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Evidence-Based Diabetes Management March 2016
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MannKind: Path to Afrezza Survival Involves Lower Prices to Woo Payers

Andrew Smith
Did MannKind misjudge consumer demand, or are barriers from payers to blame for Afrezza's woes? A feature outlining the misfortunes and future plans for the only inhaled insulin on the market.
MannKind Corp has been racing to reinvent itself since Sanofi backed out of a deal to market its inhalable insulin.1 However, the product remains in limbo. Until the companies can complete a complex transition, Sanofi maintains control over Afrezza. MannKind cannot market the drug, negotiate coverage with insurers, file for regulatory approval in new jurisdictions, or take any other steps to turn the notorious flop into the success that MannKind’s leaders still hope it can be.

  Nonetheless, a flurry of announcements has kept the California-based company in the news, sometimes to the delight of investors and sometimes to their chagrin. In less than 3 months, MannKind’s founder left the board and passed away; it parted ways with 2 chief executives, attracted a class-action lawsuit, begun the hunt for a chief marketing officer, negotiated with potential international marketing partners, signed a deal that could be worth more than $100 million with a mysterious biotech, discussed potentially illegal short-selling with regulators, and announced its intention to win insurer coverage by lowering Afrezza prices.

  “We learned many things in 2015, and those lessons will benefit us greatly as we look forward to launching our own strategies this year,” said CEO Matthew Pfeffer during a February 3, 2016, investor conference call,2 which provided the most detailed glimpse to date of his plans for the company. Pfeffer is the fourth man to run MannKind since November, when CEO Hakan Edstrom resigned after just 11 months on the job and founder and chairman Alfred Mann stepped in on a temporary basis.3 MannKind offered the post to Duane DeSisto, the former CEO of the insulin pump maker Insulet, but Insulet protested on grounds of a noncompete agreement. MannKind withdrew the offer4 just after DeSisto  had started and offered the job to Pfeffer, who had been serving as the company’s chief financial officer and now fills both roles.

  “The Afrezza transition is MannKind’s top priority, and it is getting the full attention it deserves,” Pfeffer told investors, noting the company’s particular focus on insuring continuity of supply for the few people who do use the drug. “The transition teams have been formed and include operations, scientific, and legal personnel from both MannKind and Sanofi. The teams have met and begun discussions about the complex process that a transfer like this involves. MannKind is targeting April 5 as the transition date for the rights to develop and commercialize Afrezza, but may request that Sanofi agree to a later date. “There are many factors that influence when the transition will occur, including a myriad of regulatory, commercial, and development activities, many of which involve third-party vendors or regulatory authorities, and all of which need to be transferred in a smooth and coordinated fashion,” Pfeffer said.


  MannKind’s basic plan for boosting Afrezza sales in the United States is to lower prices enough to get insurers to cover the product on favorable terms and then market it in unconventional ways rather than sending an army of sales representatives to doctors. Sanofi failed to get any major payer to include Afrezza on its standard formulary in 2015, even though the drug became available as a fast-acting prandial insulin for patients with type 1 diabetes (T1D) early in the year. Thus, nearly all would-be users needed to secure prior authorization from their doctors before they could get any coverage for the drug.

  Both MannKind and outsiders who believe Afrezza can still be a big seller agree that securing widespread coverage is a necessary first step to success. Of course, lowering prices will hurt margins on existing sales, but Pfeffer hopes to offset the damage by launching Afrezza in some of the many foreign markets that will rapidly approve drugs that already have FDA approval. MannKind reports that it is already in talks with potential partners from a number of countries that could approve Afrezza without any additional trials. These partners would use their knowledge of the local market not only to shepherd Afrezza onto pharmacy shelves, but also to market it to doctors and patients. Thanks to the potential for fast approval, such partnerships could begin boosting Afrezza sales just months after they start, said Pfeffer, who noted that any substantial increase in sales volume would mitigate the effect of domestic price cuts on margins by allowing MannKind factories to operate more efficiently, thus reducing unit costs.

  “Much of Afrezza’s future hinges on what kind of deals MannKind signs with companies in foreign markets,” Keith Markey, PhD, who follows MannKind for Griffin Securities, said in an interview with Evidence-Based Diabetes Management (EBDM). “If MannKind only signs a couple low-dollar deals, then it will struggle to offer Afrezza at competitive prices here and it will struggle to escape its current situation. If MannKind can generate significant near-term revenues from foreign deals, though, it will have a real chance of turning things around. Any real cash flow would ease fears about the company’s financial position and increase its ability to market Afrezza in the US. Significant extra sales would also create the sort of economies of scale that would allow MannKind to price Afrezza competitively and still profit on its US business.”


