So Many Promises And Now We Are Seeing The Final Results


In my very first MannKind article I offered for my SA readers, I made the following statement:


Wall Street gurus are always smarter than the retail investor that doesn’t do their homework.

I have mentioned several times that MannKind’s (NASDAQ:MNKD) management understands the reality and has done a remarkable job in keeping the company hooked up to a life support system that has allowed them to be one of the few (other than the short-sellers) to benefit from these four years of futility for the retail investors. In recent days, with the flurry of superfluous SEC filings and press releases this has only resulted in the stock falling to a near all-time low price. The time is neigh for this saga becoming history so we can close the books on this financial fiasco. It’s now clear who has done their homework on MannKind!


The purpose of this article is to outline the many promises that have gone unfilled. The following data and discussion of recent event s will be the basis for my viewpoint on the fact that Afrezza hasn’t become a profitable product in the market place and why it will never reach this objective.

Data and Projections for first two quarters of 2017:

The following chart projects a modest 10% weekly growth rate for total prescriptions. I have based my $200 net revenue per prescriptions on what I believe are realistic net revenues that should be expected from MannKind’s marketing efforts. Keep in mind, no distributor is willing to follow the normal wholesaling practice for Afrezza. The 1st Q 2017 results were based on actual prescriptions dispensed to the end user as the wholesaler has purchased no Afrezza for their inventory supply.


Their 1st quarter financials reflect they sold a gross of $1.642 million in revenue for Afrezza. IMS data shows they sold 3,203 prescriptions, giving us $513 gross revenue per prescription. They also state in the 1st quarter results MannKind netted only $1.196 million, equating to $373 per prescription. But more importantly, the net revenue was based on an estimated gross-to-net adjustment ($446/27%) for Afrezza that only included wholesaler distribution fees, prompt pay discounts, estimated rebates and chargebacks and patient discount and co-pay assistance programs. If MannKind had factored in cost of the insulin and manufacturing charge, the $373, would in my opinion, drop the net closer to $200 per prescription sold. The fact remains Afrezza is a very expensive drug to manufacture and package, therefore with the low volume runs in production this is costly to a balance sheet that needs to show a profit. This fact alone shows the uphill battle for gaining profitably is dire and why the weekly prescription rate needs to be approximately 10,000 prescriptions.


Now the clamor is about the recent achievement of 300 total prescriptions being an inflection point for future growth. How 300 could be identified as an inflection point where in reality the shortfall is about 9,700 from the needed weekly amount, being nothing but pure fantasy. Being 97% short of the needed metric for survival is not exactly a case for jubilation, especially when the supply of money funding the existence of the company is in such short-supply as MannKind is experiencing.

