Pfizer's problems hurting MannKind: billionaire Al Mann may dig deep to save company.

When a big pharmaceutical company blazes a path with a new product, it often makes it easier for competitors to introduce their own version. MannKind Inc. is finding it cuts the other way, too.

Pfizer Inc.'s bungled efforts to introduce inhalable insulin to diabetics is crimping MannKind's efforts to get its own similar product to market. Founder Al Mann, 80, who has famously started one successful company after another, suddenly is facing one of his biggest challenges yet. He may be forced to dig deep into his own pockets to save his company.

MannKind's stock has swooned and its cash on hand dropped to $240 million as of the end of June--down $126 million in three months. That drop, largely due to expenses in developing the company's proprietary Technosphere insulin device, has prompted Mann to extend his personal $150 million line of credit to the company for another year.

Moreover, Mann pledged last week to purchase, if necessary, up to half of any secondary offering to bolster investor confidence. MannKind on Thursday filed a shelf registration for up to $350 million in debt, equities and warrants--which would put Mann on the hook for up to $175 million.

"It would be a lot easier for MannKind if the Pfizer program was doing well," said BMO Capital Markets analyst Robert Hazlet, who covers Pfizer. "Initial expectations were that patients would flock to (inhaled insulin), but the market hasn't developed yet. It's certainly not going to become a $2 billion product by 2010 (as many expected)."

Pfizer, which developed its Exubera inhalable insulin and device with smaller partner Nektar Therapeutics, is widely viewed to have poorly introduced the product by focusing on educational product programs aimed at doctors, rather than also heavily advertising directly to consumers.

There also continues to be concerns that the insulin particles will irritate sensitive lung tissue and increase cancer risks.

Mann asserts that Exubera is a flawed product when compared to MannKind's own Technosphere device and many analysts agree.

MannKind of Valencia not only features a smaller, palm-size inhaler, but uses a new type of insulin which studies indicate works much more like the natural insulin that the body makes to control blood sugar levels, which rise and drop out of control in untreated diabetics.

"We do not consider Technosphere to be a competitor to Exubera," Mann said during an Aug. 3 conference call.

Mann, who already has poured hundreds of millions of dollars into MannKind, could not be reached directly for comment for this story.

Looking for some sugar

Still, to get Technosphere to market, Mann has admitted during two conference calls this month that Exubera's woes are scaring off interest from big pharmaceutical companies that could help MannKind pay to finish development and bring it to market.

That led to last week's shelf registration that would enable the company to complete most of Technosphere's late-stage clinical trials. Potential co-development partners now want to see at least preliminary trial results, which won't be available until next year, before they make a decision.

The company hopes to file a drag approval application with the U.S. Food and Drug Administration by the end of next year, with approval possible as early as 2010.

While Mann, who currently controls 33 percent of the common stock, said Thursday that he's willing the buy at least 50 percent of any new offering, he typically has been wary about having too large a stake in the company.

But the company's policy also has been to have at least 12 months cash on hand, which will be harder to maintain over the next 18 months given the cash burned during clinical trials. "I remain personally committed to MannKind and its potential." he told analysts.

The company last week reported a second quarter loss of $72 million (minus 98 cents per share). That compares to a loss of $54.8 million (minus $1.10 a share) a year ago, which was prior to a secondary offering that increased the number of shares outstanding.

MannKind, which formed in 1991 and went public in 2004, represents a slight departure for the billionaire biomed entrepreneur. He made his fortune developing innovative medical devices--long-lasting pacemaker batteries, insulin pumps, sophisticated hearing implants--within private companies and then cashing out to larger firms at a premium.

But with a product that's both a drug and a device, the hundreds of millions of dollars necessary to gain regulatory approval and launch Technosphere required turning to the public markets earlier. However, that also has meant that the company has had to suffer its misfortunes publicly, including seeing its stock price fall to about $10 a share, down more than 40 percent from a year ago.

"The Exubera disaster has finally caught up with MannKind," said CIBC Capital Markets analyst Elliot Wilbur.

Aside from the lingering concerns over risk to lung tissue, inhalable insulin hasn't been an easy sell, particularly since doctors and patients are familiar and comfortable with the injectable product, said Hazlet of BMO Capital.

Pfizer also has had trouble convincing insurers that Exubera provides enough advantages, beyond more convenient dosing, to be worth reimbursing.

In response, MannKind has designed its clinical studies not only to gain regulatory approval for the widest possible patient population, but also convince insurers of its superior benefits right out of the gate.

The body's pancreas releases natural insulin to keep blood sugar levels from getting too high. When a person can't make enough of their own insulin, or can't use it properly, supplemental insulin is either injected or taken orally to help.

Ideally, supplemental insulin would start working just as the body needs it, such as while digesting a meal, and stop working when that's finished so as to minimize negative side effects. But even so-called fast-acting insulin, such as the type Exubera uses, has to be taken at least 45 minutes before a meal and may linger long after its job is done. Technosphere's insulin takes only 10 to 14 minutes to reach peak concentration.

While analysts are inclined to agree with Mann that Technosphere is better, that's not stopping investors from lumping the two products together.

"When you're a money-losing company you are more impacted by what goes on around you," said analyst Scott Henry, who covers MannKind for Oppenheimer & Co.

Still, Henry, who has lowered Oppenheimer's rating on MannKind shares from "buy" to "neutral," considers the company's long-term prospects good.

"Right now, MannKind is controlling what they can control--they're developing their drug and doing on their schedule," he said.

By DEBORAH CROWE

Staff Reporter