10/25/2021 – In 2006, the market was excited about Pfizer’s (PFE) new inhalable insulin, Exubera. What patient wouldn’t want to inhale insulin rather than inject with scary needles? Never mind that 1) the device was bulky, 2) the dosing inflexible, 3) the price exorbitant, 4) the requirement for pulmonary function tests was expensive and burdensome, 5) the decrease in lung function, 6) the fact that patients would still need to poke themselves daily for basal insulin and glucose monitoring. Anyone who understood clinical pharmacy knew this product was a disaster. Pfizer would withdraw Exubera from the market by October 2007 and take a write down for $2.8 billion.

Then came Mannkind Corp’s (MNKD) attempt to revive inhaled insulin. Afrezza approved June of 2014 and MNKD soared to a market cap of $4.3 billion. Seven years later they sit $1.14B. Afrezza had revenue of $32.3 million in 2020. Why did the market think MNKD could succeed where Pfizer had failed? Why because their device was smaller and more convenient of course! That’s right, Mannkind had solved exactly ONE of the 6 problems with inhaled insulin identified above and the market thought it was a homerun.

On the other side of the coin, take Ra Pharmaceuticals (RARX).  RARX plunged by 60% on positive study results for their paroxysmal nocturnal hematuria candidate in late 2017. By March of 2020, RARX would be bought out at 9x their low from early 2018. The market had been unimpressed by results because the current standard of care, Soliris, was more effective for the most severe 20% of cases. However, Ra’s product was a subcutaneous injection that could be self-administered at home while Soliris is an IV infusion which requires the patient to spend half a day in their doctors office every 2 weeks.

Now consider Entasis (ETTX). On 10/18/2021 ETTX announced positive results from its Phase 3 ATTACK trial for sulbactam-durlobactam versus colistin for the treatment of Carbapenem-resistant Acinetobacter baumannii-calcoaceticus Complex (CRAB). After release of the good news, the stock sold off losing 17% over 2 days.

            SUL-DUR 28-day all-cause mortality was 19.0% (12/63) compared to 32.3% (20/62) in the colistin group. Clinical cure was 61.9% in SUL-DUR arm compared to 40.3% in the colistin arm (95% CI: 2.9, 40.3) and SUL-DUR nephrotoxicity was 13.2% (12/91) versus 37.6% (32/85) in the colistin arm (p = 0. 0002).

            Was the good news already priced in or was the market unimpressed by the study results? The potential market for SUL-DUR has been estimated at $1 billion per year. At a market cap of $160 million, now $125 million, the good news could not have been priced into the stock. I believe this is a case of the market not understanding the significance of these results. Non-inferiority in terms of mortality does not sound impressive in a world where most drugs seek to demonstrate superiority over a placebo. However, in situations such as infection, it is unethical to administer placebo to a patient. Additionally, since SUL-DUR was expected to have superior safety to colistin, it is economically efficient to design the trial to only demonstrate non-inferiority. There was a clear trend favoring SUL-DUR in terms of 28-day mortality. It is all but certain that a larger trial would have found superiority.

            I believe the market is valuing SUL-DUR as if it is merely a colistin alternative for the worst cases of CRAB. However, SUL-DUR has potential for much wider use against less resistant strains of acinetobacter. It is superior to colistin in dosing simplicity, adverse affects, and almost certainly effectiveness. If the price is right, it can even be used for other multi-drug resistant gram negative infections by being paired with carbapenems or cephalosporins. This would allow SUL-DUR to compete with ultra expensive antibiotics such as Fetroja, Relebactam, Vaborbactam, Avycaz, and Zerbaxa.

The market is undervaluing and misunderstanding SUL-DUR and I remain bullish on Entasis’ entire pipeline. I believe this sell-off represents a buying opportunity for patient investors

Disclosure: I am long ETTX.

Edit: Mannkind’s peak market cap was $4.3 billion. The previous number was based on a chart calculation which failed to account for massive share dilution.