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$155,600

10% Growth Per Week and $200 Net Revenue – TRX


Start

300

Projection

Actual

Actual

1/6/2017

330

$66,000

238

$47,600

1/13/2017

363

$72,600

208

$41,600

1/20/2017

399

$79,800

224

$44,800

1/27/2017

439


$87,800

267

$53,400

2/3/2017

483

$96,600

269

$53,800

2/10/2017

531

$106,200

236

$47,200

2/17/2017

585

$117,000

247

$49,400

2/24/2017

643

$128,600

225


$45,000

3/3/2017

707

$141,400

239

$47,800

3/10/2017

778

248

$49,600

3/17/2017

856

$171,200

258

$51,600

3/24/2017

942

$188,400

256

$51,200


3/31/2017

1,036

$207,200

288

$57,600

4/7/2017

1,139

$227,800

241

$48,200

4/14/2017

1,253

$250,600

281

$56,200

4/21/2017

1,378

$275,600

235

$47,000

4/28/2017


1,516

$303,200

285

$57,000

5/5/2017

1,668

$333,600

283

$56,600

5/12/2017

1,835

$367,000

326

$65,200

5/19/2017

2,018

$403,600

299

$59,800

5/26/2017

2,220


$444,000

269

$53,800

6/2/2017

2,442

$488,400

267

$53,400

6/9/2017

2,686

$537,200

302

$60,400

6/16/2017

2,955

$591,000

385

$77,000

6/23/2017

3,250

$650,000


334

$66,800

6/30/2017

3,575

$715,000

329

$65,800

36,027

$7.205M

7,039

$1.407M

With the miniscule growth of 10% we should have seen net revenues of $7.205 million. However, based on the $200 net per prescription we probably will see six months of 2017, MannKind netting a meager $1.407 million. This is a case of simple basic math – a company can’t generate net product revenues of $1.407 million and remain solvent, when they tell investors they have an annual cash burn well north of $100,000,000. The classic example of the absurdity of MannKind’s onerous cost structure is the fact the CEO is making $378,410 in salary. The General Counsel and Corporate Secretary is earning $458,680 in salary. Then we see the CMO having a salary of $ 501,320. Just these three employees are pulling down $1,338,000 in their paychecks. And never forget, MannKind still has two former CEOs on the payroll, making their old salary. So, let’s assume just for these individuals’ salary, and not including their massive bonus checks, MannKind is on track for the full year of 2017 where they will net $2,814,000 in revenue. Simply meaning the current executive team isn’t bringing in enough profit to cover a few exorbitant salaries and bonuses.


The Draw-Down of the Final Outstanding Money from the MannKind Trust:

On numerous occasions I warned there was no surety that MannKind would have access to these funds. Now we know that MannKind has undertaken this final option for this source of operating funds. On one hand, this would seem to negate my warning about the availability of this source of funds. However, I’m claiming that my prediction has merit because of the terms of this new debt obligation. And this extra ordinary loan is just one of the final nails in the coffin, and clearly demonstrates the dire situation the CEO found in seeking needed operating funds. The original amount available under the arrangement was for $30.1 million for MannKind to borrow. And on MannKind’s financials it will now add the full $30.1 million to the outstanding $283.9 million in current debt, making their debt load an astounding $314.0 million. Tell me of one other company that is willing to put $30.1 million of new debt on their books where already the outstanding debt is a bloated house-of-cards fiasco, and they are only receiving about $19 million and that company isn’t teetering on bankruptcy! Pay day loan sharks can’t get deals like MannKind has agreed in their desperate need for cash.


Promises and Promises – What’s New:

On February 3, 2016, the then CEO made the following statement shortly after the breakup of the Sanofi partnership:

I’d now like to turn to the future of Afrezza under MannKind. MannKind is looking at other potential partners, which may see Afrezza as a value-added addition to their portfolios.

Jump ahead to July 2017, where in the interim 17 months we now know there have been no apparent potential partners wanting to form a partnership. We also know that due to the abysmal sales of Afrezza, their distributorship partner that served as their wholesaler dumped Afrezza and now instead of paying for Afrezza upfront, they merely act as the conduit for getting the drug to the retailer who dispenses the drug. And for this service the former distributorship is taking a major cut of sales. A cut of the limited revenue that MannKind can’t afford considering their lack of operating funds.


As for any potential partnersh ip deal, the only accomplishment in this area was the Brazilian deal where basically it’s simply a matter of the Brazilian company being a distributor. Not one penny of money was paid to MannKind. Going forward what company or what country will be willing to sign a partnership where upfront money will be paid to MannKind? Who would be so na茂ve to pay money for something they can get with just a distributorship deal? What is MannKind’s bargaining power going forward in forming partnerships involving needed upfront cash? MannKind has tipped their hand and the Brazil company found out they held a busted flush!


The true-believers are now clamoring that direct advertising is the solution for awareness that is needed for Afrezza’s success. The problem with this solution is, in other countries, only New Zealand allows direct advertising of medical drugs to their citizens. Plus, in all the major countries that have viable healthcare systems, these systems are operated under government control. So, just one true-believer, step forward and share with us what country is going to spend more than triple what they are already spending for insulin? If MannKind is currently generating only about $200 net per prescription, in the United States, and history shows that in all nations with socialized healthcare, they are paying only in the order 25% as much for the same drug, what country is going to save MannKind from bankruptcy? Can MannKind’s manufacturing and normal operating expenses afford to generate only $50 from each prescription? Do the math for the $100,000,000 in current annual operating expenses. MannKind would have to sell in these foreign countries about 40,000 prescriptions a week and not make one penny of profit on the deal. I don’t think so, when currently in an unrestricted market for promoting a drug, MannKind hasn’t been able to sustain 300 prescriptions on a steady basis and they are into the third launch of the drug where all the res ults have been disasters.


