Memorandum

MannKind 3Q16 – Afrezza sales total $600,000 since July relaunch; FDA submission for label change reflecting ultra-rapid PK/PD profile; Company has ~$36 million in cash with runway through 3Q17 – November 10, 2016

Executive Highlights

  • MannKind has ~$35.5 in cash remaining as of September 30, which is projected to last through 3Q17.
  • Management highlighted two recent agreements that will bolster the company’s financial position going into 2017, one with Sanofi that relieves MannKind of ~$72 million worth of debt, and another with Amphastar that delays MannKind’s next required insulin purchase.
  • MannKind filed with the FDA for a revised label reflecting results of a PK/PD study that found faster-onset and shorter duration of action for Afrezza vs. Lilly’s Humalog. Assuming a standard 10-month review cycle, an FDA decision is expected in 4Q17. If granted, this label update would put Afrezza into a category of “ultra-rapid-acting” insulins and would help differentiate the product from other players on the rapid-acting market.

MannKind provided its 3Q16 financial update in a recent call led by CEO Mr. Matt Pfeffer. Below, we detail top five highlights from the call on the company’s cash position and its inhaled rapid-acting insulin product, Afrezza.

Top Five Highlights

1. As of September 30, MannKind has ~$35.5 million in cash remaining, which is projected to provide a runway out through 3Q17. Management emphasized a “dramatically improved financial position” during Q&A and suggested that the company is not worried about the risk of Nasdaq delisting. Moreover, management announced two new agreements – with Sanofi and with Amphastar – that will bolster MannKind’s financial position (the Sanofi one enormously!) and will help the company reach near-term financial targets.

2. Since the launch of MannKind-branded Afrezza on July 25, the company recognized $600,000 in sales for 3Q16. Management highlighted promising early figures: 200 new prescribers since the relaunch, nearly 4,000 unique prescribers, and a steady increase in sample requests, although new-to-brand prescriptions are down. The company will likely have to accelerate volume growth to keep Afrezza afloat – to this end, management outlined strategies to increase awareness of Afrezza’s benefits among patients and HCPs.

3. MannKind has filed with the FDA for a label change to put Afrezza into a category of “ultra-rapid-acting insulin” based on the results of a PK/PD study showing faster-onset and shorter duration of action vs. Lilly’s Humalog. This FDA submission is in time with plans outlined by management in 2Q16, and a regulatory decision is expected in 4Q17. We anticipate that a revised label reflecting the especially fast-acting nature of Afrezza will help differentiate the product from other rapid-acting insulins, thereby increasing uptake among patients and providers.

4. Other highlights in the clinical development program for Afrezza include (i) a phase 3, JDRF-partnered pediatric study slated to begin in 1Q17, (ii) a post-marketing safety study scheduled to start in 2H17, and (iii) dose optimization studies that will use CGM or Abbott’s recently-approved Freestyle Libre Pro.

5. Management highlighted a successful Q3 for Afrezza’s reimbursement and access team: The drug is now covered by Express Scripts and Medicare Part D with no prior authorization required, while the MannKind Cares reimbursement support program is in full swing to help patients who do need a prior authorization obtain Afrezza with minimal wait time. Seven out of 10 prior authorizations are approved.

Top Five Highlights

1. As of September 30, MannKind has ~$35.5 million in cash remaining, which is projected to provide a runway out through 3Q17. Management emphasized a “dramatically improved financial position” during Q&A and suggested that the company is not worried about the risk of Nasdaq delisting – as per a Nasdaq letter sent to the company in late September, MannKind has until mid-March 2017 to maintain a closing bid price of ≥$1.00/share for 10 consecutive business days, following failure to do so for 30 consecutive days leading up to September 14. MannKind’s stock is currently valued at $0.62. Notably, the company’s cash was down from ~$64 million as of June 30, and from ~$59 million as of December 31, 2015. MannKind has ~$30 million available for borrowing through an agreement with The Mann Group, plus $50 million available from an at-the-market facility. A company reorganization in September reduced head count by 20% to free-up resources for greater investment in Afrezza. Moreover, management announced two new agreements (not counted as part of the $126.5 million net income reported for 3Q16) that will further bolster MannKind’s financial position and help the company reach near-term financial targets:

  • (i) Through an agreement with Sanofi, officially terminating the partnership and confirmed via press release a couple hours after the call: Sanofi will forgive $71.6 million of outstanding debt and release all security, will release MannKind of the obligation to pay $0.5 million of previously uncharged collaboration costs, will purchase ~$10 million of MannKind’s surplus insulin in early December 2016, and will pay MannKind $30.6 million in cash in January 2017 to settle an insulin “put” option. This deal also paves the way for MannKind to sell surplus property in Valencia, CA and retain all proceeds, estimated at ~$25 million, since none of this income will have to go toward reducing the balance of the Sanofi loan, now settled in its entirety. Ultimately, the financial benefit of this agreement is >$130 million for MannKind, which will strengthen the company’s cash position heading into 2017.
  • (ii) Through an amendment to the company’s insulin supply agreement with Amphastar: MannKind’s next insulin purchase has been deferred to 4Q17, MannKind’s cash obligation from 2016-2018 has been reduced by ~$65 million, and MannKind’s timeline to fulfill its purchase commitment has been extended by four years, through 2023.

2. Since the launch of MannKind-branded Afrezza on July 25, the company recognized $600,000 in sales for 3Q16. Management underscored that Afrezza revenue is recorded when prescription units are dispensed to patients, rather than at the time of shipment. Given that MannKind was already ~two months into 3Q16 when it took over responsibility for the marketing and distribution of Afrezza from Sanofi, we imagine it will take more time for the company’s commercialization strategy to be fine-tuned and implemented fully. With a longer history of sales, volume shipped will become a more reliable estimate of actual Afrezza sales.

