not a commercially viable product.
In spite of the warning signs, MannKind decided to press on with development nonetheless. While the risks were high, it could have had an extremely lucrative market all to itself if it succeeded.
The long path to regulatory success
After more than a decade of work, MannKind submitted Afrezza for regulatory review in March 2009. Unfortunately, the company received a Complete Response letter in May 2010 that said the product could not be approved in its current form. The agency requested additional information from the company before it could be resubmitted.
MannKind responded to the Food and Drug Administration's requests and sent Afrezza back in for review in July 2010. That attempt was greeted with another Complete Response Letter in January 2011. The agency wanted MannKind to conduct two additional clinical trials and submit new information before they could give the drug the thumbs-up.
MannKind proceeded to run the necessary clinical trials and resubmitted Afrezza for review in October 2013. The third time proved to be the charm as MannKind officially received FDA approval for a rapid-acting inhaled insulin in July 2014. However, the FDA also required MannKind to include a Boxed Warning on the product that Afrezza should not be used in patients with chronic lung disease. Nonetheless, the company finally had the green light to market Afrezza and immediately started to formulate a plan to bring it to market.
Since it was very expensive to develop Afrezza and bring it through the regulatory review process, management decided that it made sense to strike up a partnership agreement to properly commercialize the drug. MannKind felt that it would be an attractive partner because Afrezza boasted numerous advantages over legacy insulin treatments:
- Afrezza eliminates the need for patients with diabetes to take mealtime injections.
- Afrezza is absorbed quickly, which makes it easier for patients to control meal-time spikes in blood sugar levels.
- Afrezza leaves the body in as little as 90 minutes, which makes it easier for patients to time their insulin therapy needs.
These advantages wound up catching the eye of French pharma giant Sanofi (NYSE: SNY). On the surface, this looked like a match made in heaven because Sanofi was a big player in the diabetes market thanks to the runaway success of its long-acting insulin Lantus.
The two companies struck up a lucrative partnership agreement soon after Afrezza won FDA approval. Sanofi also agreed to pay MannKind $150 million up front for a worldwide exclusive licensing agreement. MannKind could have also received up to $775 million in additional payments if certain milestone targets were achieved and bank 35% of total profits.
The deal called for Sanofi to be responsible for all commercial, regulatory, and development activities while MannKind would assume responsibility for manufacturing the product. The two companies also planned to collaborate on ramping up additional manufacturing capacity in case demand exceeded supply.
A challenging launch
With Sanofi on board and a different product on the market, expectations for Afrezza were running high. Peak sales estimates after approval and the Sanofi partnership ran as high as $6.8 billion. Unfortunately, that's when the wheels started to fall off the bus.
Sanofi struggled mightily out of the gate to convince patients and providers to give Afrezza a try. During its first few quarters on the market, Sanofi was only able to sell a total of $5.5 million worth of product. That's a pittance when compared to the drug's expectations. Understandably, MannKind's stock was pummeled in response to the disappointing sales results.
Why was Afrezza stumbling so badly? One answer was that the drug lacked insurance coverage. Insurers can be notoriously slow to offer coverage on new drugs, especially when the drug commands a premium price tag and faces have plenty of competition. To discourage adoption, many insurers required patients to go through an arduous prior authorization process that included a lung function test before they could get coverage. Many patients and providers found the process to be so overly cumbersome that they simply gave up trying.
Another problem was that Sanofi had numerous other distractions to handle at the same time. The company was in the middle of launching a major cardiovascular disease product called Praluent and another diabetes drug called Toujeo.
In other words, Afrezza wasn't exactly the company's top priority.
Given the trouble with insurers, poor sales, and the fact that Sanofi was losing tens of millions of dollars each quarter marketing Afrezza, the company ultimately decided to terminate the partnership agreement with MannKind in early 2016. Sanofi even went so far as to say that "the commercialization of Afrezza is no longer economically viable in the United States."
Changes at the helm
Losing Sanofi as a partner dealt a serious blow to MannKind. The company was heavily depending on Sanofi's deep pockets to help fund the Afrezza launch, so the breakup put MannKind in a tough position.
The situation got so bad that Hakan Edstrom, who was MannKind's CEO for more than a decade, elected to resign.
Alfred Mann stepped in as an emergency CEO while a search began for a replacement. After a brief head fake, MannKind promoted its longtime CFO, Matthew Pfeffer, to the top job in early 2016.
Pfeffer quickly put the company into disaster recovery mode. He cut costs, sold assets, raised capital, and explored many low-cost ways to market Afrezza. He also brought his sales force in-house and made changes to the product's dosing to make it as easy to use as possible.
While Pfeffer made a lot of progress on the financial front to keep the company afloat -- he negotiated a $30 million payment from Sanofi and sold one of the company's properties for $16 million -- his efforts still couldn't turn Afrezza into a success.
After roughly 18 months on the job, Pfeffer decided to call it quits, too. The board then handed the company over to Michael Castagna, a former executive at Amgen and the company's CCO.
Back from the brink
New CEO Castagna knew that there was a lot of work ahead of him but has seemed determined to the turn the business into a success. Castagna signed a number of international distribution agreements for Afrezza in an attempt to build a global footprint for the drug. While nice to have, none of those deals provided the company with what it needed most: cash.
Thankfully, bulls finally got some good news in late 2018. The company announced that it had completed a phase 1 trial that is testing a drug called trepostinil as a potential treatment for patients with pulmonary arterial hypertension using the company's Technosphere technology. Importantly, these results helped the company land an exclusive license agreement with United Therapeutics (NASDAQ: UTHR) to continue development of the drug. The deal netted MannKind $45 million up front and the ability to earn up to $50 million in additional milestone payments plus double-digit royalties on any product sales.
What's more, the deal also provided United Therapeutics with an option to expand its license down the road to develop other treatments for pulmonary hypertension. If United chooses to exercise this option, then MannKind would be eligible to receive up to $40 million in additional milestone payments.
MannKind's stock skyrocketed in response to the news, closing the day up 90%. The huge move was likely aided by the fact that the stock is heavily shorted. That likely caused a short squeeze, which is when investors who are betting against the stock are forced to buy it on the open market in an attempt to exit their position.
Is MannKind finally a buy?
It's possible that the United Therapeutics deal could be the turning point for MannKind. Beyond buying the company time thanks to the immediate cash injection, the deal could also act as a signaling device to other partners that MannKind's technology is the real deal. If other companies step up to the plate and choose to partner with MannKind on other disease states, then the company's future could be bright.
On the flip side, MannKind is still in cash-burning mode as of the time of this writing, so time is still working against investors. The $45 million that it received up front front United Therapeutics won't last long if Afrezza sales don't start to meaningfully accelerate. That could mean that the company will have to tap its shareholders yet again for more capital down the road.
Overall, I see a glimmer of hope for MannKind's bulls, but there's no doubt that this company is still a highly speculative investment with a poor track record of creating shareholder value. For that reason, I think that potential investors should approach this stock with a wait-and-see mind-set.
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