MannKind (NASDAQ:MNKD) has finally aired its first Afrezza television commercial since the company took control of marketing Afrezza a little over a year ago. The one-minute advertisement aired twice on the premiere of “Reversed” on the Discovery Life channel. “Reversed” is a diabetes reality television show created and hosted by celebrity chef Charles Mattocks.
If you are invested in MannKind, finally seeing a television ad is an exciting event. If you are a regular reader of mine, you will expect me to give a realistic opinion based on data and experience.
I have heard various reviews about the ad. In investing, it is sometimes difficult to separate the “noise” from what the average person thinks. My take on the ad is that it is average. It is not the best pharma ad I have ever seen, nor is it the worst. The ad spends about 15 seconds talking about the attributes of Afrezza, and then about 45 seconds discussing side effect, etc. This is pretty standard in pharma advertising. The ad has very creative visuals, which is also common in pharma advertising.
The points that the ad attempts to make are:
- Afrezza lets you inhale your insulin when food arrives.
- You can be spontaneous.
- You do not need to rely solely on injections.
When it comes to ads, it is not about what one person thinks, but rather what many people think. I recall the ad for Jublia (a toenail fungus medicine) that I thought was sophomoric, but to this day I can still picture that cartoon toe, know the name Jublia, and know that the product is for toenail fungus. Simply stated, my objective opinion on the ad does not matter. My opinion is that the ad was middle of the road.
Here is What Investors Need To Know
Television advertising is expensive. Television advertising relies on repetition. It takes a substantial campaign to be effective. I will demonstrate this by harkening back to my coverage of the anti-obesity pill, Belviq, from Arena Pharmaceuticals (NASDAQ:ARNA). In many ways, there are parallels between the Belviq story and the Afrezza story.
Like Afrezza, Belviq had a Big Pharma partner that stepped in to take the drug to market. Like Afrezza, Belviq had a struggle in its launch. Like Belviq, the Big Pharma partner backed off when it became apparent that sales levels were not compelling enough to justify big expense in attempting to market the drug.
With Arena’s Belviq, the Big Pharma partner was Eisai (OTCPK:ESALY). Eisai developed a television commercial and even began to air it. The commercial did bring about an uptick in sales, but the uptick was not multiple times bigger than what was happening prior to the television ads running. Eisai tried various strategies of time slots, networks, and regional advertising. In the end, the plug got pulled on the ads, and Eisai and Arena reworked their deal such that Eisai now essentially controls Belviq. The anti-obesity drug, Belviq, had sales that were high enough for Eisai to keep the ball rolling, so unlike Afrezza, there is still a Big Pharma partner.
Over the course of 16 months, with some starts and stops, the Belviq television ad aired 17,549 times. That is an average run of over 1,000 airings per month, or 36 airings per day. Over 1,300 ads were aired in prime time. The estimated spending on airing the television ads was $32,354,000. A little math shows that the average airing of the ad cost over $1,800. The Belviq ad campaign saw an average weekly spend of over $400,000.
The numbers I present in my example of Belviq are likely very sobering for some investors. Now consider this. When television ads for Belviq started to air, weekly script sales were at about 8,000. In September 2015, when the advertising was pulled, script sales were at about 11,000 per week. That growth included all marketing efforts, organic growth, etc. Over 16 months, weekly sales grew 33%, while spending increased at a much bigger rate. The bottom line was that it was possible to increase sales via massive effort, but the expenditures to put forth that effort were greater.
Why Do I Point This Out?
Some will carry an opinion that I am pointing this out to be negative. That is not at all the case. I point this out to be realistic. I see the excitement about television ads communicated to me. I see investors falling over themselves thinking that a television ad will be the catalyst that launches MannKind and Afrezza. Is it possible? Sure. Is it likely? Not in my opinion.
As I have discussed many times, MannKind is short on cash. The ad campaign for Belviq cost $400,000 per week to run. In my opinion, can MannKind afford that level of advertising spend? With the Belviq ad campaign, it was amazing how rarely I even saw the ad, and it was running over 250 times per week. I do not see MannKind as having the budget to spend anywhere near what Eisai spent on Belviq.
Weekly cash burn at MannKind is about $1,700,000. This is down from previous cash burn at $2,000,000. Is it realistic for MannKind to spend $40,000 a week on advertising? Perhaps. Is it realistic for the company to spend $100,000 per week on advertising? Perhaps, but not very likely. It has $40 million in cash remaining. Of that total, $10 million is owed to Deerfield and $3 million to Amphastar. That leaves $27 million to work with that needs to include operating the company, manufacturing Afrezza, paying sales reps, maintaining the digital marketing, servicing debt, distributing, and now, television advertising.
I share the Belviq story for a very simple reason. It is a great reference point for investors to look at and consider. It supplies real data. Investors interested in exploring further can view my tracking of Belviq sales and the saga that the anti-obesity market has had.
In my opinion, the Afrezza ad can raise awareness. The question is whether or not it can raise awareness enough to translate into meaningful sales growth that the Street will get excited about. The Jublia ad was a home run for Valeant (NYSE:VRX), despite the fact that I (and many) thought it was sophomoric. Ironically, even Jublia sales ultimately suffered once it was realized that the exact same treatment could be bought for much less than the Jublia price point. The key was that it was memorable and delivered its key points in a manner that stuck in the minds of people. I simply do not see the current Afrezza ad as a home run that offers a stickiness. It is a decent ad but not a memorable one. Should MannKind solve its financial woes, it could accelerate and deepen its advertising budget. Even then, it is a question of how much that push can increase sales. Until that happens, I feel the ad impact will be much more muted than the MannKind bulls would like to see. Stay tuned.
Disclosure: I am/we are long ARNA.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I have no position in Valeant, MannKind, or Eisai
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