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MannKind Corporation: Upside Surprise Possible

Shares of MannKind Corporation MNKD edged upward by more than 2% in premarket trading this morning

MannKind Corporation (MNKD) presented the data from its Phase III trials for its inhaled diabetes drug Afrezza, and RBC Capital Markets analysts like what they heard. In a report dated June 16, 2014, they provided an update on the questions the audience asked about the data and conversations they have had with the drug maker’s management recently.


Focusing on MannKind’s presentation

Analysts Adnan Butt and John Chung noted that the Phase III data had already been discussed back in April along with the Food and Drug Administration committee meeting. As a result, they were more focused now on how MannKind Corporation (MNKD) management made their presentation and the types of questions the audience asked in response.

They note that the overall results for the latest Afrezza drug trials were about as expected. MannKind Corporation (MNKD) emphasized the fast in, fast out nature of the ultra-rapid insulin. They believe, as most everyone else does, that shares of MannKind will move higher when the FDA approves the drug. That approval is expected by the PDUFA Prescription Drug User Fee Act date, which is July 15.

The RBC Capital team also expects that MannKind Corporation (MNKD) will announce a partnership after the FDA approval. They note that the timing and terms of any partnership remain uncertain but could offer an upside surprise.

Why MannKind’s drug could be touted as a better alternative

Butt and Chung see three possible reasons MannKind Corporation (MNKD)’s Afrezza could be a better alternative to insulin for diabetics. First, it’s needle-free because the drug is inhaled. As a result, it’s more convenient than traditional insulin. Most people are hyper-focused on the constant need for needles in diabetes treatments, so this could be a big reason to opt for Afrezza instead.

Second, they note that the drug has a faster onset and peaks higher than traditional insulin, hitting its peak action within 14 minutes and lasting for up to 180 minutes, thus clearing out of the body faster. Insulin peaked in 60 minutes and lasts for 300 to 360 minutes. And third, there’s the possibility for lower rates of hypoglycemia in patients who take it rather than traditional insulin.

What MannKind’s audience wanted to know

The RBC Capital team notes a number of key questions asked by those who watched MannKind Corporation (MNKD)’s presentation of the data. For example, they said some asked about how Afrezza differs from basal insulin. Also patients tended to drop out rather early in the study. The presenter said that was mostly due to cough, although the cough was almost gone in three weeks.

Some audience members also asked about the decline in forced expiratory volume FEV1. The presenter noted that the decline is “still small relative to overall FEV1,” and the RBC team said it’s about in line with the expected lung function decline in “normal individuals over time.”

Will there be demand for Afrezza?

Butt and Chung also weighed in on expected demand for MannKind Corporation (MNKD)’s drug. They think the treatment will be a “patient pull driven product.” They said the company could start out focusing on the benefits of the drug. Within two or three quarters, however, they think the drug maker will focus on both primary care physicians and patients, which will be the key in figuring out how much sales potential there is for Afrezza.

They note that the possibility of a higher safety level could attract patients. MannKind Corporation (MNKD) said it believes most patients will feel relief with three puffs or fewer of the drug, although some on Wall Street have complained about the number of puffs. Since each puff takes less than one second, it could take less than two minutes to use up to three cartridges.

Breaking down MannKind’s price target

The analysts have an Outperform rating and $16 per share price target for MannKind Corporation (MNKD). They based their price target on U.S. and European Union royalty revenues for Afrezza. They see about an 80% chance of success for the drug receiving approval from the FDA.

They’re assuming that the drug launches in the U.S. next year and in the EU in 2017. They expect peak sales of over $3.7 billion in the U.S. and the EU, which implies royalties of between $500 million and $740 million in each region.

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