MannKind (MNKD) Redux 10/17/13

And, speaking of MannKind (MNKD)…

***excerpted from Issue #225 of Nate’s Notes (dated 10/11/13)***

Though I have done my best to help keep subscribers focused on the idea that the story at MannKind (or any development stage drug company, for that matter) must be considered “speculative” until the drug being developed has actually been approved by the FDA, it is clear from the emails I have received lately that a great many of you have devoted at least a small portion of your portfolio to the story… and are naturally wondering “what the heck is going on with the stock?!”

Unfortunately, having followed the sector for 25 years now, the best I can tell you is that based on where MannKind is now at in terms of the drug development cycle (essentially getting ready to file a New Drug Application (NDA) and then wait to see what the FDA has to say), the stock is likely to be extremely volatile until a verdict is actually rendered regarding the drug’s approvability… and given the ownership structure of MannKind’s stock, it is now caught squarely in the crosshairs of what will likely prove to be a very large (and ultimately very painful for the losing side) battle between bulls who are long the stock and bears who have gotten themselves in quite deeply on the short side over the past couple of years (and this, of course, is only going to exacerbate the volatility mentioned above!).

Accordingly, if you are going to be involved with the story, please make sure to only own as much stock as you can afford to lose all your money on (and perhaps just as importantly, do not own more than you comfortably sleep with at night – as mentioned in email replies a number of you regarding the situation, it is never worth losing sleep over an investment… and if you are, try to sell down to “the sleeping point” as soon as possible!).

That being said, I want to reiterate what I’ve said in the last couple of issues, namely that the fact that the recent clinical trials both met their primary endpoints removed a great deal of uncertainty, and under normal circumstances, this news almost certainly would have caused the stock to trade higher rather than lower; however, as mentioned above, there are an unusually large number of investors and “journalist/bloggers” who have a vested interest in trying to save face (and money!) by keeping the stock down after being wrong about the Phase III results, and they are doing everything they can to keep the stock from rising (and, of course, the long-term investors who want to own the stock are more than happy to keep lowering their bids as they accumulate the stock).

In addition, I want to remind you that if a “rookie” CEO were running the company, I’d be more concerned about where things might be headed; however, given Al Mann’s track record and the fact that he is still putting his own money (and encouraging other “friends” of his to be putting large chunks of their money) into the story at this stage of the game tells me that he really does believe there is still tremendous upside potential despite the disappointing stock performance lately.

And, finally, though the stock could just as easily trade back into the $2s or into the teens from here without any news from the company or the FDA (yep – that’s the kind of potential volatility I’m talking about!), the fundamentals are what will ultimately dictate the stock price as time goes by… and, as mentioned numerous times before, provided you are not becoming too overweighted in the stock, you are strongly encouraged to own at least a small position ahead of the FDA filing (and eventual ruling).  After all, as disappointing as the last few weeks have been, don’t forget that the right piece of positive news (a partnership, perhaps?) could send the stock back up just as quickly as it fell!

No, Steve Jobs Is No Longer MC-ing The Apple Story 9/23/13

Note: the following is excerpted from the September 13th issue of Nate’s Notes, but since it does a great job of capturing the sentiment of the opening quote used in that issue (in bold below), we are posting it again now for non-subscribers as well… and, yes – Apple is still considered a strong buy under $425 and buy under $500.

Successful investing can defined as “having others see your point… later.”

When it comes to Apple these days, all one has to do is look at what the company is actually doing and compare it with what the analysts are saying it is (or isn’t) doing to realize that virtually everyone on Wall Street is still deep in the throes of depression when it comes to accepting the loss of Steve Jobs.

Sadly (very sadly, in fact), there will never be another “One more thing…” delivered by the magnificent magician we all knew was capable of keeping a trick up his sleeve until just the right moment and then springing it on the audience (and the world!) in a manner that would always make all but the most stubborn of critics say “Wow! That’s pretty flippin’ cool!”

However, one of the nice things about the stock market is that even though emotions tend to drive stock prices over the short-term, fundamentals are what ultimately influence prices over the long-haul… and this means that, as long-term investors, the odds are skewed pretty heavily in our favor as long as we can avoid getting sucked into the day-to-day psychology of the market and instead stay focused on what’s really going on with the companies we are invested in.

