The Business of Diabetes: Generex vs. MannKind, Will Either Win?

Earlier this week, Bennet Dunlap (YDMV) asked me to comment on a business story related to the debate over Generex' Oral-Lyn and MannKind's Afresa (see his post "FTNW: Oral/Inhaled Insulin"). Neither of these two products is on the market yet, but at least one opinionated writer, R.J. Steffens, posits that Generex is likely to be more successful than MannKind's Afresa. (see that article here). His logic, explained in the article, is based largely on the FDA, but he does little to comment on the logic based on the soundness of either company's business strategy.

I commented on Bennet's post, but I really didn't have sufficient space in a comment to do this topic justice, as this really more of a business review of the insulin market, thus my latest "Business of Diabetes" posting.

First for some relevant background, you may wish to catch Amy's recent interview with MannKind's chief, Alfred Mann. Amy closes with an appropriate question: Afresa: Dreamboat or shipwreck? She also appropriately notes that "only time will tell". Amen to that.

But R.J. Steffens seens to have already reached the conclusion that Toronto, Canada-based Generex, which has an oral-insulin (technically, its absorbed through the cheeks), so the term medical term "buccal" insulin applies) is going to be the winner of this race.

My response: I wouldn't bet my hard-earned dollars on either company at the moment.

First, let's look at his perspective that FDA approval is getting harder to come by. Actually, more recently, the Fatalood and Drug Administration has been cracking down on many of it's formerly minimalist (or non-existent enforcement of) regulations of the not-too-distant past. But that doesn't mean its gotten much tougher to get an approval, only that the free handouts from the FDA might be over.

The reason: over the past decade, far too many embarrassing safety debacles have occurred under the FDA's watch, including: e-coli laced fruits & vegetables and salmonella-tainted peanut butter under the "food" safety responsibilities at the FDA. On the drug/biotech side of the FDA's responsibilities, the FDA has a track record that is almost as bad, involving huge problems with already approved products such as Heparin (sourced largely from China, from plants that had not been recently inspected by the FDA and which were not adhering to FDA-mandated "Good Manufacturing Practices"), as well as a number of after-the-fact discoveries pertaining to already-approved drugs, beginning largely with the Vioxx scandal in 2004, but continuing with the type 2 diabetes drug Avandia (both of which, BTW, could have been avoided with appropriate post-market analysis that the FDA never bothered to insist upon getting from the manufacturers). Collectively, these things point to beginning of the FDA's "fall from grace" with lawmakers in Congress, and the view that the FDA is no longer an effective protector of the public's foods and drugs.

But none of this means the FDA has gotten stricter; only that it's harder to get a truly dangerous drug approved with poorly designed clinical trials. But if the underlying science for and business model for a new drug is good, I don't think companies will find navigating the FDA all that much more difficult.

Let's have a look at what Generex and MannKind hope to sell: synthetic fast-acting insulin that is delivered without injections. Big whoop. This is viewed by people without diabetes as THE greatest innovation that they believe every person with diabetes longs for; but for most people WITH diabetes, we respond with a yawn. Besides, most insulin-requiring people with diabetes will also need a basal insulin as well as prandial insulin, so we aren't completely avoiding needles just by switching to Afresa or Oral-Lyn (oh, yeah, and don't forget the finger lancets required for testing, so even if you can swallow or inhale your insulin, you're still going to have to puncture your fingers to test). On safety, insulin itself has been used since the 1920's, and synthetic insulin has been used since 1982, and therefore has a very long track record of relatively safe use. But insulin has only ever been delivered into the bloodstream either intravenously (such as in a hospital IV) or subcutaneously, except in the short-lived case of Exubera.

Exubera bombed mainly because Pfizer really didn't know the first thing about the insulin market, and never bothered to research it thoroughly, either (catch two of my posts on Exubera here and here).

Wrong Target?

Despite what Alfred Mann and Generex claim, neither company is really targeting the type 1 universe. If they were, the products they're pitching would look a bit different than they do now. For example, if Generex really wants to reach the type 1 audience, they need to enable dosages in increments smaller than 1 unit, preferrably in tenths of a unit. My basic argument has always been that if a company wants to effectively compete in the insulin segment, they simply cannot afford to ignore the type 1 audience. Pfizer ignored the type 1 audience, and Exubera went bust, costing the company billions. Far too much advertising for insulin, (especially ads for Sanofi Aventis' Lantus product) might even be viewed by some as offensive to type 1 patients -- talking about insulin as a wise "choice" in treatment. I don't know of a single type 1 patient who was given insulin as a treatment "option" or "choice" because it isn't a choice, so ads that address it as such are kind of insulting because they leave the type 1 patient out of the equation altogether. Its almost as if the leaders of the pharmaceutical industry take the type 1 business for granted because we have no other treatment alternative.