The cost of drugs and overall healthcare expense is the #1 cause of personal bankruptcy in the United States. Now the true-believers believe that foreign countries are going to spend double/triple for a drug where even MannKind’s CEO has publicly stated cost and efficacy issues have prevented success for them in the United States. I would suggest that true-believers start their search in Disneyland, if they think they can find someone who is going to make them rich by holding MannKind’s stock – there they will find another FantasyWorld!

Dosing Issues Apparently Can’t Be Solved After More Than a Decade of Trying:


In a recent article here on SA, written by a very astute observer for the merits of Afrezza, or the lack there of, a true-believer posted the following statement.

Precise dosing does not matter with Afrezza.

I would expect such from this group of avowed true-believers, but this doesn’t belie the fact that MannKind has constantly changed the cartridges for the units of insulin provided per cartridge. The following is the dosing chart for converting regular insulin to match the respective dosing units provided by Afrezza:


What I find so amusing about this MannKind-created usage table is that Afrezza is currently provided in 4-unit, 8-unit and 12-unit cartridges. The variety of unit sizes based on matching injected insulin units certainly implies there is some degree of need for precise dosing that correlates with regular insulin. But more puzzling is when I read the transcript of a discussion about Afrezza and this person making these comments should have known the attributes and dosing requirements for patients being successful when using the drug:

With Afrezza, there’s no complex meal titration. You take a set amount, matched to your body mass and insulin resistance, determined with your doctor. You take that same amount every time you eat a meal. Then it’s not important whether you eat 50 grams of carbs or 100 grams or even zero. Afrezza essentially “turns off glucogenesis” so no glucose is secreted from the liver in reaction to food. Our trial studies are showing that patien ts are having no more glucose highs than normal non-diabetic people, and no more lows.


That sounds pretty magical. Does this work for Type 2s only, or is it an option for Type 1s now taking basal and bolus insulin?

Both could use it. Afrezza is for prandial control mealtime only – not basal doses. For about 70% of Type 2s, all you’ll need is a regular set dose of Afrezza. This will work for everyone except the “late-stage” Type 2s, who will need to take basal insulin as well. It’s different for Type 1’s because there’s a very big therapeutic window for them; their insulin needs are so differing. They can use Afrezza to cover meals, yes, but they’ll still have the issue that if they dose and don’t eat anything, they’ll get hypo, and if they eat a large meal, they’ll need a larger dose. The advantage for all patients is that they won’t have to do carb counting or anything, because Afrezza does not have to be so precisely matched to food intake.


So can you explain the details of dosing Afrezza?

The cartridges come in sizes of 15, 30, 45 an d 60 units. Again, for Type 2s their doctor will help them select a regular dose based on their body mass and level of insulin resistance. If a person is already on insulin, you’ll multiply the amount of rapid-acting insulin analog you’re now taking by three, and that’s where you’ll start for your original dose. You need about three times as much Afrezza as you do for insulin injections.

What? A patient needs to dose three times as much as injected insulin, and the true-believers claim that Afrezza acts like the human pancreas and that it is far superior to any other insulin product on the market. First, the insider tells you that with Afrezza you can merely take a set amount of the drug, then immediately turn around and tell you if you eat a large meal you will need a larger dose of Afrezza. This Afrezza insider has told you they have/had 60 unit cartridges that are needed to come close to impacting one’s glucose issues. And people wonder why the CEO has openly confe ssed there is an issue with the patient achieving any degree of efficacy when using Afrezza!


I know the true-believers will be clamoring about how wrong these comments are when they see the mention of cartridge sizes being 15, 30, 45 and 60 units. Plus, in #1 comment, the person states there is no complex titration needed for using Afrezza; however, we know that on February 1, 2017, MannKind released a press release with the following headlines:

MannKind Announces Launch of New Titration Pack and Field Force Expansion to Accelerate Afrezza Growth

VALENCIA, Calif., Feb. 01, 2017 (GLOBE NEWSWIRE) – MannKind Corporation [Nasdaq:MNKD[ [TASE:MNKD], a fully integrated biopharmaceutical company focusing on the discovery and development of therapeutic products for patients with diseases such as diabetes, announced today the launch of a new Titration Pack containing 60-4 unit cartridges, 60-8 unit cartridges and 60 -12 unit cartridges of Afrezza (insulin human) Inhalation Powder.


