MannKind Corp (MNKD) 2021 Q3 法說會逐字稿

Good afternoon, and welcome to the MannKind Corporation Third Quarter 2021 Earnings Call. As a reminder, this call is being recorded on November 9, 2021, and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call until November 23, 2021.

This call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from the stated expectations. For further information on the company's risk factors, please see their 10-Q report filed with the Securities and Exchange Commission this afternoon, the earnings release and the slides prepared for this presentation.

Joining us today from MannKind are Chief Executive Officer, Michael Castagna; and Chief Financial Officer, Steven Binder. I would now like to turn the conference over to Mr. Castagna. Please go ahead, sir.

Good afternoon, everyone, and I apologize for that delay. We were having a problem with the audio and couldn't quite figure out whose end it was. So I do apologize, and we'll jump right in, and I'll try not to speak faster.

So quickly, I'm going to 'll talk about our operational highlights, where we've been and where we're going. First, I want to thank our shareholders for their support and feedback over the last few months. Obviously, the news received a few weeks ago was not something we expected, but we do think it's something manageable, then we'll get through that I'll talk about. Also, our MannKind employees who worked so hard during Q3 to ensure we are executing on all our 3 key priorities: Tyvaso DPI production and scale, progress of our pipeline and driving Afrezza growth in the U.S.

As you look at our revenue, we're really, really happy to see that in Q3 2021, we had $22 million in revenue, which was 45% over last year. And we look at Afrezza that grew 34% to $9.8 million over last year. And overall year-to-date, 35% total revenue growth and 25% on Afrezza. We're really proud of those results and look forward to continuing to drive future growth as we move forward.

When you look at orphan lung area, I want to talk about a couple of things. Number one, our United collaboration. I'll talk about the CRL on the next slide, but I want to let you know that we've begun commercial manufacturing, and we continue to hire and expand our facility in Danbury to handle the expected future demand coming from Tyvaso DPI. On the pipeline, I'm going to share some new data with you today. We had some really positive data come out in our pre-IND tox studies for inhaled clofazimine and plan to start Phase I here in Q4. Additionally, we're just ramping up formulation work with our TGF-beta for IPS, and also almost near done clofazimine DPI dosing in terms of inhalation.

On the endocrine area, Afrezza experienced 16% growth year-over-year on paid prescriptions, as you may recall, we ended our free goods program in January of this year. We launched our pediatric trial in Q3. We currently enrolled patients, and we have 5 sites up and running as of today. In Q3, as we ended the quarter, we weren't happy with the direction we were going, and we decided to refocus our resources here in the U.S. as we came into Q4 by removing our -- any distractions related to that venue. Number one, we exited AMSL in Australia, and we ceased to co-promote Thyquidity effective in Q4. We believe our resources are best focused on these top free priorities, which is driving U.S. as the pipeline and UT collaboration. We will continue to look for potentially global partners for helping our ex U.S. strategy going forward, where our best short-term impact is to drive faster growth here in the U.S., which will ensure our success worldwide. On the liquidity front, we're really happy today to close the sale-leaseback for $102 million of proceeds on top of the $181 million we had at the end of September. I think as you see towards the end of my discussion today, we are well positioned for future growth and that capital will be used for great purposes.

On Tyvaso DPI, we do expect to be approved, hopefully with the United Therapeutics by the summer of 2022 or earlier. A complete response to receive noting a single deficiency on an open inspection issue at a third-party facility that performs analytic testing of treprostinil drug substance. This deficiency has absolutely nothing to do with treprostinil or our Tyvaso DPI product. The great news is we think it's draft labeling and we could see that we have the same indications of Tyvaso inhalation Solution for PH and ILD, and we didn't have any contraindications or box warning in the label. Citizens petition review is not completed, but is not cited as its efficiency in the CRL. [Unisys] focused on resolving this issue and getting approval for Tyvaso ASAP, which is no later than the summer of '22 or earlier. MannKind, we are focused on manufacturing pre-launch products and scaling up our factory for future indications.

