The decision by Pfizer Inc. to pull the first inhalable insulin off the market is turning into the ultimate mixed blessing for MannKind Inc.

The demise of Pfizer's Exubera means one less competitor for the Valencia biotech's own inhalable insulin called Technosphere. But Pfizer's botched launch of its product after billions of dollars in investment is widely feared to have poisoned the well for MannKind and other companies with similar products.

And unlike the competitors, the Valencia biotech is seen as being the most vulnerable because founder Al Mann who already has pumped hundreds of millions of dollars of his personal fortune into the company has yet to sign up a deep-pocketed strategic partner to help bring his product to market.

"It doesn't look like anyone is buying what he's selling," Natixis Bleichroeder analyst Dr. Jon LeCroy said of Mann's efforts. He considers the potential market for inhaled insulin to be overrated.

Pfizer announced Oct. 17 that due to lackluster sales it would take a $2.8 billion charge against its third quarter and pull Exubera off the market, less than two years after obtaining regulatory approval. Exubera failed to gain acceptance among doctors and patients, because its inhaler device was difficult to use and there were concerns the insulin could damage lungs. Insurers also balked at covering the device.

MannKind, which has long proclaimed its product far superior to Exubera, is not in any danger of running out of money immediately, thanks to Mann himself. The billionaire extended and expanded his credit facility to the company to $350 million, due in 2009. And the company has been accessing a $350 million shelf registration, with Mann and institutional parties buying shares. (Mann's stake is now up to 44.5 percent in the company, which has a market cap close to $710 million.)

All that should be enough to get Technosphere to the point where MannKind can submit an application to the Food and Drug Administration for the product's approval. But it would still take an additional hundreds of millions of dollars and more importantly, big marketing muscle to penetrate the insulin market, especially after Pfizer's flop. Technosphere would be MannKind's first product.

"Exubera's withdrawal is very bad for MannKind because it does not have a partner and Technosphere Insulin represents almost 100 percent of its valuation," LeCroy told investors the day after Pfizer's announcement.

Indeed, Pfizer itself was playing strategic partner with its own inhalable insulin device, which actually was developed by a small Northern California company called Nektar Therapeutics.

Personal fortune

Mann, 81, whose estimated fortune of $2.1 billion places him at No. 18 on the Business Journal's list of Wealthiest Angelenos, is in no danger of going bankrupt himself. However, if his company flops it would tarnish a long career that has seen him found several successful companies. The most notable was Minimed Inc., which dominated the market for insulin pumps and was sold to Medtronic Inc. for $3.3 billion in cash in 2001.

It also may put a crimp in his plans to found medical device institutes at universities around the world, such as one he funded at USC with a $100 million donation.

Yet despite a spooked market, MannKind's executive leadership insists that Pfizer's bungling has not significantly changed its game plan.

Mann declined comment for this article, but Chief Operating Officer Harkan Edstrom said last week that clinical trials were on schedule and potential partners were talking with their company. "We believe this is a very viable product on a global basis," said Edstrom.

Yet the investment community remains skeptical. Some global players in the injected insulin market have their own inhalable products in clinical trials. Eli Lilly and Co. licensed its technology from Alkermes Inc. in Cambridge, Mass., and could have its product hit the market around the same time as MannKind's.

A year or two later may come Novo Nordisk A/S, considered the market share leader in conventional insulin, which has partnered with a Hayward company, Aradigm Corp.

"With the difficult launch that Pfizer has experienced we do not see how the inhaled insulin market will be able to sustain three players," said LeCroy, who has a sell rating in MannKind shares, a buy on Nektar, and a hold on Alkermes.

Meanwhile, San Carlos-based Nektar, which will now have the right to shop its Exubera product around to other big pharmas in a second try for market success, may find a potential rescuer in Johnson & Johnson, the giant New Brunswick, N.J.-based pharmaceutical and personal care products firm.

Johnson & Johnson does not make insulin but markets support products, and recently announced an intention to become a global player in the management of chronic diseases such as diabetes. "This is a golden opportunity for any company with a strategic commitment to diabetes," said Andrew Forman, an analyst at WR Hambrecht & Co.

Making compromises

Forman personally is rooting for MannKind and its competitors to succeed his father died of complications from diabetes several years ago but even he believes MannKind will likely have to make significant compromises to get Technosphere to market.

"MannKind's strategy was to have Pfizer do the heavy lifting and it turned out to be too heavy even for Pfizer," said Forman, who has a hold recommendation on MannKind and Alkermes, but a buy on Nektar.

"The perception out there is that the market doesn't see any future for inhaled insulin, but people who understand the market realize this was a Pfizer flop, not an Exubera flop," he said. "Still, that doesn't make things easier for MannKind."

One intriguing scenario Forman suggests is that Mann himself could a buy a significant stake in Nektar, and use his influence to make sure Technosphere's superior technology becomes the second-generation product for any new strategic partner.

MannKind's platform does offer several advantages to Nektar's. Exubera's bulky inhaler is widely derided as resembling a marijuana bong and was depicted as the Hindenburg and the Titanic on Internet industry blogs following Pfizer's pull-out. Technosphere, on the other hand, is closer in size to an asthma inhaler.

And therapeutically, Technosphere's inhaler delivers its powdered insulin in a way that regulates blood sugar far faster than other insulins. As far as complications, the company is conducting long-term studies to demonstrate that Technosphere won't reduce a patient's ability to take deep breaths, a main fear among inhaled insulin critics.

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