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One of MannKind's most public supporters is Nate Pile, who started his Marketocracy fund in October, 2002. Since then, his returns have averaged 17.88%, which compares to 6.39% for the S&P 500 over the same period. (Before taking anyone’s investment advice, you should always check out their track record. Here's Nate's.)
I interviewed Nate Pile about his enduring optimism for MannKind and afterwards, CCO Castagna contacted me to start a dialogue. It is rare for a company to be open to discussing the key issues upon which their future depends. Pile and I used the opportunity to ask how exactly Castagna plans to sell Afrezza better than Sanofi.
Ken Kam: Where did the salesforce come from and what experience do they have?
Michael Castagna: Our field team will be about 70 people inclusive of management and nurse educators who come from many different companies. About 2/3 have diabetes/cardiovascular experience and the other 1/3 come from the medical device industry.
Due to massive layoffs in the pharmaceutical industry (>3,000 reps in Q2 alone) we were able to hire the top tier reps from several different companies. We are looking to build a high energy nimble company that reflects the speed of the medical device industry, articulation of the science from biotech and a relentless focus on helping patients suffering from diabetes. I am very proud of the talent MannKind has been able to attract and look forward to seeing their results in the coming quarters.
Another key point to highlight is that our sales and marketing leadership team has over 60 years of combined diabetes experience, including several product launches, as well as experience with devices such as pumps and continuous glucose monitors (CGMs).
Kam: Will they have anything else to sell besides Afrezza?
Castagna: Not at this time, but we are actively looking for product acquisition opportunities as well as co-promote opportunities in 2017+. Short term we are focused on getting our launch right.
Kam: Will a sales rep be able to make a living just selling Afrezza?
Castagna: There are over 22M Type 1 and Type 2 people with diabetes who are in treatment and over 4 Million of them are on meal-time insulin. The average territory has over 55,000 insulin prescriptions in their territory per quarter. We consider it to be a clear path for our sales professionals to make an impact for patients and ultimately be successful for a company of our size.
Kam: Are they concentrated in a particular geographic area or are they spread out nationwide?
Castagna: They are extremely focused in key markets that will directly impact ~50% of the meal-time insulin market and indirectly impact another 10-20%. We have had to make difficult choices on our field footprint to ensure we can make an impact while balancing our shareholder interests.
For example, in Boston it is very difficult to obtain physician access as well as managed care coverage for newer agents, if you don’t have advocates at key institutions who will invest the energy for their patients to obtain Afrezza. As a result, in the short term it makes it hard to justify an investment in that market.
We need to focus our energy and resources to help doctors who have prescribed the product and had great success in helping their patients achieve their treatment goals.
As we grow organically we will expand to markets that have late adopters of new treatment options because they will be more comfortable trying Afrezza the longer a product is on the market.
Kam: Can you describe the spirometry and titration issues Sanofi encountered and how you plan to address them?
Castagna: We believe if doctors are able to perform spirometry in their office it will minimize disruption and additional costs to the patient/healthcare ecosystem as well as streamline the office workflow in starting patients on treatment.
We know about 1/3 of our targets already have a spirometry machine in the office, another 1/3 have a referral source and our research indicates a device at a price point of ~$400-$750 is something most physician practices will buy.
There are several off the shelf options for doctors to purchase such as the MIR Spirobank II from www.mgcdiagnostics.com that will perform all the necessary functions for doctors to be compliant with our label requirements and provide the required documentation for patients to be covered by insurance.
It is important that a patient who is already on a rapid acting meal-time insulin convert their units per the label guidelines and titrate to their individual needs as quickly as possible to maintain glucose control. The opportunity to ensure this is clearly understood starts with proper physician and nurse education, which is something we are focused on during our relaunch.
Additionally, we are launching a new titration pack with 180 cartridges, instead of 90 cartridges, which will allow patients to have greater flexibility to adjust their dose during their first 30 days when they are learning how to titrate their Afrezza.
Afrezza is dosed in 4 unit increments, and because it has a different PK profile than injectable meal-time insulin, it is a paradigm shift in how you have to think about treating your patients with a meal-time insulin. When you combine all the facts from our recent publications, presentations and the 3,000+ patients from our phase III programs we have a lot of insight, which will be analyzed and shared in future meetings.
