(Updates share details in 7th and final paragraphs)
By Toni Clarke
BOSTON, Oct. 6 Half a century ago, Alfred Mann formed a company whose solar cells now power most of the satellites circling the globe.
Since then, he has helped to pioneer the development of cardiac pacemakers, insulin pumps and implantable technology designed to restore hearing and sight.
Yet at a recent conference in New York, skeptical investors drifted out of the room as Mann, who is 83 years old, sought to persuade them that his inhaled insulin device, Afresa, will revolutionize the treatment of diabetes.
Mann, who founded MannKind Corp (MNKD.O) to develop the product, says Afresa is 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. And studies show it does not carry the same risk of weight gain.
But the failure of other inhaled insulin products has cast doubt on the company's ability to succeed.
Only one out of six analysts polled by Thomson Reuters recommend buying MannKind's shares and, as of Sept. 15, roughly 20 percent of the company's regularly traded shares were held "short" by investors betting that the stock will fall.
On Tuesday, the shares fell more than 30 percent after the company said it didn't expect to sign an agreement with a deep-pocketed marketing partner until after Afresa is approved. Previously, the Valencia, California-based company had said it expected to sign a deal by the end of this year.
"We have enough cash in the bank to last us until well into the first quarter of 2011, so there is no panic," Mann said in an interview.
"We want to get the right deal done at the right price."
Mann, a billionaire who lives in Las Vegas but also has a house in Los Angeles, is constantly promoting his story at medical meetings and investor conferences, and he has injected $925 million of his own money into the company, including a $350 million line of credit, to help it stay afloat.
"Six months ago, the consensus was that this company was going to go bankrupt," said Larry Feinberg, who runs Oracle Investment Management Inc, a $1 billion healthcare hedge fund that owns about 2 million Mannkind shares.
SHADOW OF EXUBERA
Investor skepticism is due largely to the spectacular failure of Pfizer Inc's (PFE.N) inhaled insulin device Exubera, which was approved in 2006 and had been expected to generate annual sales of $2 billion.
But the inhaler was big and bulky and patients were alienated by the need for periodic lung function tests. In the first nine months of 2007, Exubera eked out sales of just $12 million, prompting Pfizer to abandon the product.
A few months later, Lilly and Novo Nordisk of Denmark dropped their inhaled insulin programs, and shortly after that, clinical trials revealed a possible, though unproven, link between Exubera and lung cancer.
"Insulin is a growth factor, so any time you inhale large amounts it has to be a concern," said Dr. Satish Garg, a professor at the University of Colorado and editor-in-chief of the journal Diabetes Technology & Therapeutics.
Garg has acted as a consultant to MannKind, Lilly and Novo Nordisk but does not own shares in the companies.
"I don't think Afresa will be approved without a requirement that patients take lung function tests," he said.
Mann says there is no reason for lung function tests since clinical trials showed no effect on lung tissue at all.
"The only negative in the clinic that we have seen is that some people who are unaccustomed to breathing in powder have mild coughing," he said.
Even so, Exubera casts a long shadow.
"It will be an uphill battle for them to fight that skepticism and to separate their product from Exubera in the minds of physicians and patients," said Thomas Russo, an analyst at Robert W. Baird.
Mann concedes as much, and says the company will probably recommend that smokers, who have more porous lungs than non-smokers, do not use Afresa. "We do not want a smoker with cancer to assert we caused it," he said.
Mann has battled through this kind of turbulence before, and investors who bet against him in the past have often lived to regret it.
In the mid-to-late 1980s, for example, safety concerns prompted Lilly, Novo Nordisk and Baxter International Inc (BAX.N) to drop out of the market for insulin pumps -- devices that continuously deliver insulin to patients with type 1 diabetes through a plastic tube inserted under the skin.
Mann, who had introduced his first insulin pump in 1983, plowed ahead.
Two years later, he created MiniMed Technologies Ltd to develop additional products. At the same time he sold his cardiac pacemaker business, Pacesetter Systems, to Siemens of Germany for $150 million.
Few held out much hope for MiniMed. In the early days its shares traded for less than $2.00 each. But the company was a huge success, and by the time Mann sold MiniMed to Medtronic Inc (MDT.N) for around $4 billion in 2001, the company's shares had hit $192, excluding stock splits.
Some investors believe a similar scenario could play out at MannKind.
"Al is not someone you want to bet against," said Oracle's Feinberg. "He continues to blaze his own trail and defy the odds."
Not that Mann is without his failures.
Eclipse Aviation Corp, a pioneer in the market for very light jets that Mann helped to bankroll, filed for bankruptcy protection, and an insulin pump skin patch developed by MiniMed never saw the light of day under Medtronic.
But he never stops inventing. His companies are also developing products to restore sight and help paralyzed people regain motion.
In terms of sheer sales potential, however, nothing is likely to beat Afresa, a cell-phone-sized product that Mann says will likely be superseded shortly by MannKind's smaller, whistle-sized device known for now as the Dreamboat.
The U.S. Food and Drug Administration is expected to rule on whether to approve Afresa in mid-January. If approved, some analysts expect it to generate sales of a billion dollars or so. According to Mann, they are off "by orders of magnitude."
"I think this is potentially the most significant product in pharmaceutical history," he said. "People on Wall Street don't really comprehend what it is."
MannKind shares were trading at $6.42 on Tuesday afternoon, down 30.2 percent from Monday's close. The stock has traded between $2.00 and $12.30 this year.
(Reporting by Toni Clarke; Editing by Ted Kerr)