As mentioned above, because analysts are no longer getting “the Steve Jobs buzz” they used to get when Apple would introduce new products, it seems they are, across the board, confusing the lack of this “mega tingle” with a lack of progress and strategic positioning by the company… and, as a result of the 25-point slide we saw in the stock earlier this week as everyone rushed for the exits in response to the “disappointing” media event on Tuesday, their inability to see the big picture is creating what I believe is a “no-brainer” investment opportunity for us.

I’ve discussed the situation at Apple a number of times already this year, but because I want to make sure as many of you as possible are able to get in on this opportunity while it is still available, I am pounding the table again this month, encouraging you to make Apple one of your largest positions.

In fact, just to help distract you from all the depressing “but this isn’t how Steve Jobs used to make us feel, so it can’t be good!” [my translation] press that is being heaped on Apple lately, I actually thought about recommending “a new company getting into the smart phone business” this month.  I was going to outline all of the strengths this new company was bringing to the table in terms of established customer base, financial strength, cutting edge technology, untapped opportunities, etc., and then (as if you wouldn’t have figured it out already), point out that I was actually describing Apple… but I’m hoping that, by now, you already get the picture!

No, we’re not going to get another “100-bagger” out of the stock at this stage of the game… but based on how things are playing out, I do think that buying it at current prices represents a very conservative way to double your money (or better) over the next two- to four years!  Consequently, I am adding a few more shares to both Portfolios this month, with the caveat that IF new phone sales and acceptance of iOS7 do, in fact, prove to be disappointing later this month (always a possibility), I will have no choice but to eat some humble pie and reverse my position sometime in the future.


Questions (and Answers) Related to MannKind 8/27/13

Some Questions on MannKind Answered By… MannKind! 8/27/13

(the following has been excerpted from a bulletin that was posted to the website this morning for subscribers of The Wagmore Advisory Letter)

As I have discussed a couple of times now in the past couple of bulletins and blog entries, while it is not unusual for the stocks of drug development companies to sell off rather than go up when positive clinical data is announced, it is never fun to watch a stock you own drop drop 33% in a matter of days “despite good news.”

And, while I have tried my best to both privately and publicly answer the questions that have come in from many of you regarding the situation at MannKind following the release of the results of two phase III studies related to the company’s lead compound, Afrezza (a form of inhalable insulin), I believe the following information (excerpted from an 8-K document that was filed with the SEC by MannKind over the weekend in order to publicly address a number of questions that have come up over the past couple of weeks) does a far better job than I could ever hope to do in terms of explaining what’s going on at MannKind.

As those of you who have been following the story in Nate’s Notes already know, the story remains speculative (and will remain so until the FDA finally rules on the approvability of the product), and thus you are encouraged to be careful not to become too overweighted in the stock… however, if you are finding yourself sitting on the fence about starting a position (or adding to one if yours is still small) based on all the negative commentary you may have been reading lately, I hope the information below will help boost your confidence that it is a “gamble” worth taking!

Though my goal in The Wagmore Advisory Letter is to normally have our positions hedged via calls that have been written against them, given the unusual activity we have seen in MannKind’s stock since we first established a position, I continue to believe we are better off waiting a bit longer before pulling the trigger on such a trade (but rest assured I am still watching things closely while we wait for a good entry point).

(excerpted from Form 8-K filed by MannKind Corporation on 8/26/13… if interested, you can find the document for yourself on both the SEC’s and MannKind’s websites)

Frequently Asked Questions about the Affinity 1 and Affinity 2 Trials

(August 26, 2013)

1. Will the results of these trials be enough to satisfy the FDA based on their most recent Complete Response Letter?

The recently completed Affinity trials were designed specifically to address the issues raised by the FDA in their complete response letters. In designing the Affinity trials we had multiple meetings with the agency to get their input and clarification on the protocols and endpoints of the trials. Based on those interactions and the trial results we believe that these studies have indeed met their primary endpoints and that the results will support approval of the product. However, we cannot at this time provide absolute assurance regarding the outcome of the FDA review and whether the agency will agree that the forthcoming NDA submission will be adequate for approval. There can never be certainty that the FDA would not still request that we conduct additional clinical studies. Although it is not relevant for purposes of predicting FDA action, Deerfield evaluated the two Affinity trials, including through an independent regulatory consultant with access to all the key data, and determined that the results met the primary efficacy endpoints and did not show any adverse safety issue that would reasonably be expected to prevent approval of AFREZZA . Such validation was required for Deerfield to provide the second $40 million tranche of the $160 million financing.