As we look at Afrezza in the U.S., we had a very strong Q2, but we met with some headwinds early in Q3 as we focused on delta COVID shutdown offices again. We also had a distraction trying to get Thyquidity off the ground, which wasn't going the direction everyone wanted. That caused us to refocus our energy in Q4 as we got ready to end the quarter. Number one, the present pediatric study is scaling for enrollment as we now get more sites on board. Number 2, we've hired a primary care pilot in the (inaudible), only about 30 FTEs between the sales force and the commercial team running it, and that's on track for a January launch. The third focus is launching a consignment model with the top 3 pharmacy chain and what this means is instead of having middleman involved in our inventory chain of command, we will now have inventory stockpile with the third-party chain, which will improve patient access and ultimately decrease the cost of the [value] chain. Fourth, we'll be launching a pilot to improve patient retention during the first 12 weeks of treatment. We expect this to kick off in December. And we just launched something called the new Afrezza challenge with CGM called Seeing is Believing. And this has a -- first focus is about 160 doctors who've never written Afrezza, and we can see in the first 10 days, we had about 30% of the doctors writing first prescription for Afrezza. And we can see in Afrezza Assist, our reimbursement hub, our new prescriptions coming in are up 45% in the latest 4 weeks versus the Q3 average. So we see early signs of Q4 continue to turn momentum from what we saw as we exited Q3.

One thing I want to share with you is a new data set that just got presented this past week and will be oral presentation on Thursday with Dr. Kevin Kaiserman. We're really focused on driving to be the real-time control company and have been discussing with the FDA how to best update our label to better reflect the dosing upfront with Afrezza. We were recently informed by the FDA and accepted into their MIDD pilot program, which is the Model-informed drug development program, and what we hope that does potentially help us understand how we can [interchange] the label does as the convergence label better reflects an upfront dose that will give better glycemic control. That's the data you can see in this trial here, this is the dose that we're using in kids, which is basically a 2x injectable dose rounding down to the nearest Afrezza cartridge. We're trying to really streamline and simplify the effective dose conversion for new patient starts on Afrezza. And what you can see in this chart on the left is dose one is what's in our label. And we know from history, we hear a lot of people say they didn't get adequate control when they switch from injectable insulin. And what you can see is when you use our new formula of 2x round down from the nearest dose of Afrezza, for example, if you want 5, you multiply by 2, that will be 10, round down to nearest cartridge. And that's what you see here is the 2x round down dose is almost a 50-milligram per deciliter by the end of 2 hours. That would translate to about a 1% to 2% A1c reduction if we're able to maintain that over 24 hours. And this is consistent with the newest data we generate on Afrezza where we show switching from subcu to a present that does approve A1c and just changing nothing else at all.

Now I'm going to turn it over to Steve, and I'll close off talking about the pipeline.

Thanks, Mike, and good afternoon. Very pleased to review third quarter and year-to-date 2021 financial results. Please supplement this call by reading at the condensed consolidated financial statement and MD&A contained in our 10-Q, which is filed with the SEC this afternoon. Let's start out by looking at revenues for the third quarter of 2021. Present net revenue was $9.8 million versus $7.3 million in 2020, a growth rate of 34%. The components of growth included a demand increase consisting of Symphony reported paid TRx growth of 16% and price, including a more favorable gross-to-net percentage of 40% versus 41% in 2020. TRx for the third quarter of 2021 and 2020 were both adversely impacted by the COVID pandemic. Year-to-date growth of 25% was driven by Symphony reported paid TRx growth of 11%, a more favorable mix of Afrezza cartridges and price, including a 2% or favorable gross-to-net percentage.