The paradigm shift is ultimately helping patients and healthcare providers understand that they need to think about dosing Afrezza on a per cartridge basis with different strengths, like you would pills, instead of trying to fit a new product into the old model of carb counting to get a precise insulin unit for injection. With Afrezza it’s important that a patient understands how much a 4, 8 or 12 unit cartridge of Afrezza will impact their post prandial glucose and adjust their meal-time dose accordingly.
Doctors have been using insulin the same way for over 30 years, and educating them on how to use this new tool, Afrezza, in their war chest to treat this devastating disease will require them to try the brand a couple times so they understand how it works and build up their confidence over time.
I think about when I first started using my iphone versus my old palm or flip phone, it wasn’t easy at first to sync everything up, transfer files or download the software, but now we can’t even think about what life would be like without our smartphone and we expect upgrades every year or two.
The other favorable trend out there is around the rapid growth of Dexcom and other CGMs which enable patients to measure their glucose real time via their iphone. When Afrezza got approved there were ~60,000-70,000 patients using a CGM and today there are over 150,000 people with diabetes in the US using these types of products. Overtime CGMs will become the standard of care where people will want to manage their glucose in real time to keep their sugars in a tight range without constant highs and lows. MannKind believes our brand will be critical in one’s ability to do this.
These new innovations are combining real time data with real time response feedback loops and allowing patients who have struggled for years to control their disease to actually gain back control of their life again. You can see their stories all over social media and if Dexcom has a successful FDA outcome in July, a patient could go from over 5,000 needle/lancet sticks a year to less than 1,000.
If you look at insulin product innovation over the last 20 years it has been focused on figuring out how to deliver it with a smaller needle, easier pen, or pump delivery to gain better control and creating different PK/PD profiles to manage patients throughout the day. Al Mann is the one visionary who bet his personal fortune to figure out how to deliver insulin in a completely different way to help people suffering from diabetes.
Nate Pile: Besides these two issues, what are the next biggest sales objections?
Castagna: The next big objection is around cost because people perceive Afrezza to be more expensive than currently marketed injected mealtime insulin, but we just completed an analysis and the average cost to society for a rapid acting analogue is around $19/day, but the out of pocket costs vary by insurance design/coverage. In spite of a 35% price increase in injected meal-time insulin in the last 24 months since Afrezza was reviewed by the FDA, Afrezza has had zero price increases during that time, yet we still get accused of being too expensive. We have plans to address this objection, but I am not yet at liberty to share them.
Pile: Will Afrezza still be priced at a premium to competing mealtime insulins?
Castagna: As a back drop, I have worked with payors for over a decade and know this space extremely well, especially given my experience in biosimilars.
We will strive to be more innovative around how payors will evaluate our brand value proposition because you can’t compare a Tesla and a Prius and claim that because they are both electric they should cost the same on a retail or discounted basis. The experience a person gets by sitting in and driving these two cars is completely different despite the fact they both get you from point A to point B.
I admire Elon Musk for the disruptive business models he has created and I believe our healthcare system is ready for change. We are actively looking to do pilot programs with payors as well as shared risk programs with integrated delivery networks to see how we can make a positive impact for patients while managing cost trends and balancing our label restrictions.
Our new strategy will challenge people to think differently about our brand and understand we really are focused on driving a long term paradigm shift to ensure our patients have a great connection to our brand while living with diabetes. How many pharmaceutical brands do you see being rated for customer satisfaction online like one does with Amazon or Ebay? We see people every day post their results with Afrezza. I like when the consumer votes based on their real world outcome because that is what matters at the end of the day.
Pile: You have talked about exploring territories where “approval by the FDA plus some paperwork” is sufficient to start selling the product in other countries - can you comment on whether that is being worked on now?
Castagna: There are some countries where you can launch without additional clinical studies once you have an FDA approval, and we will continue to evaluate these types of opportunities to ensure patients can get access to our brand on a global basis. Unfortunately, they just take time and right now we want to make sure our relaunch in the US goes right the first time under MannKind!
Pile: Though there have been many products that have done well despite having a “blackbox” warning, having it removed from Afrezza’s label sure would be nice. Have you spent any time yet talking with the FDA about any label changes?
Castagna: Many products, including the world's #1 selling brand Humira, have been successful with a “blackbox” warning. I can’t recall the FDA removing a blackbox warning from any brand and I believe the goal is to ensure fair balance so patients are informed of potential safety concerns. I don’t want to minimize the blackbox warning, but I don’t view it as an obstacle to our success. It’s important that patients are aware of the positives as well as the negatives of any product they buy. I have had many brands with and without a “blackbox” warning and it hasn’t been an issue.
