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MannKind’s Afrezza Likely to Fail AFFINITY 1 Phase III Trial

MannKind Corporation (NASDAQ: MNKD) has recently become a very popular play in the small pharma & biotech space, particularly among retail investors who are increasingly optimistic about the market potential of MannKind’s flagship product Afrezza. Afrezza is a drug-device combination product that consists of the company’s AFREZZA inhalation powder delivered through the company’s inhaler. The AFREZZA inhalation power is based on MannKind’s Technosphere® dry powder platform, which is supposed to mimic the efficacy of intra-arterial drug administration. Knowing this, we’ll also refer to Afrezza as “technosphere insulin”.

As announced in their most recent earnings release conference call, Afrezza has recently completed enrollment two Phase III clinical trials:

1.) MKC-171, Study 171, or Affinity 1 which tests the product in type 1 diabetes (T1D) patients and is expected to be completed in June 2013

2.) MKC-175, Study 175, or Affinity 2 which tests the product in insulin-naïve type 2 diabetes (T2D) patients and is expected to be completed in July 2013

MNKD has now run up over 90% since the start of 2013, reaching a market capitalization of over $1.2 B. Judging by the changes that we’ve seen in ownership proportions of MNKD common stock, we can see that the most recent rally (the ~44% drive made in the last month) was based heavily on retail investor involvement. I suspect that much of this buying activity was spurred-on by bullish headlines about MannKind on many of the major news wires. More specifically, it seems that there is hype being built around top-line Phase III data from Affinity 1 and 2 that MannKind expects to reveal in August 2013.

The reason that this hype is particular dangerous for MNKD shareholders, and the reason that there is a surge of short interest in MNKD, is because Affinity 1 has a very high chance of failure.

Analyzing the old data

The prediction of Affinity 1’s likely failure is based on a previous Phase III study (Study 009) performed by MannKind to establish the non-inferiority of technosphere insulin to standard of care, Insulin Aspart. The original press release from September 16th, 2008 established the results of Study 009 as “positive”, although very few numbers were revealed – for good reason. It turns out that MannKind’s assertion that technosphere insulin demonstrated non-inferiority to a rapid-acting insulin analog was either an absurd misinterpretation of data collected during the clinical trial, or an outright lie to appease MNKD investors.

Study 009 was included in the original NDA submission for technosphere insulin, which resulted in an unsurprising CRL given what we now know about the study. The full results were presented in 2009 on a poster at EASD (European Association for the Study of Diabetes), which can be scrutinized here.

(Source: Poster Presentation #982, 42nd EASD Annual Meeting – link)

In Study 009, all type 1 diabetes patients were on basal insulin plus technosphere insulin (TI) or injectable Insulin Aspart. The primary endpoint MannKind needed for FDA approval in the diabetes indication is change in patients’ HbA1c (a blood test for glucose levels) at week 52 versus baseline. Patients enrolled into Study 009 started with HbA1c higher than 7.0% but lower than (or equal to) 11%.

The 277 patients in the technosphere insulin (TI) arm had a baseline HbA1c of 8.41%, while the 262 patients in the Insulin Aspart arm had baseline HbA1c of 8.48%. At week 52, the TI arm had a decline in HbA1c of .21% while the Insulin Aspart arm had a decline of .49% and basically demonstrated vastly superior efficacy in T1D as measured by a 2.3-fold better result in HbA1c data. Recall that MannKind reported these results of this Phase III trial as “positive”, and indicative of technosphere insulin’s non-inferiority relative to standard of care treatment, as mentioned earlier. There is consistent and clear separation of the curves, and no overlap at any point between standard deviations.

It seems quite obvious that the FDA agrees with the interpretation of Study 009 shown above, as the first CRL received by MannKind requested “clinical data that supports the clinical utility of AFREZZA.”

Subsequently, in May 2010 at the Bank of America Merrill Lynch Healthcare Conference, Al Mann stated that “the 117 trial is our response to the agency relative to the A1C issue.” Study 117 refers to the next study MannKind initiated to address the “A1C issue” that the FDA had with Study 009.

Although Al Mann was careful with his wording regarding Study 009, the FDA’s rejection of the NDA built on the Phase III trial implies that it most certainly was a failure. The superior safety profile of Alfrezza relative to injectable insulin (established in Study 009 and others) is basically countered by an inferior efficacy profile.

Affinity 1

This trial is similar to the original Afrezza trial in T1d (Study 009), although it might have an even more difficult time due to the fact that enrollment criteria for HbA1c levels has been upped to a minimum of 7.5% versus the 7.0% in Study 009. There are other factors that hurt Affinity 1 (we will focus on later), although MannKind investors can analyze vital information of this trial for themselves.

The Takeaway

Study 009 suggested that technosphere insulin (Afrezza) has inferior efficacy versus placebo. It is very likely that data from Affinity 1 will have the same end result, which would prevent Afrezza from receiving FDA approval. Since Afrezza seems to be the primary constituent of MannKind’s valuation, the stock should see a drastic revaluation to the downside once this is realized.