Jefferies Sees Peak Afrezza Sales of $3.2B, Starts MannKind (MNKD) at Buy

(Updated - August 27, 2014 7:51 AM EDT)

Jefferies initiated coverage on MannKind (NASDAQ: MNKD) with a Buy rating and a price target of $10.00. Analyst Shaunak Deepak said he was taking a contrarian stance ahead of Afrezza launch. He sees peak Afrezza sales of $3.2 billion.

"MNKD is off 33% since the Afrezza approval, reflecting negative Street sentiment about the Sanofi partnership and upcoming launch. Key concerns include docs not adopting Afrezza as a first-line insulin, aggressive counter-detailing from Novo and Lilly to protect their stake in the $6b+ mealtime insulin market, and a bad track record with the only other approved inhaled insulin, Exubera," said Deepak.

"We believe Afrezza could address a major unmet need among patients poorly controlled with oral drugs that have not advanced to injectable agents. Surveys of insulin non-adherence suggest a not insubstantial portion of patients reject insulin due to reluctance to take shots. Accounting for other factors that influence patient avoidance of insulin, we believe Afrezza could be used as a first-line insulin for almost 8% of type 2 patients failing oral drugs, worth $1.6b in peak U.S. sales. We believe Sanofi would promote Afrezza as a first-line insulin to gain and retain patients for its $8b+ insulin franchise," he continued.

"While Afrezza has shown non-inferiority to Novolog as a mealtime add-on in both type 1 and type 2 diabetics, we believe the significantly better A1c reductions with Novolog will be a challenge for marketing Afrezza. Compounding this is the Street’s memory of Exubera as a flop associated with lung cancer. We believe some patients only on basal insulin will be attracted to Afrezza’s benefits in hypoglycemia and weight gain, while some current mealtime insulin users will be drawn to reductions in injection burden and the whistle-like delivery device, which is more discrete than Exubera’s. We expect modest 3% and 6% penetration among type 1 and type 2 patients already on insulin, contributing $200m and $650m in U.S. sales. We see Sanofi as strongly motivated to promote Afrezza in this setting as its mealtime insulin, Apidra, only has a 3% share," he added.

For an analyst ratings summary and ratings history on MannKind click here. For more ratings news on MannKind click here.

Shares of MannKind closed at $7.34 yesterday.

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