Market Playground

By Rockford Coscia

MannKind (NASDAQ:MNKD) largely disappointed investors yesterday on its earnings conference call as it pushed Afrezza timelines back further by as much as nine months. For the second time in as many quarters, the quarterly earnings conference call served as a significant catalyst and the share price saw a considerable run-up to the event on partnership optimism. But for the second straight quarter, that optimism was met with virtually zero positive information worth of the excitement. Here is a rundown of the more salient points of the conference call.

A transcript of the conference call can be found here (via Seeking Alpha).

Afrezza clinical studies will not be completed until 2H2012

The most important information on the conference call was that the required clinical trials comparing the Dreamboat and Medtone inhalers in type 1 and type 2 diabetes will likely not be complete until “the latter half of next year”. Al Mann cited difficulties in enrollment as the primary factor for the delay. Additionally, it would appear that plans to simply augment the currently running Dreamboat trials with the Medtone inhaler, the strategy as of the last conference call, were rejected by the FDA. MannKind will wait for minutes from its recent end-of-review meeting with the FDA, which the company expects in the next three weeks. Al Mann would not speculate on an exact timeline beyond the 2H2012 data guidance, but it would appear the next likely PDUFA date will occur in 2H2013. 

Safety concerns surface

While Al Mann claimed quite strongly in the previous conference call that there were no safety concerns made by the FDA in the company’s most recent CRL, safety concerns apparently were raised surrounding the two upcoming trials in the end-of-review meeting. It would appear that the FDA would like to see clean spirometry data (which usually means collected forced expiratory volume at one second, among other measures), before approval will be made. This is a big concern in my mind as ‘no safety concerns’ become ‘moderate safety concerns’ and will no doubt cause a change in odds of approval for the company. I think, given previous data, that MannKind will be OK here, but the added uncertainty and the fact that the FDA is concerned here troubles me.

The company has cash to fund operations into 1Q2012

While deep cuts to MannKind’s workforce made in Q1 will likely increase the company’s cash runway, guidance still says cash will run out in 1Q2012. This means the company will have to find some way to raise money to see Afrezza through to FDA submission. As of the last conference call, I stated the company would need to find another $100MM to submit the NDA for Afrezza. Given the new extended timelines, it would appear that number will rise to $150-$200MM, and that’s to say nothing of commercialization. Al Mann stated, “I remain committed to MannKind and I’m exploring ways to make moneys available” – which in my mind means he’s trying to open up his own pocketbook (or Mann-purse, if you will). However, given that he hasn’t yet committed additional cash, it would appear he is unwilling or unable to fund the project himself. MannKind needs a partnership to save it from life support, which bring me to…

MannKind appears further away from partnership than before

The wording used to describe partnership potential has soured considerably since the last conference call. Partnership for Afrezza was not brought up by management, but rather, by Matt Lowe – in for Cory Kasimov of JPMorgan – in which Hakan Edstrom replied:

I would say that’s too soon. What we wanted to do and we certainly maintained the contact with potential partners, but until we have a good understanding of the outcome from the meeting with the FDA, we have not aggressively pursued that. So I would say that will follow, following the minutes of the meeting with the FDA.

Recall that in the previous conference call, Al Mann stated that partners were listening in on the conference call, suggesting a partnership could materialize soon. The wording used yesterday leads me to believe they aren’t even close to a partnership. As I mentioned before, a partnership is completely unlikely and, given the shaky financial ground MannKind stands on, the terms of said partnership would be brutal. Potential for partnership is almost completely wiped away in my mind until successful completion of the required studies.

Summary

MannKind is in rough shape. The next possible PDUFA for Afrezza appears to be as far away as 2H2013 with commercialization not likely until early 2014. The already highly leveraged company will likely need an additional $200MM to make it that far and appears unlikely to secure a source for those funds. Partnership talks have taken a step back and funding options are becoming bleak. While this should mean that end of any worthwhile commentary on the company and relegation of MannKind to ‘Pennyland’, Al Mann and the mystique of a revolutionary and blockbuster insulin therapy will likely keep naive investors coming back for more.

Disclosure: I own puts on MNKD

Rockford Coscia is currently working on his Ph.D. in Organic Chemistry and has worked with Pfizer and Esperion Therapeutics. Rockford Coscia is a writer at BioTech Investment Paradigm.