  As MannKind develops its plans for negotiation with payers after the Afrezza transfer from Sanofi, it is also developing plans for marketing the product. In the days after Sanofi announced that it would back out of its deal to market and develop Afrezza, MannKind said that it would try something very different than the traditional campaign Sanofi had attempted, a campaign that largely hinged on sending sales personnel to doctors’ offices. MannKind also said that it would begin using social media to share more information, in a timelier fashion, with people who wish to follow the company. These statements led many to hope—or even to wrongly believe—that the company planned to market Afrezza via social media, both because the product already has a number of enthusiastic supporters on sites like Twitter and because social media can allow savvy companies to reach large numbers of people more cheaply than they can with traditional marketing and advertising. 

  “Unfortunately,” Pfeffer said during the conference call, “that is not allowed under FDA regulations, which prohibit us from disseminating anecdotal information of any kind. In fact, no promotional information regarding Afrezza can be disseminated by us without including the black box warning and all associated safety information. Since these user accounts [with positive stories about Afrezza] obviously do not include such information, we cannot be directly associated with them. This means that MannKind’s Facebook and Twitter accounts may not even like or retweet such posts.”

  Pfeffer said that MannKind is actively seeking a seasoned executive to run its sales and marketing efforts. He also said the company had formed an advisory council consisting of physicians, Afrezza users, and other stakeholders both to bind it more closely to the sort of opinion makers who can drive sales and to ask them for ideas about how a money-losing company that started the year with only $60 million in cash can afford to market a drug effectively.5

  MannKind may get some additional cash to spend from an organization that says it will use Afrezza at outpatient diabetes clinics scheduled to open in major cities across the nation by the end of the first quarter, with a pilot facility in New Jersey. MannKind, which has not disclosed the name of the company opening those clinics, may also get some help with the cost of domestic marketing by finding a new partner in the United States, but it has no plans to enter an agreement like the one it signed with Sanofi and may not sign with anyone at all. “MannKind is looking at other potential partners that may see Afrezza as a value-adding addition to their portfolios. But in addition, we are putting plans together to market and sell Afrezza ourselves,” Pfeffer said. “We’re also evaluating contract commercial organizations that can provide the necessary infrastructure as we build, or in lieu of, our own commercial infrastructure. Regardless of whether we take on another partner, it is our full intention to market the product ourselves retaining full rights of ownership, and Afrezza, at most, will be co-promoted with an additional partner or partners.”

  Investors will have to wait until at least the second quarter of 2016 to see MannKind’s new marketing strategy and get any sense of its potential, but they may soon get some data about how better insurance coverage will affect Afrezza sales. According to Markey, Sanofi signed deals that would make the drug a part of the standard formulary offered by 2 organizations as of January 1, 2016.

The first, Harvard Pilgrim Health Care, is a small regional insurer, but the second, CVS Caremark, is the pharmacy benefits manager for nearly aquarter of all privately-insured Americans.6 MannKind’s next quarterly results, in other words, will be the first to cover a period when any substantial number of Americans could get an Afrezza prescription covered by standard insurance. Analysts who cover the company are not expecting any dramatic sales surge—the company’s stock still trades around $1 and a recent consensus target price was under $37—but Afrezza sales have been so low to date that a relatively small sales increase would be easy to see. This might indicate that there is some pent-up demand for the product among patients who have been unable to get it at reasonable prices so far. Indeed, it is hard to overstate how disappointing sales have been to date: before Afrezza hit the market, estimates of peak annual revenues ranged from $182 million to $2 billion.8 In its first 9 months on the market, however, total sales revenues barely exceeded $5 million.9

  The big question, of course, is why sales have been so poor. MannKind and Afrezza supporters have always contended there would be strong demand for a product that not only would save patients with T1D from more than 1000 injections per year but also work faster than other short-acting insulin formulations.10 Patients with every conceivable condition mostly choose to avoid injectable medications whenever they can because they hate shots. They say this desire is so strong that widespread insurance coverage and decent marketing will allow Afrezza to thrive despite obstacles that include a black box warning about potential harm to user respiration and a requirement that patients undergo a spirometry test before beginning on Afrezza. Other observers disagree vehemently.

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