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TheStreet Open House

Biotech Stock Mailbag: MannKind, Ariad, Oncolytics Biotech

BOSTON ( TheStreet) -- This week's Biotech Stock Mailbag opens with a tweet from eliasinthezone: "AF, what do you think about $MNKD? I hear a lot of good things but I haven't read yet an article from you on this stock."

The last time I wrote about MannKind (MNKD) was in November. I was asked if the stock had found its bottom. (It was trading just under $2 at the time.) I said I don't call bottoms but do recognize that MannKind could easily trade higher. Nonetheless, my bearish outlook on MannKind remains unchanged because Afrezza, if it's ever approved, will be a commercial flop. Results are expected this summer from the Afrezza clinical trials.

Sure enough, the run up into the Afrezza data is under way, with MannKind shares closing in on $4. Enterprise value is now a ridiculously high $1.2 billion. Stupid but no surprise given the retail investor cult still worshiping at the feet of company founder Al Mann.

MannKind expects to announce top-line results from the Afrezza phase III trials -- one each in type 1 and type 2 diabetics -- in the middle of August. If the studies are positive, the company says it can resubmit Afrezza to the FDA sometime in September or October. Assuming a six-month review, an FDA approval decision could occur in March or April 2014.

Frankly, I don't care if the Afrezza studies are positive or not. I'm more than happy to assume positive data. Even so, I'd say the odds of an FDA approval are a toss up, at best. Predicting FDA reviews of diabetes products today is a fool's errand. Seemingly out of nowhere, FDA rejected a long-acting insulin from Novo Nordisk (NOVO) in February, yet in March, the agency approved the first SGLT2 inhibitor, Invokana, from Johnson & Johnson (JNJ). FDA rejected a similar SGLT2 inhibitor from Bristol-Myers Squibb (BMY) and AstraZeneca (ZAN) last year.

For the sake of argument, let's be super optimistic and assume FDA approves Afrezza, allowing MannKind to introduce the second inhaled insulin device into the diabetes market. What happens next will not be pretty for MannKind or any investor silly enough to own the stock.

The fact is that Afrezza trips all the FDA red flags -- a new, unproven medical device, a diabetes drug that is inhaled into the lungs, two previous rejections, and a history of discord between MannKind and regulators. Good luck Al Mann-iacs because you'll need it.

I'll now hand over the Mailbag to David Kliff, a diabetes expert who runs the well-respected and widely followed Diabetic Investor newsletter, to explain:

The major selling point for Afrezza is that it's a better form of inhaled insulin than Exubera. While there is some truth to this, the fact is Afrezza, should it come to market, will have to prove this point over and over. Physicians still associate inhaled insulin with Exubera and will need some major convincing that Afrezza isn't Exubera. This convincing will cost money that MannKind doesn't have. This is one of the most overlooked factors when investors, more like suckers, buy into the MannKind myth. Eli Lilly and Novo Nordisk have spent millions building brand awareness and formulary position for their short-acting insulins. So much so that when Sanofi tried to enter the short-acting market with Apidra, the company couldn't make a dent in the market.

MannKind and whoever is dumb enough to partner with the company will have to spend millions just to have a chance at gaining share -- a task which will be even more difficult as Mann has consistently stated Afrezza would command a premium price based on the fact it's inhaled and not injected. He's also claiming Afrezza works better than the injectable competition, a belief not shared by everyone in the diabetes community, including Diabetic Investor.

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