* FDA to rule on Afrezza approval by Dec. 29
* Short interest builds up in MannKind stock
* CEO Mann confident of ultimate approval
By Toni Clarke
BOSTON, Dec 23 MannKind Corp (MNKD.O) is about to learn whether U.S. regulators will approve its experimental inhaled insulin device, Afrezza, as a treatment for diabetes.
Afrezza is a whistle-sized inhaler that is designed to deliver a more effective rapid-acting insulin than injectable products such as Eli Lilly & Co's (LLY.N) Humalog and Novo Nordisk's (NOVOb.CO) NovoLog.
In March, the FDA said it would not approve the device until MannKind provided more information about it. The company's shares, which had reached a year high of $11.12 in January, fell to a low of $4.76 at the end of May. Since then they have rebounded somewhat and were trading at $8.45 on Thursday on Nasdaq.
The Valencia, California-based company believes it has provided the agency with what it needs, but expectations for the product's approval on Wall Street are not high.
As of Nov. 30, roughly 24 percent of the company's regularly traded shares were held "short" by investors betting that the stock will fall.
The FDA is expected to make its decision by Dec. 29.
"We continue to think that Afrezza will again be delayed by the FDA and that the recent price appreciation creates an opportunity ahead of what we think will be a major negative catalyst for the stock," said Jon LeCroy, an analyst at Hapoalim Securities.
Investor skepticism is due in part to failed attempts by much bigger drugmakers -- particularly Pfizer Inc (PFE.N) -- to develop inhaled insulin.
Pfizer's inhaled insulin device, Exubera, was approved in 2006 and had been expected to generate annual sales of $2 billion. But the inhaler was bulky and patients were put off by the need for periodic lung function tests. In the first nine months of 2007, Exubera generated just $12 million in sales. Pfizer abandoned the product.
Alfred Mann, 85, the company's founder and chief executive, points to the fact that Afrezza is much smaller than Exubera, and he does not believe lung function tests are necessary.
"I have no doubt that Afrezza will be approved," he said in a telephone interview from Hawaii. "Whether it happens next week is something I can't predict, but if it's not approved next week I expect it to be approved some time in 2011."
Diabetes affects about 24 million children and adults in the United States. In Type 1 diabetes, the body does not produce insulin, a hormone that is needed to convert sugar into energy. People with the more common Type 2 diabetes do not produce enough insulin or cells ignore the insulin.
Mann's bold predictions for Afrezza -- he believes it will one day be the biggest medicine on the market -- are dismissed by some analysts as hyperbolic but there can be no doubting the strength of his belief in his product. Since its inception, Mann, who owns roughly 45 percent of MannKind, has pumped in $925 million of his own money to keep MannKind afloat.
And he has a significant entrepreneurial pedigree. More than 50 years ago, he formed a company whose solar cells now power most of the satellites circling the globe, and he has since helped pioneer the development of cardiac pacemakers, insulin pumps and implantable technology to help hearing.
His success has made him one of the world's richest men, and not everyone is willing to bet against him.
Jason Butler, an analyst at JMP Securities, said in a recent research note that he is confident that the company will have adequately addressed the FDA's questions and that Afrezza will be approved "on or shortly after" the Dec. 29 deadline.
Even if the FDA issues another letter requesting more information, Butler said he believes the agency will not require new, long-term clinical trials, which could delay approval for up to 18 months.
Michael Tong, an analyst at Wells Fargo Securities, believes that even if there is a delay to Afrezza's approval, it will ultimately turn out to be a significant product.
"Afrezza could become the therapy of choice for the treatment of diabetes based on its performance, convenience, and ease of use," he said in a recent research report.
There is nothing Mann would like better than to see short sellers of his stock "squeezed."
"That would be fun," he said. (Reporting by Toni Clarke; Editing by Gary Hill)