Pfizer Burns More Money on the Inhaled Insulin Bonfire

After burning $2.8 billion, Pfizer is throwing yet more money on the inhaled insulin bonfire. The company's announcement that it has a deal to switch former Exubera patients to MannKind's TechnoSphere is a real head-scratcher.

One unanswered question is, exactly how many Exubera patients are there? Pfizer recorded Exubera's revenue in the third quarter of 2007 at only $4 million. You read that right -- Pfizer spent or wrote down $2.8 billion and in return got $4 million.

MannKind thinks it has solved the main problem with inhaled insulin -- Pfizer's Exubera embarrassed its users because it looked like a bong, while MannKind's TechnoSphere is a plastic box the size of a cellphone. (Oddly, the TechnoSphere neither emits disco music nor is a sphere, but this is the inhaled insulin business where logic rarely prevails.)

One thing MannKind hasn't solved is the fact that it does not free diabetics from needles -- they still need to prick themselves for blood tests. And it also doesn't cure a key worry about inhaled insulin -- long-term lung damage.

But the biggest hurdle at this point may be the built-in skepticism of the marketplace itself. Here's what people have said over the last year about inhaled insulin and MannKind's product in particular:

MannKind's data is "less than eye popping." -- Thomas Russo, of R.W. Baird & Co.

We still do not believe that (TechnoSphere) is a viable product and therefore reiterate our Sell rating on MannKind shares. -- Jon Le Croy of Natixis Bleichroeder, Aug. 12 2008.

Nektar announced today that Exubera (inhaled insulin) use has been associated with an increased number of lung cancer cases in ongoing clinical trials. We view this as an absolute disaster for MannKind and do not see a believable scenario in which the FDA would approve another inhaled insulin. -- LeCroy, April 9, 2008.

Based on the risks around (TechnoSphere) data, the lack of a partner, recent withdrawals/discontinuations of inhaled insulin programs by large pharma, the key question of market viability, existing negative physician sentiment, and a high cash burn, we are downgrading MNKD shares to an Underperform. -- Jeffries & Co. note, March 10, 2008.

After an assessment of the financial performance of Exubera, an inhalable form of insulin for the treatment of diabetes, as well as its lack of acceptance by patients, physicians and payers, we decided to exit the product. -- Pfizer, in its own annual report.

Standing alone, then, are MannKind and Pfizer. MannKind has sunk $700 million into its TechnoSphere. That's a lot of money for a market with a history of producing only $4 million in returns.