This begs me to ask, why was there no need for a complex meal titration when this original statement was made, and now going into the 4th calendar year since Afrezza was approved, and MannKind is still working on the issue of titration for the drug?

Also, why did the commenter in the #1 response state that clinical trials are showing that patients are having no more glucose highs than normal non-diabetic people and no more lows. I ask this simple question because on February 3, 2017, I published a MannKind article where I quoted directly from the MannKind website. If MannKind deemed the information being worthy enough to be shared with their stockholders, the information must have relevance to Afrezza:


On the MannKind website, under the Publications section, they have posted an article titled- The Need for Faster Insulin: Problem Solved? Notice the question mark at the end. At the beginning of the abstract , the author states he will share the benefits and limitations of the Afrezza profile in his analysis.

The article takes an overall positive spin; however, he then states the following:

Comparing Afrezza exposure to the insulin pharmacokinetic profile following a meal that occurs in healthy subjects, it appears that Afrezza is actually non-physiologically “ultra-ultra” fast, particularly on the decay side of the curve. This novel profile has the attractive property of allowing insulin dosing to occur right at the time of meal initiation (rather than having to wait 15 minutes or more between RAI dosing and meal start) while also reducing the risk of late post meal hypoglycemia. On the negative side, however, this “ultra-short” duration of insulin exposure and subsequent insulin action can lead to runaway hyperglycemia in the late post meal period, necessitating the use of a second dose of Afrezza in nearly 40% of subjects.


Another property of Afrezza worthy of mention is the relatively coarse dose increment that is available. The product is delivered in doses that are e quivalent to multiplies of 4 units of RAI. This raises concerns about the constraints in dosing flexibility that this increment engenders.

Now we know what the efficacy issue is all about! We know why there are massive numbers not refilling their prescriptions when you see that 40% of them are being subjected to hyperglycemia events. Does one not think that a prescribing medical doctor would be concerned if 40% of his patients are suddenly facing this major adverse event? Maybe this panacea about this fast-acting inhaled insulin isn’t what patients and the medical professionals want – and the massive dropout for refills and limited new prescriptions might be the confirming indicator.

How could someone be so misinformed about the details of Afrezza – the cartridge configuration, no issue with titrating the drug, and no counting of carbs – first, it’s not important if you eat 50 grams of carbs or 100 grams or even zero, only to then turn around and state if you don’t eat anything, they’ll get hypos and if they eat a large meal, they’ll need a larger dose. And the clincher is the advantage for ALL patien ts is that they don’t have to do carb counting or anything, because Afrezza does not have to be precisely matched to food intake. What an amazing mish-mash of convoluted double talk!

Who could be so misinformed about Afrezza? Why is it that today there is still so much confusion and clamoring that medical doctors and patients need to be trained on how to use Afrezza when apparently someone associated with MannKind ostensibly has no clue about the very things that MannKind is facing in 2017? I say this because the former CCO, and now CEO, publicly stated that Afrezza had an efficacy issue where they hadn’t been able to solve these issues as of 2017.

Well, the answer to this mystery commenter for Afrezza – Al Mann!

Conclusion:

As of the close of trading on Friday, July 7th, 2017, MannKind carried a market cap valuation of $118.18 million, an annual expense run rate of about $100 million, a weekly prescription run rate of 300, and a current debt load of more than $300 million. Trust me folks – when you have an inverted market capitalization of $118.18 versus a debt load of more than $300 million, you might understand why the post-reverse split of their stock is currently around $0.22 per share, and is going lower.

It is my sincere hope and wish that Afrezza remains available for those individuals that need options for treating their medical condition!

Good luck with your future investing decisions! But please do your due diligences – if you want to keep up with Wall Street gurus!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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