2. There have been reports circulating that you withheld data from the Affinity 1 trial, specifically surrounding efficacy of the MedTone inhaler. At least one purported analyst found this “suspicious” and even “unprecedented”. Can you comment?

Efficacy of the MedTone inhaler was never an endpoint of that study. MedTone was included in the Affinity 1 trial at the FDA’s request in order to perform a head-to-head comparison of the pulmonary safety data for MedTone compared to the Gen2 device. Comparable pulmonary safety results would allow us to bridge the Gen2 device to the extensive safety data that we collected in our earlier clinical studies using the MedTone inhaler. As we reported in the conference call, the Gen2 and the MedTone groups in the Affinity 1 studies demonstrated a similar safety profile, thereby meeting this important secondary endpoint of the study.

It would be highly unusual to include data of a regulatory trial that is not a defined key component of a study in “top line” results, which by definition only focus on important elements. That was why we did not publish the efficacy data for the MedTone group. Even so, when asked about those results during the conference call, we replied that the performance of the MedTone and the Gen2 devices were comparable and we do not see any appreciable difference between the two. In fact, the actual difference in mean HbA1c between the two inhaler groups was only 0.08%, which was not significant. This measure for both inhaler groups was non-inferior to that for the injected insulin control arm. This was not surprising, given that we had previously shown that the two inhalers were bioequivalent. It is disheartening that anyone who holds themselves out to be an analyst would use subjective and alarmist language with respect to such a minor result, or if they were confused, would not at least contact us and ask about it before publishing misinformation of this kind.

3. In the past, you have consistently shown a hypoglycemia advantage with Afrezza, yet you did not show an advantage in severe hypoglycemia in Affinity 1. Why do you think this is?

In fact, the data showed a hypoglycemia advantage in every measure of hypoglycemia in the Affinity 1 trial. In 3 of the 4 included measures, this advantage was large and statistically significant. Importantly, we also showed an advantage in severe hypoglycemia, where we had 8.05 incidents per hundred subject-months in the Afrezza arm versus 14.45 incidents per hundred subject-months in the control arm. However, there were not sufficient incidents in this trial for the difference in this particular measure to reach statistical significance; to do so would have required a larger number of severe hypo events. We think the advantages we have shown in every measure of hypoglycemia in this and previous trials of insulin-dependent patients is a very important advantage of Afrezza.

4. Likewise, in the past you have consistently shown a weight advantage with Afrezza, which you did again in Affinity 1, but in Affinity 2 there was a disadvantage. Why do you think this is?

First, it should be noted that the average amount of weight gained by Afrezza users in the Affinity 2 trial was small (only about 1 pound), particularly relative to their average starting weight (about 198 pounds). Even though the weight gain in the Afrezza arm was very small, because the average weight in the control arm continued down, the absolute difference was larger, reaching statistical significance.

One of the challenges of doing a trial in early-stage type 2 diabetics is that their HbA1c levels can be influenced by a range of extraneous factors, particularly changes in lifestyle. In the Affinity 2 study, all the participants were given extensive training in how best to manage their diabetes, including counseling on nutrition, diet, exercise, and so forth. As a consequence, participants’ HbA1c levels were declining throughout the run-in period, even before Afrezza was introduced. We also gave patients blood glucose monitors and required that they check their blood sugar levels several times per day and record the data in an electronic diary. We know from prior experience that with close monitoring patients tend to alter their behavior and behave more as they “should”. The result of this can be seen in the Affinity 2 trial where both HbA1c levels and weight continued to drop in the control group following randomization. We know the placebo could not influence either of these measures, so it was the change in lifestyle that almost certainly led to those improvements. The Afrezza arm was also exposed to this training but there was one key difference. If a patient in the control arm were to decide to “cheat” a bit and have a carb laden meal, it would likely show up immediately in the blood sugar. It is hoped that seeing this would discourage patients from such practices in the future. By contrast, in the Afrezza arm a dose of insulin taken with the meal would much more likely keep the blood sugar excursions in check, allowing the patient to “get away” with such practices, or at least keep the effects from being so alarming. One could speculate as to what effect this potential feedback might have on weight over the course of the study.