Moving to collaboration and services, revenue for the second quarter was $12.5 million versus $8.1 million for 2020, representing a 54% increase. The increase was mainly due to additional contracted activities associated with our UT collaboration and a decrease in the recognition period used for the R&D services and license performance obligation. The year-to-date revenue from collaborations and services was 44% to $35.1 million and consists mainly of revenue from our collaboration with United Therapeutics in the amount of $33.5 million. The graph on our next slide shows the quarterly and September year-to-date Afrezza gross margin on a GAAP basis and on a non-GAAP basis for September year-to-date, which is adjusted to exclude the expense recorded in the second quarter for the insulin supply agreement amendment fee of $2 million. Our gross margin has been increasing each quarter during 2021 and stands at 55% year-to-date on a GAAP basis and 62% on a non-GAAP basis, which excludes the amendment fee. We continue to have excess manufacturing capacity for Afrezza, which impacts the cost of goods recognized, and our gross margin can fluctuate significantly quarter-to-quarter depending on the timing of the manufacturing of bulk and finished products. So I believe looking at the year-to-date numbers provides a better perspective on tracking where our margin is running for current Afrezza performance. Looking to the future, we expect to have favorable impact to our gross margin as we start to manufacture commercial scale type DPI toward overhead costs and makes our plant more efficient as well as anticipate margin expansion from growing Afrezza revenues.

This slide is an update to the information presented during the second quarter earnings call and outlines the different performance obligations with United Therapeutics and how we are recognizing revenue associated with each performance obligation as of September 2021. Starting with the R&D services, we have been recognizing revenue on a ratable basis over the expected clinical development time period for Tyvaso DPI, which started in 2018 through the PDUFA date in October 2021 when our performance obligation was substantially completed. We recognized $9.9 million in the third quarter and $28.4 million year-to-date. There is about $1.5 million of deferred revenue associated with this performance obligation on our balance sheet at September 30 that we anticipate being recognized in the fourth quarter. The technology license relates to royalty revenue, which we expect to recognize on net sales of Tyvaso DPI, once approved by the FDA and sold by United Therapeutics. As previously disclosed, the royalty rate is in the low single digits -- I'm sorry, low double digits, and we plan to be more specific once Tyvaso DPI is approved by the FDA.

The next performance obligation is manufacturing services, which is associated with the commercial supply agreement signed in August and then amended in October, which extended the agreement from 5 to 10 years. Revenue will be recognized as we sell commercial products to United therapeutics. As of September 30, we have begun manufacturing commercial products but had not begun to sell products to UT. We expect to begin selling products to UT in the fourth quarter.

The next performance obligation is pre-commercialization services, which were recognized between the second and third quarter of 2021 in the amount of $0.8 million year-to-date. The revenue does not have a profit margin and represents costs incurred by MannKind with delivering the agreed-upon services. And lastly, the performance obligation for Tyvaso DPI next-generation R&D, which is being recognized on a percentage completion method in the second quarter of 2021 and the first quarter of 2022. This revenue also does not have a profit margin and represents costs incurred by MannKind when delivering the agreed-upon activity. We recognized 2.4 and $4.3 million in the third quarter and September year-to-date periods, respectively. The accounting associated with our United Therapeutics collaboration is certainly confusing, and I hope I was able to shed some light and help me understand this area a little better. If you strip away the technical accounting mumbo jumbo, our collaboration with UT yielded over $100 million in upfront and milestone revenues, which we recognized over a 3- year period. We have agreed to perform additional work associated with Tyvaso DPI, for which we are being compensated by UT, and our commercial manufacturing effort has started producing products for which we expect to begin selling to UT in the fourth quarter.

Let me conclude with some final comments on our financial resources and liquidity. Today, we are a financially stronger company than we have been over the past 5-plus years. We ended the third quarter with approximately $180 million in cash and investments and added approximately $100 million to our cash and investments balance with the closing of the nondilutive sale-leaseback of our Danbury manufacturing facility yesterday. We are now in good shape to fund our growing pipeline, which Mike will update you momentarily, make targeted investments behind Afrezza and look for business development deals that are complementary to our business, which can provide higher rates of return for our shareholders.

With this, I'll turn it back over to Mike for some additional comments.

Thank you, Steve, and thank you, [Ron]. With the sale-leaseback now closed, you can see the proceeds really are focused on how we can take opportunistic opportunities on Afrezza, which we've not been able to do in the past. Additionally, our pipeline today is robust and growing rapidly. It's growing so fast and we physically cannot do any more than we are doing without hiring a lot more people. So next year, we know how about the pipeline is. We're not going to talk and have another shareholder call probably until March, February and Q4 closes, but there's a lot of positive things happening in the pipeline between now and then and but I really want to take a step back for shareholders to kind of have a good comment.

