Sanofi and MannKind hatch plan to boost the margins on Afrezza

MannKind CFO Matthew Pfeffer

MannKind ($MNKD) has been starved for cash, so it was huge for the California-based pharma to strike a deal with Big Pharma player Sanofi ($SNY) to help market its inhaled insulin Afrezza. But Sanofi has something else that can cut the pair's costs and fatten up its bottom line. It has insulin.

Of course, the company with the best-selling diabetes product in the world, Lantus, would have insulin. Now, if the partners can get a Sanofi insulin approved for the Afrezza product, then MannKind will get it at cost and that can make Afrezza more competitive, Mannkind CFO Matthew Pfeffer told investors at the Morgan Stanley Global Healthcare Conference last week. That will fatten their margins on Afrezza.

"They can certainly make it more cheaply than we can buy it anywhere else, which only helps both of us since this comes off the bottom-line, which we then split," Pfeffer said, according to a transcript of the discussion from Seeking Alpha. That just adds to the "attractiveness of doing a deal with somebody like Sanofi."

MannKind COO Hakan Edstrom chimed in, explaining "That makes a significant difference and certainly makes our product even more competitive on the cost basis and particularly in the global market place where pricing is a little bit more, say compressed, than it is in the U.S."

MannKind COO Hakan Edstrom

The FDA approved Afrezza in June and last month, the two companies announced their collaboration. Paris-based Sanofi will provide MannKind with $150 million upfront for the inhaled meal-time insulin drug and as much as $775 million more if Afrezza lives up to expectations. The pair will share global profits and losses, with Sanofi taking 65% and assuming all of the losses in the "early days," Pfeffer explained. The Paris-based pharma has also agreed to advance to MannKind its share of the collaboration's expenses, with a ceiling of $175 million.

Of course, hitting the targets depends on getting acceptance of an inhaled insulin in the market against injected blockbusters like NovoLog from Novo Nordisk ($NVO) and Humalog from Eli Lilly ($LLY). While the appeal of using an inhaler instead of an injector pen or needle to take insulin has certain obvious appeal, an earlier run at that market by Pfizer ($PFE) turned into a costly failure. It pulled Exubera in 2007, after a year on the market, and took a $2.8 billion write-off when the drug flopped. Of course Sanofi is well aware of that, since it had sold its share of the drug to Pfizer for $1.4 billion.

There was a huge difference, however, with the difference relating to the delivery devices. Pfizer's drug was delivered from a container the size of a can of tennis balls while MannKind's inhaler is the size of an adult's thumb.

- here's the Seeking Alpha transcript

Special Reports: Top 10 best-selling diabetes drugs of 2013 | Pharma's Biggest Flops - Exubera

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