Pfizer really screwed up the launch of Exubera up by its decision to completely ignore the type 1 audience, the "blisters" for each dose gave a MINIMUM dosage of 3 units each, which meant that many insulin-sensitive type 1 patients couldn't refine the dosage well enough to even try it. The product bombed with type 1s, a segment that might theoretically have been an attractive target. The CDC estimates that perhaps 75% to 80% of all insulin buyers have type 1 diabetes, although type 2 patients who use insulin generally require a significantly higher volume of insulin because their disease is insulin-resistance. As a result, type 1s consume maybe only 40-50% of all the insulin sold, and type 1s make up a disproportionately large share of all insulin buyers even though we use comparatively little by volume.

Still, we should examine the prospect for these yet-to-be released insulin formulations (and the companies backing them) based on what insulin sales data indicates. First, let's look at a simple fact: both Afresa and Oral-Lyn are both prandial (mealtime) insulins, but neither addresses basal insulin requirements. Increasingly, type 1 patients are turning to insulin pumps which enable them to micro-manage dosages with an unprecedented level of precision. I categorically disagree with R.J. Steffens in his assumption that because Oral-Lyn has not encountered any significant delays in approval, it is likely to be a bigger success. His sister may have suffered from type 1 diabetes complications, but that does NOT render him an authority on life with the disease; you have to live with it personally to make such an assessment.

I believe the bigger issue for both MannKind and Generex and their success in the insulin market will be the fact they are selling prandial vs. basal insulin. The reality based on sales data (companies like IMS Health compile sales statistics on this) is that the biggest (and growing) share of all insulin being sold isn't prandial insulin, it's basal insulin, which helps explain why Lilly's market share in this market has plunged (Lilly doesn't sell a truly basal insulin today, only NPH, which is a mid-range insulin in terms of time-activity profiles).

Have a look at this chart below which is merely repeating a well-established fact on on worldwide insulin sales:


The reasons for these sales trends are many, but it's mostly due to the fact that insulin-using type 2 patients tend to start with basal insulin like Lantus or Levemir only, and may ultimately adopt prandial insulin when that is no longer sufficient. But if you wish to capture some of that volume, prandial insulin is NOT the way to do it, basal insulin is the key. But even Eli Lilly & Co., which has been in the insulin market for nearly 90 years, failed in its efforts to develop a basal analogue insulin, which explains why that company's market share (according to the Indianapolis Star) has fallen from about 83% a decade ago to a bit over 40% today.

Competitive Landscape

Even if more type 2's should be using prandial insulin, they aren't doing that now. To convince them to do otherwise will require old fashioned salespeople knocking on the doors of doctors' offices, a costly proposition to say the least. Or costly (but mostly ineffective) Direct-to-Consumer marketing combined with salespeople. I don't know how many salespeople either have, but its worth noting that both Eli Lilly and market share leader Novo Nordisk have recently beefed up their sales forces in the diabetes segment.

Looking at these insulin products, one could effectively argue that neither is really a "new" product; they're the same old insulin products just being delivered in a different manner. The issue of safety with oral vs. inhalable insulin is perhaps better defined as whether the method of delivering the insulin causes any adverse events? Since long-term usage studies are not required for FDA approval, these questions have yet to be determined, although the FDA may require post-market analysis now, whereas in the past, they rarely bothered.

If these companies hope to capture share of the prandial insulin market, I would suggest that both should have spent some more time observing the issues that are different between type 1 and type 2 patients. They might realize that the challenges facing both groups aren't always the same, even if the marketing folks at these companies want to speak with them collectively. Most fail to reach either audience.

Whether Generex's Oral-Lyn is faster to market ignores the fact that by sales volume, basal insulin is what's selling. And for the type 1 audience, many have migrated to using only a rapid-acting insulin by pump, so the hopes of converting any of those patients to oral or inhaled insulin is next to nothing. For those on MDI, its possible some might find Oral-Lyn or Afresa attractive, but its a lie to position the product as needle-free, because their basal insulin must still be injected the old-fashioned way. And the dosage precision with both products isn't as great as the existing rapid-acting analogues, of which there are now three: Lilly's Humalog, Novo Nordisk's Novolog/Novorapid and Sanofi Aventis' Apidra.

Also, another competitor is now in very late stage development, namely Biodel's Viaject from a Danbury, Connecticut biotech company, which is as close as (if not closer) Oral-Lyn to receiving FDA approval, and because it's injectable insulin, there is no special FDA guidance to obtain approval. This means both will be competing in an already crowded market (with 3 already approved products, and another candidate that is likely to emerge in 2010). All told, there is likely to be 4 rapid-acting insulins on the market when the first of these products hits the market, and because Oral-Lyn and Afresa are not delivered subcutaneously, these products have the disadvantage of having no hope to compete for the business of insulin pump users.

Conclusion

The question investors SHOULD be asking of both Generex and MannKind is whether either of them have done sufficient homework on the U.S. and worldwide insulin market. Based on what I've seen so far, I'd say the answer is no. I'd put my money into a Beverly, Massachusetts-based SmartCells, Inc., a company that is developing an insulin that does not cause hypoglycemia as an adverse event. From my perspective, Todd Zion's company, combined with a strong venture-capital investment as well as funding from both the NIH and the Juvenile Diabetes Research Foundation suggest that this company's prospects are far better than Generex's or MannKind's, at least in the insulin market.