5. I am puzzled about the outcome of the Affinity 2 trial. I thought I remembered you saying earlier that you needed a 0.5% change in HbA1c to show superiority, yet you only showed 0.4%. Was the trial successful?

Yes. The study met its primary endpoint of superiority at a highly significant level, with a P value of <0.0001. Demonstrating superiority is what was required in the study and that is what we showed. The FDA did not specify a particular margin that would be needed to show superiority. Instead, the success of such a trial is generally governed by the statistics. Biostatisticians design studies around assumed levels of variability and needed confidence intervals to assess how large the study must be. To do this, they come up with powering assumptions designed to show a particular level of change with an assumed confidence interval. In our case, the Affinity 2 study was originally designed to show a 0.5% reduction with a one-sided alpha of 0.025%, with a high degree of confidence. The actual difference turned out to be 0.4%, with a remarkable P value of 0.0001, demonstrating extreme significance. It is clear that in Affinity 2 we demonstrated the superiority of Afrezza in an unequivocal fashion.

6. I noticed that once again in your Affinity 1 trial you showed a significant improvement in fasting blood glucose levels. First, do you know why that is? And second, with that level of improvement, how is it that you did not show better HbA1c levels in the Afrezza arm, but only showed non-inferiority? Doesn’t that mean you did a poorer job controlling glucose excursions at mealtime?

First, we must admit that we are not certain as to what causes that lowering of fasting blood glucose that we have seen in such studies of Afrezza. Some experts have postulated that it is related to a reduction in insulin resistance or perhaps from reducing the level of pancreatic stress. It would be difficult to confirm what causes this effect on fasting glucose and we have not yet attempted to do so, although we have seen it consistently in all our earlier trials in type 1 and late type 2 diabetes.

In analyzing HbA1c results, it is important to remember that HbA1c is essentially a proxy for average blood glucose levels. Fasting levels can affect this, but so can many other things. As an example, frequent plunges in blood glucose levels, including those resulting in hypoglycemia, from any excess insulin remaining in the bloodstream following meal digestion, can have a dramatic effect on HbA1c. It would be hard to argue that this late plunge of glucose is a good thing, yet it does lower HbA1c levels. As such, HbA1c is an imperfect measure of the beneficial effect of a prandial insulin. However, this is the accepted measure of efficacy used today by the FDA.

As has been consistently shown in earlier trials we have shown in both these Affinity studies that Afrezza reduces both the prandial rise in blood sugar following a meal and also reduces the frequency and degree of hypoglycemia, smoothing out the curves, so to speak. But this does not necessarily result in better HbA1c results, which is why the Affinity 1 trial was designed to be a non-inferiority trial, not a superiority trial. Our primary objective with Affinity 1 was to produce data that would support approval of this product and get it on the market. We expect that in real like use the inherent advantages of Afrezza over other prandial insulins and also non-insulin anti-glycemic agents will quickly become apparent, making it a commercial success.

7. I have been reading accounts on the message boards of the experiences of someone who claims to have been a participant in the Affinity 1 study. Is this guy for real? Don’t your patients have to sign some form of confidentiality agreement?

There have been considerable postings on the message boards, both touting the benefits of Afrezza and also panning this product and MannKind. We are aware of a number of actual patients who have indeed participated in our trials that have posted on the message boards — to our knowledge all very positive. The particular posting on August 16 was certainly by a patient in the Affinity 1 study. Patient confidentiality rules under the HIPAA rules generally prevent us from knowing the identity of patients in the trials. However, this particular patient and his doctor had contacted us seeking continuation of Afrezza therapy after the patient’s trial participation was completed. We eventually learned from him that he had been posting messages of praise on the boards. Even had that not occurred, some of the posts demonstrated a degree of knowledge about the mechanics of the trial from a patient’s perspective and that convinced us he was genuine. His experience was real and was good. But there is nothing preventing someone from claiming to have been a patient and reporting good or bad experiences that may even be completely false. While we are sure many people who post on these boards are honest and sincere, we are equally certain that there are many who are neither, but who are only trying to advance some self-serving agenda.