  • Management highlighted promising early figures: 200 new prescribers since the re-launch, nearly 4,000 unique prescribers, and a steady increase in sample requests, although new-to-brand prescriptions (NBRx)/week are down. We’re curious if the discrepancy between increased sample requests and falling NBRx signals that providers are more willing to give inhaled insulin a try than patients are at this point.  The company will likely have to accelerate volume growth to keep Afrezza afloat – to this end, management outlined strategies to increase awareness of Afrezza’s benefits among patients and among HCPs. The company has a speakers bureau to educate HCPs on Afrezza’s therapeutic advantages and is providing in-office spirometry testing (with ~1,200 doctors listed as of the call). In 2017, MannKind will launch sample packs with 4 units/8 units as well as 8 units/12 units to better fulfill the needs of type 2 diabetes – fewer inhalations means a better patient experience. A new Flex Pack with 60 count each of 4u, 8u, and 12u will also be launched in January – management explained that doctors are excited about this, as it will “simplify their onboarding of new patients on Afrezza.” Management acknowledged that patient awareness of Afrezza remains low, but emphasized that patients who do try the inhaled insulin have returned positive feedback. MannKind will pilot its first direct-to-consumer commercials in 1H17, and will simultaneously ramp-up its full-time sales force, print ads in scientific journals, and engagement at diabetes community events. We look forward to seeing how this commercial strategy plays out and hopefully drives value and volume growth for Afrezza in 2017.

3. MannKind has filed with the FDA for a label change to put Afrezza into a category of “ultra-rapid-acting insulin” based on the results of a PK/PD study showing faster-onset and shorter duration of action vs. Lilly’s Humalog. This data was first presented at ADA 2016. The FDA submission is in time with plans outlined by management in 2Q16, and a regulatory decision is expected in 4Q17. We anticipate that a revised label reflecting the especially fast-acting nature of Afrezza will help differentiate the product from other rapid-acting insulins. As management emphasized, the quick onset/offset of the drug caters to modern, real-world patients – in an era of increasing CGM-use, management suggested that Afrezza could become the preferred choice for patients receiving real-time data on their blood sugar who want tighter glycemic control (“patients want good control of their disease for the work they’re putting in”). Indeed, many real-world patients who endorse Afrezza point to speed and low incidence of hypoglycemia, so an FDA label that allows for more “ultra-rapid-acting” marketing of the product could greatly increase uptake. Management mentioned that the company is “actively investigating” the potential for Afrezza in artificial pancreas systems, again highlighting the product’s niche within the landscape of advanced diabetes devices – this is certainly an intriguing concept and we’re curious how exactly this may work. Additionally, the faster-acting nature of Afrezza could offer greater flexibility around mealtime dosing. Emphasizing the unique “ultra-rapid-acting” nature of Afrezza rather than the “inhaled” element also helps distance MannKind’s product from Pfizer’s failed inhaled insulin Exubera. If MannKind is successful, it will likely be the first “ultra-rapid-acting insulin” to be labeled as such in the US – Novo Nordisk’s faster-acting insulin aspart recently received a Complete Response Letter from the FDA and the resubmission timeline for the product is still unclear. The next-generation rapid-acting insulin field as a whole has progressed more slowly and more incrementally than the next-generation basal insulin field and Afrezza offers a radically different option than the injectables under development – unfortunately, it appears that patient and provider acceptance of the delivery method remains low and it will likely take dedicated education on many fronts beyond a label expansion to improve Afrezza’s prospects (such as education around cancer risk, impact on lung function, general awareness, etc.)

4. Other highlights in the clinical development program for Afrezza include (i) a phase 3, JDRF-partnered pediatric study slated to begin in 1Q17, (ii) a post-marketing safety study scheduled to start in 2H17, and (iii) dose optimization studies that will use CGM or Abbott’s recently-approved Freestyle Libre Pro. The phase 3 trial in pediatric patients with type 1 diabetes will hopefully result in a pediatric indication for Afrezza. The lack of needles involved in Afrezza administration may be particularly well suited to children who may be needle-averse, benefit from the more flexible dosing offered by Afrezza’s rapid profile of action, and lack sufficient surface area for sufficient injections site rotations. On the other hand, parents and providers may be concerned about the long-term impact of a lifetime inhaling insulin, a growth hormone. On that note, management commented that the company is on track to begin recruitment for a long-term safety study, stipulated as a post-marketing requirement by the FDA, in 2H17. This study could hopefully assuage some of the concerns surrounding Afrezza, and we only hope that the company’s financial position is able to support the study until results are available. The third planned program is geared to optimize dosing and titration protocols for Afrezza using real-time blood glucose readings. A 12-16 week study in type 1 patients is scheduled to begin in 1Q17 and to report in 4Q17. The company is also planning for a similar study in type 2 patients, though no additional details were shared. We’re pleased to see the use of CGM and flash glucose monitoring in this trial and hope that faster dose titration at initiation can help more patients stick with the product for longer, rather than potentially giving up after the sample period if the optimal dose has yet to be reached.

5. Management highlighted a successful Q3 for Afrezza’s reimbursement and access team: The drug is now covered by Express Scripts and Medicare Part D with no prior authorization required, while the MannKind Cares program is in full swing to help patients who do need a prior authorization obtain Afrezza with minimal wait time. Seven out of 10 prior authorizations are approved. Management described payer coverage for Afrezza as highly-similar to coverage for other rapid-acting insulins – 65% of patients are privately-insured, 32% are publically-insured, and 3% pay cash. A goal moving into 2017 will be to further streamline reimbursement support through MannKind Cares, which was officially launched in August, and to continue removing any financial barriers to access.

-- by Payal Marathe, Helen Gao, and Kelly Close