Investors just can’t get enough of MannKind Corporation (NASDAQ:MNKD) today, as Wall Street is buzzing with excitement over the Food and Drug Administration’s approval of the company’s inhaled insulin Afrezza. While some analysts wave away any concerns about the black box warning that will be placed on the drug, others continue to see risks associated with it.

MannKind

Third time’s the charm for MannKind

In a report dated June 30, 2014, analyst Cory Kasimov and the rest of the team at JPMorgan note that this is the third time MannKind has put Afrezza up for FDA approval. As a result, they say it’s unsurprising that the agency approved the drug and note that the company had a positive recommendation from an advisory committee.

They see commercial hurdles because of the warning label that will be placed on the drug’s box, although they think MannKind’s drug is much better than Exubera, the previous inhaled insulin drug from Pfizer Inc (NYSE:PFE) that was a complete flop. They say some of the issues that plagued Exubera’s “notorious launch” could have a negative impact on Afrezza too. Specifically, they say the real issues of the required lung function testing and the theoretical concerns of lung cancer could cast doubt on MannKind’s insulin.

They still see Afrezza as being a positive choice for diabetics because it gives them another option, but they’re concerned that the drug will be relegated to a niche role.

MannKind still has a hill to climb

The FDA placed a black box warning about lung concerns and pulmonary testing requirements on Afrezza. The JPMorgan team said the warning shows how concerned the agency is about the drug’s pulmonary toxicity. They weren’t surprised by that warning about patients with baseline lung disease, but they think that in the beginning, it could deter some patients from using it and some doctors from prescribing it.

They note that the second-generation Exubera was shelved because doctors took issue with lung function testing, which now is also required for Afrezza. And although the worries about lung cancer are so far only theoretical in nature, the FDA is concerned about it enough that it requires MannKind to conduct a post marketing trial to assess the risk of lung cancer. The agency also mentioned it in both the Warnings and Precautions section and the patient guide. The JPMorgan team suggests that this could cause some doctors and especially patients to think twice about switching to Afrezza.

Afrezza raises concerns about pulmonary risks

The FDA is also requiring MannKind to conduct risk evaluation and mitigation strategies to educate doctors about the risk for pulmonary toxicity with Afrezza. In addition, the agency is requiring the drug maker to conduct four post marketing trials. The JPMorgan analysts don’t see the pediatrics or PK / PD studies to be a big deal in the eyes of potential partners.

However, they have a number of questions regarding the long term safety trial of Afrezza, which is aimed at evaluating the possible risk of pulmonary malignancy, cardiovascular risk, and long-term effects on pulmonary function. They say if the FDA wants a full scale clinical trial rather than just a registry, this study could be very large and very expensive, which would weigh on any talks about partnerships.

Another problem they see with the FDA’s label for Afrezza is the lack of potential efficacy benefits. They said this could have offered a “meaningful competitive advantage for the drug. The label does not say anything about how the inhaled insulin could be better than rapid acting insulin analogs in terms of less weight gain or hypoglycemia. In fact, hypoglycemia is only mentioned as a risk.

MannKind needs a partner

As MannKind advances Afrezza to the next stage, the analysts have some questions for the company. They think the company must find a good partner in order to “properly” launch the drug. They’re assuming a large pharmaceutical company will partner with MannKind, and they’re waiting “anxiously” to see “just how dedicated the partner is.” They suggest that an “established diabetes player” would be the best option. They are interested in seeing what kind of deal MannKind can obtain with a partner.

They say assuming MannKind is able to sign a partner, they’re still concerned about how Afrezza’s commercial potential relates to the company’s valuation. There hasn’t been any details about pricing yet, which makes sense because the partner will probably decide that. They expect the inhaled insulin to be priced in line with competitors. Last year, leading insulin analog Novalog generated $3 billion in sales, while second place Humalog generated $2.6 billion. They don’t think Afrezza will be able to meet these numbers though because of the FDA label.

They maintained their Neutral rating and $6 per share price target on MannKind.