Patients in the clinical trials are not required to remain silent and they do not sign confidentiality agreements on the theory that there is little that can be learned from the experiences of one patient. Only the clinicians are required to sign such agreements since they may have many patients in a trial and would be better able to predict that trial’s success. Therefore the clinician must keep that knowledge confidential (even from MannKind, the sponsor, at least until the study is unblinded.)

8. I noticed in SEC filings the week of August 19 that most of your key officers had sold some of their stock, at what seems like a very low price. Have they lost faith in the company or its prospects based on the results of these trials?

The Form 4 filings with the SEC were not reporting sales of stock. There were no shares sold by any officers into the market during that week. What happened was that in recognition of their performance, the Board of Directors had granted all of our officers restricted stock, some of which vested that week. When this happens, it is considered compensation by the IRS, which requires the company to withhold taxes based on the market value of the stock on the date of vesting. But because no cash is being paid out, the company instead simply withholds some shares to “pay” the tax, which is then paid by the company. The surrender of those shares was what was being reported on the Form 4’s. This can be seen in a footnote at the bottom of the Form 4. If you check, you will see similar filings at around this same time last year and years prior, for the same reason.

What’s Going On With MannKind (MNKD)? 8/19/13

Some Thoughts on the Recent Action in MannKind’s Stock 8/19/13

(note: the following blog entry is a paraphrased and expanded-on update to a bulletin that was posted on the website for subscribers of The Wagmore Advisory Letter on 8/16/13)

Well, in hindsight, it obviously would have been a great idea to go ahead and write some calls against our MannKind position immediately after we purchased it last week, eh?

Though the strategy of buying a stock and then waiting for further price appreciation before pulling the trigger when it comes to writing calls agains the position is working out with the NVIDIA shares we bought on the same day, I am afraid that MannKind’s shares are being subjected to the classic “buy the rumor, sell the news” sort of action that often hits drug development stocks when the underlying company releases positive clinical data… and the selling pressure is being further exaggerated by the fact that not only was the data released just before a “Dow down 200+” day (never an environment to spur bullish sentiment!), but Friday was also an options expiration day as well (which often means additional volatility as traders try wring as much action as they can out of whatever trend happens to be in place heading into expiration).

In addition, there is still a very large short interest in the stock, and though history suggests that the smart players were using the lucky gift of last week’s “buy the rumor, sell the news” weakness to cover their positions, history also suggests that the greedier among them were instead assuming that a declining stock price meant they should double-up on their positions “because the data was ‘bad.'”

However, as the saying goes, “bears make money, bulls make money… and pigs get slaughtered” when it comes to how the stock market treats its participants over the long-haul, and with both of the phase III studies in question pretty clearly meeting their endpoints, I think only a greedy fool would continue to have more than just a small bet on the table if they wanted to bet against approval.

The risk (and one of the primary hopes of the bears) was that these trials would produce data that wouldn’t justify approval, and now that this risk is off the table, we can stop worrying about it (with the caveat that the FDA has disagreed with me in the past… and I’ve learned the hard way over the years to never assume that a slam dunk is going to be a slam dunk when it comes to their rulings!).

That being said, the concerns raised over the past couple of days by some of the bearish analysts regarding certain components of the data that suggest doctors and patients may find reasons to not adopt Afrezza do have some validity… but they are concerns that will not come into play until the drug is actually on the market (assuming it gets approved) and we find out whether or not doctors and their patients share the same concerns as the analysts.

Consequently, though you would never guess it from the recent action in the stock price, the scoreboard after the most recent set of news actually reads “bulls: 1, bears: 0” in terms of how the fundamentals are shaping up for investors.

And, amusingly, while it remains to be seen how doctors will interpret the clinical data when it comes to helping their patients find the best solutions to their problems (and, again, assuming that Afrezza does, in fact,wind up being one of their treatment options), it is worth noting that virtually everyone who has written something negative about the MannKind story in recent days has spent a fair amount of time dwelling on the fact that all previous attempts at an inhalable insulin have flopped (which, they believe, implies that Afrezza will flop too)… and though past efforts are definitely worth keeping in mind, they are a dangerous point upon which to base one’s bearish case when it comes to new technologies – especially when those new technologies are being funded and brought to market by someone with the track record of Al Mann (the company’s Founder and CEO).

