I often thought, during the 1990s, that an ideal hedge would be to short General Motors and buy Toyota. GM was on a death spiral that was hard to miss, and Toyota built some of the best cars in the world. I owned one at the time. It turned out to be a winner of an idea, but at the time I was too enamored of my ten baggers: Viropharma, Human Genome, Incyte. Why bother with a hedge? As Steve Cohen recently said of the 1990s in
Vanity Fair, all you had to do was show up.
But this is another time, and perhaps we should be developing new strategies, you know, reinventing ourselves. We know now that this is a downside, Virginia.
I am proposing a new hedge. The players are Generex (GBNT) and Mannkind (MNKD). I would go long Generex and short Mannkind. They are both involved in similar biotech plays. Both are working on insulin, both have delivery systems they are working on, and both are working on cancer vaccines.
Mannkind is trying to get approval for Afrezza, an insulin product which would be taken using one of their inhalers into the lung. Pfizer took a $2.8 billion write down on Exubera, their insulin solution for lung absorption. Patients and doctors did not like it. And that was the only reason for Pfizer's discontinuing it. Perhaps they were afraid of residues or lung problems, but they were not the reason for dropping it. Now comes Mannkind, spending more money on a lung absorbed insulin, and the FDA is not saying no, but they are questioning the "utility" after having seen the Pfizer dropped for lack of interest.
Generex is also trying to solve the insulin problem. But they are not testing any new drug, they are simply using regular insulin. However, their trick is to get it absorbed in the buccal tissues inside the cheek. Nothing goes inside the lung. It is based on the principle of nitroglycerin for heart patients. You put it under the tongue, and soon it is in the blood stream. They are in Phase III, and while one never knows about these things, it's looking okay so far.
But it is important to remember they are only testing a delivery method, not a new drug. Generex has tried the delivery method with other drugs, and the message boards were recently full of gossip about Pfizer buying the company to speed the delivery of Viagra, which in the pill form takes half an hour to kick in. It becomes more interesting gossip when you realize that this is yet another of Pfizer's blockbusters to come off patent soon. Would they pay to get patent protection for a form that would kick in right away? I don't know, but maybe.
Pfizer is already in the picture at Generex, their chief of oncology drugs is Dr. Craig Eagle, and he has recently joined Generex as an advisor on their AE37 vaccine, which apparently he thinks has chances. It has been in tests for the big cancers - prostate and breast, and so far so good. It is hard to get extremely hopeful about these things until you get past Phase III, and Pfizer may very well wait it out.
Though if I were Pfizer I'd be looking with equal interest, if not more, at the insulin spray, having blown $2.8 billion on inhaled insulin. I'd just consider that prudent risk management.
It is hard to imagine Pfizer, or any other major Big Pharma company, taking an interest Mannkind's persistent pursuit of a lung-absorbed product that not only Pfizer, but Lilly and Novo-Nordisk have dropped.
I cannot speak to Mannkind's cancer vaccines. They are not working on the big ones, but even a melanoma vaccine would skyrocket the stock, and be a terrific boon to cancer sufferers. And might well deep six this hedge.
But it seems to me that Mannkind's pursuit of lung-absorbed insulin is foolhardy in light of patients rejection of the method. Generex's buccal spray looks like the future. And if the vaccine works, it will become Big Pharma itself.
