MannKind (MNKD) & Sanofi (SNY): Why Afrezza Sales Are Likely To Climb


MannKind Corporation (NASDAQ: MNKD) | Sanofi SA (ADR) (NYSE: SNY)

MannKind has been a major topic of conversation for biotech investors for quite some time now. However, if you’re new to the stock, the conversation is relatively easy to explain. Early in the year, MannKind received FDA approval for Afrezza, an inhaled insulin. MannKind and its investors expected Afrezza to fly off of the shelves. Unfortunately, the launch of the treatment hasn’t gone nearly as well as anyone expected. As a result, MNKD has fallen quite a bit in the market. This is where Sanofi comes in.

Sanofi is the company that MannKind partnered with for the commercialization of Afrezza. It is up to Sanofi to create marketing plans and, perhaps more importantly, work with insurance companies for the coverage of Afrezza. You see, in today’s society, few consumers pay for the cost of their medical treatments 100% out of pocket. There’s quite a bit of reliance on insurance companies. This is where problems start with regard to sales of Afrezza.

MNKD & SNY Need Stronger Insurance Coverage

Many investors are bearish on MNKD because of the insurance issue. In fact, many believe that Afrezza isn’t covered at all. However, that’s not the case. In fact, most insurance companies cover MannKind’s prized product in one way or another. What’s causing the tears to fall in this case are, well… tiers!

Generally, insurance companies have four tiers with regard to prescription coverage. These tiers decide how much money insured patients will have to pay out of pocket for their medications. Tier 1 is generally for low cost generics, tier 2 is for preferred brand name prescription medications, and tiers 3 and 4 are for higher cost prescription medications and medications that may be deemed to be effective but not the best choice for most patients. So, MannKind and Sanofi want Afrezza to be listed in tier 2. In this tier, patients would have the lowest co-pay and doctors are free to prescribe medications without having to worry about restrictions.

Unfortunately for MannKind, Sanofi, and their investors, Afrezza is currently listed as a tier 3 medication with most insurance companies. This means that consumers who would like to try MannKind’s product will have to pay a higher co-pay and possibly deal with restrictions, which is harming sales volume on the treatment. However, this is not an uncommon issue. In fact, many treatments are listed as tier 3 medications until insurance companies have the ability to properly gauge cost and effectiveness, at which point solid candidates are generally moved to tier 2 – something MNKD, SNY, and their investors want to see happen relatively soon.

Why Afrezza Is Likely To Move To Tier 2 In 2016

This is where things get interesting. For MannKind’s Afrezza to be moved into tier 2, Sanofi will need to negotiate with the insurance companies and answer two very important questions. Questions which, if answered correctly, could prove to be major profit drivers for MNKD and SNY.

  1. Is Afrezza Priced Competitively – First and foremost, insurance companies, as you would imagine, are worried about medication prices. Unfortunately, Afrezza is priced relatively high when compared to injected insulin. However, for the tier 2 position, SNY would have no problem reducing the price of the treatment as this would build more demand and lead to more sales of Afrezza. So, this question’s in the bag.
  2. Does Afrezza Meet Needs Not Currently Met By Competition – The answer to this question is a big “Yes”! You see, MNKD created something phenomenal when they created Afrezza. To use this product, patients don’t have to inject themselves. Considering about 10% of the population – including myself – are afraid of injections, this is an adequate need! Also, it is estimated that 14 million people work outside without access to public restrooms and therefore have trouble finding places to give themselves injections. 9% of this population is estimated to be diabetics. The product offering by MNKD addresses this need!

At this point, the fate of MNKD and SNY with regard to Afrezza is in the hands of Sanofi as the company negotiates with insurance providers. However, it seems as though this is going relatively well. In a statement made during the Q2 MNKD earnings report, Hakan S. Edstrom, CEO of MNKD had the following to say…

…insurance coverage continues to slow the process. At this point, permanent formulary placement decisions have not yet been made by most plans. These decisions are typically made 6 to 12 months following the launch. The good news is that we are now in that period and Sanofi’s discussions with managed care organizations are ongoing, and we expect the insurance coverage to improve.”

Considering where we are in the launch of MannKind’s inhaled insulin product, things look like they are going to start moving in the right direction. Also considering the numbers, if MNKD and SNY do get Afrezza into tier 2, there is quite a bit of money to be made here. Here’s a brief overview of the numbers…

  • Diabetic Population – There are 318.9 million people in the United States, 9% of whom are estimated to be diabetic. That works out to be about 28.701 million people.

  • Population Where Afrezza Would Be A Great Match – It is estimated that 10% of consumers are afraid of shots. Therefore, 2.8701 million diabetic consumers would be a great match for MannKind’s Afrezza! Considering that 14 million people are limited by their work with regard to places to inject themselves and 9% of them have diabetes as well, this adds another 1.26 million people for a total of 4.1501 million prospective patients.

If MNKD and SNY got their treatment prescribed to just 1% of the population that would be a great fit, the company would see prescriptions amounting to 40,000 plus! However, 1% is an incredibly small number. It would be a reasonable expectation that around 10% would be likely to look to MNKD for their treatment, which works out to 400,000+ prescriptions considering, of course, that Afrezza does make it to tier 2. All in all, there is incredible potential here!

What Do You Think?

Where do you think MNKD and SNY are headed and why? Let us know in the comments below!

[Image Courtesy of Reuters]


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