Yes, there is admittedly still a long ways to go between here and actual sales, but it looks like the conversation has now shifted from “will the data support approval?” (I believe it will) to “will the data result in meaningful sales?”… and I don’t think there is any way to know the answer to this question until the product is on the market and we see what happens.  However, given that virtually all of the negative press the company is currently receiving seems to coming from people who have never liked the story (and probably have a great deal invested in seeing the company fail), I wouldn’t put too much time into listening to the noise (especially considering how wrong they turned out to be regarding the recent phase III data).

I remain bullish on the story, with the same caveat that has been repeated over and over again Nate’s Notes for the past couple of years now, namely that it is speculative and you should not own “too much” of it… and though I can’t tell you for sure where the stock will go over the short-term, I can tell you that the positive phase III data released by MannKind a few days ago removed a great deal of risk from the equation.

Now that this uncertainty has been removed, history suggests that the stock ought to start working its way higher again once the current round of profit-taking and panic-selling is cleaned up… and once this has happened and trading gets back into a more normal “flow,” I will start looking for a good entry point for us to write some calls against the shares we purchased last week.

In summary: Until the FDA actually grants approval of Afrezza, there remains a risk that the drug will be turned down (though I believe the latest data dramatically reduced the size of this risk).  In addition, once the drug is approved, there is also the risk that sales will never materialize to the degree that those in the bullish camp are hoping for (and these sales, in turn, will be somewhat dependent on the “risk” of what kind of partnership – if any – the company is able to enter into between now and commercialization)… and, consequently, I want to remind you that this story remains speculative and you should be careful not become too overweighted in the stock!  That being said, the odds of success for this company actually went up last week, not down, and if you still have some room in your portfolio to comfortably add a few more shares, you are strongly encouraged to take advantage of the current sell-off to add to your position!

Stay tuned!

Latest Update on The Wagmore Advisory Letter 8/5/13

(excerpted from the most recent Nate’s Notes Inter-Issue Commentary – 7/31/13)

After a lot of back and forth with my wife about how much money we are willing to tie-up “for eternity” (or at least as long as I write the newsletter) – as well as insights gleaned from conversations with subscribers interested in the new service regarding their own portfolios – I have decided that $15,000 is the most appropriate amount to use as a starting figure in the “real world” account that I will be using to track the performance of the new service.  However, if you have less (or more) than this amount that you can put towards the trades, it should be fairly easy to scale your trades proportionally (i.e. if you start with $30,000, you will simply buy/sell twice the number of shares and contracts that we do in the newsletter).

Also, though there is a part of me that likes the idea of being able to use margin from time to time, a big reason I am starting this service is in response to requests from my long-time subscribers to help transition them to a more conservative approach to the stock market as they approach retirement.  For this reason, along with the fact that I am under the impression that many of the initial subscribers to the service will be making the trades in their retirement accounts (where margin trading is not allowed), The Wagmore Advisory Letter will not be using margin when making trades.

And finally, as a practical consequence of the above two items, this means that, at least initially, we will likely be able to establish positions in 4-7 stocks against which we will then start writing covered calls on a rolling basis.

Because this approach to investing will naturally require us to make trades more frequently than just once a month (as we have been doing in Nate’s Notes for the past 18 years), I have decided that rather than have a set publishing schedule for a single eight-page issue each month, the service will instead consist of short commentaries, updates, and trade recommendations that will be published periodically throughout each week (and, it should be noted, will only be distributed electronically).

I am very excited about the upcoming launch of The Wagmore Advisory Letter, and as mentioned in last month’s issue, I hope you will take advantage of my invitation to sign-up to get the first month free (without obligation to continue, no “auto-renewal” plan you’ll need to cancel, etc.) by visiting and completing the simple “two-click” sign-up process (and then don’t forget to work on getting cleared to write covered calls in your brokerage account too!).

Thanks again for your interest in (and support of) this new service – after months of planning and work to get it set up, I can’t wait to get started!