Kam: It seems that the perhaps Afrezza’s biggest benefit is “better A1C levels.” What are you able to tell doctors and patients about this benefit now?
Castagna: It has been well established that getting patients to lower their A1C levels to <7% per the ADA guidelines has dramatic impact on their long term outcomes. The one challenge doctors have in helping patients achieve this goal is the constant balance of driving down a patient’s glucose level while balancing risks around hypoglycemia.
Our pivotal trial for Type 1 DM patients study 171 that was published last year has detailed data around hypoglycemia and the time profile of when it occurs that we believe are important. We predict that over time newer basal insulins + Afrezza combined with the adoption of CGM people will have the ability to control their glucose in a tighter range and be empowered to better manage their risks around hypoglycemia.
If people understand the PK/PD profile of Afrezza they will start to understand what Al Mann and many of our biggest advocates have been saying about their experience with Afrezza. The new late breaking data presented last week at ADA is the first step to potentially changing our label and addressing some important challenges around our current label.
Kam: What needs to be done to be able to clearly market this benefit?
Castagna: I believe patient experience for this product will demonstrate over time how this will play out, and as patient experience grows, we can start to look at database options and trends on the key attributes that will be important such as rates of hypoglycemia as well as other efficacy or safety concerns. In the short term, we will continue to see the consumer vote on Instagram,
My Take: Castagna has a big advantage over Sanofi in that he can learn from their mistakes. No product ever rolls out as planned. It takes time to learn how to overcome sales objections. In this case, it does not sound like Sanofi listened to the spirometry and titration issues being raised, so they never addressed them. No wonder they failed.
Castagna says that 1/3 of their target doctors have a spirometry machine in their office. This means that for 2/3 of the doctors, prescribing Afrezza requires two patient visits instead of one.
In today’s healthcare system, doctors get to spend maybe 15 minutes per patient per appointment. Doctors generally put their diabetes patients on a routine cycle of visits spaced 6 months apart. That is the only way they can handle the patient loads that today’s healthcare insurers require of them. Asking the docs to double the number of appointments required per patient in one cycle is asking a lot.
To compound the doctors' objections, the sample packs that Sanofi provided did not provide patients enough time to make the adjustment to Afrezza’s faster-acting profile before they needed to pay a premium price for a refill.
Castagna's plans to address these objections by informing docs of an affordable way to put a spirometry machine in their office, increasing the size of the sample packs, and addressing the price issue, seem to me to be right on target.
Still, Sanofi’s sales force would have overcome these objections if there was a big patient benefit for using Afrezza. The original clinical trials done to gain approval of the produce were designed to prove that Afrezza was “not inferior” to other fast acting meal-time insulins. Being able to claim “non-inferiority” was good enough to win the FDA’s approval, but it is not enough to overcome the doc’s objections.
I see only one benefit that is big enough to overcome the doc’s objections -- it is “better A1Cs.” Better A1C’s are the holy grail for diabetics. With today's continuous glucose monitoring systems, diabetics can now see their blood sugar levels in real time. Combine a CGM system with Afrezza’s ultra-fast acting profile, and diabetics can now control the peaks and valleys of their glucose levels to a degree that results in better A1Cs.
Castagna says there are 150,000 patients using a CGM system today. If I were in his shoes, I would make those patients my initial target market. Maybe it even makes sense to use Dexcom's sales force? If Sanofi had gotten 150,000 patients on Afrezza, MannKind’s future would not be in doubt.
By addressing the sales objections that stymied Sanofi's efforts, MannKind will easily generate more sales than Sanofi ever did. Since Sanofi has set the bar so low, MannKind's success is likely to surprise Wall Street on the upside. However, in order for MannKind to become a home-run for investors and a paradigm shift for diabetics, the claim of "better A1Cs" needs to be supported with data so it can be openly used to market Afrezza.
To explore whether Nate’s portfolio makes sense for you, click here to schedule a One-on-One with Ken Kam.
Disclosure: I am the portfolio manager for a mutual fund advised by Marketocracy Capital Management, an SEC registered investment advisor. Before relying on the opinions expressed in this article, you should assume that Marketocracy, its affiliates, clients, and I have material financial interests in these stocks and may hold or trade them contrary to these opinions when, in our view, market conditions change.
