We have added MannKind to our evaluated company list and created a MannKind 5 and 10-year pipeline valuation model.

MannKind currently has one drug, Technosphere, in late stage clinical development for diabetes type I and II. Technophere is an inhaled insulin delivery system, similar to the recently approved Exubera. MannKind is currently in the midst of multiple phase III clinical trials for Technosphere and the first set of phase III data is expected from Study 014 this summer. We currently expect FDA approval in 2009, with a 3% above average Likelihood of Approval (LOA). For more detail on the drug, please see our Inhaled Insulin coverage report.

To date, MannKind has not partnered for the development and commercialization of Technosphere and has relied on the capital markets and its founder, Alfred Mann, in order to fund operations. As such, the company’s R&D expense increased over 60% during 2005 and another significant increase is expected in 2006. While the company will not comment on potential partnerships until it has something specific to announce, it will in all likelihood need a partner within the next year or two in order to progress Technosphere to approval.

We have structured our model similar to Amylin’s from 2002 until present (although MannKind will not have the need for as much R&D spending after Technosphere, as it does not have the robust pipeline of Amylin). This assumes a partnership agreement will be reached in late 2006- early 2007, where MannKind will develop a sales force to co-promote Technosphere and receive 50% of U.S. revenues and a 20% royalty on revenues outside the U.S. In addition it will receive upfront and U.S. regulatory milestone payments totaling $175 million, and $25 million related to European regulatory events. A co-promotion will require MannKind to make a significant investment into SG&A over the coming years and we expect the company to raise approximately $375 million through the capital markets to help fund development and commercialization.

Based on this model, we value MannKind’s 10-year pipeline at $20.54/share. We feel the 10-year value is a more appropriate measure than the 5-year, as Technosphere will not be on the market until 2009 and we project 2011 as MannKind’s first profitable year. Since MannKind does not have an advanced pipeline outside Technosphere, the returns received by co-promoting the product will not be as great as for a company like Amylin.

As such, we think a more attractive value can be found in MannKind as a takeover candidate. A potential buyer would most likely look more at the 10-year value, since the drug will not be approved until 2009. A likely buyer will have a sales force experienced in diabetes which it could leverage. On a negative note is the fact that a number of large pharmaceutical companies, who would be potential buyers, already have their own inhaled insulin projects in development. There will also be competitive products, such as Exubera, with first to market advantage. This leads us to believe MannKind will not have much bargaining power and a deal in the low- or mid- $20s is reasonable.