On this slide, in particular, you can see the cannabidiol, they go into Phase I, they've started, and they are looking at acute panic disorder as well as anxiety. So they're focused on that in their Phase 1. The next slide is really, really important. We are presently shocked with this data. We are excited to be sharing this with you for the first time. We know clofazimine works. So we were very excited about the program we brought it in through our acquisition of Qrum last December, but it's really good to see that this effect lasts 56 days post phasing, absolutely amazing. This is the new top data that just recently got in and what this looks at is high, medium and low-dose relative to the minimum inventory concentrated, which is the green line, and so on the left side, we dosed for 28 days, and then we follow these animals for another 56 days post dosing to look at how fast the drug clears, how much momentum impact it has in the lung versus the plasma. And here, I'm showing you the lung levels involved at day 84. And you can see that it takes -- it really lasts in the lungs for a long time before it comes out. It's a [limited] drug, and that's exactly what you want to see in this disease. And the plasma, there's not very high concentration, so specifically not much faster but this is a lung disease and we want the drug to stay in the lung. And this is at least 8x the MIC, which we gave a wide therapeutic dose window, we saw no dose-limiting side effects and drug levels that are significantly higher than at Day 4, which really starts to make us think about how we could dose this differently, how you design an innovative trial. You're going to get this in Phase I. By year-end, we expect patients to be out in Q1 but as we go really thinking about the Phase II design and how we work with the FDA to do something interesting here but super excited about this product. We brought it in last year. And Thomas and the team there continue to an incredible job of moving forward.

The next steps that we have in preclinical development that we brought in this year that we're really excited about is TGF-beta for IPF. This deal was announced in June. We've already just finished off the dry powder inhalation formulation. We're about to put this into rat PK and PD. And that will tell us what the level going in the lung, levels going into plasma and how long half-life is. And then just as we believe all of our technology continues to show rapid lung levels with minimal systemic circulation. That's exactly where you want to see in this particular target because it has a known side effect profile and the systemic circulation that creates headaches for patients and really the [metered] dosing window. This agreement that we have with Thirona allows MannKind to exercise certain rights to seek a full license. We will know by then the cannabidiol Technosphere Phase I readout. So that will come up here in Q1. We'll be moving MNKD 201 in the tox studies roughly in Q2. And all this our estimated best guess today on what we know what we have coming. There's a lot of work to get done but -- and you ask why we are raising the money. It's because we looked out over 12 to 24 months, we could see the pipeline really starting to advance. And we can see the ability to scale at present now with all the safety data and efficacy data is published. We see opportunities to continue to grow this company more rapidly over the next couple of years than we have in the previous 5 years.

This data is excluding any new opportunities that may arise because of external collaboration. We've started working on a few formulations. Those are ramping up, and they may turn into additional collaboration deals in 2022. So lots of excitement on the pipeline, I want to share with you. And as we look at 2021 milestones to ramp up the year, I can't believe it's already November. It's absolutely crazy how past year has gone by but you can see, we had a very, very successful year. Obviously, we want to get a win on Tyvaso DPI for an approval. Unfortunately, we got a CRL that's not in our control, but I would say the team has done an amazing job getting the manufacturing process ready, the scalability ready. The United Therapeutics team did an amazing job on the clinical data and getting this filed in record time. So this isn't due to anyone's lack of effort and a lot of dry powder innovative products do struggle the first round. In this particular case, we had a clean approval in front of us. It got hung up on the technicality that (inaudible). But we are happy overall with the progress we've made in the company. MannKind is stronger today than it's ever been in the last 5 years, and our future is brighter than it's ever been with double-digit growth this week as far as we could see.

Thank you to everyone. We'll stop there, and we'll take questions.

(Operator Instructions) Our first question comes from the line of Gregory Renza from RBC Capital Markets.

This is (inaudible) on for Greg. Congrats on the progress – can you hear me? Operator, can you hear me?

Yes, ma’am, I can hear you.

I do apologize to our analysts and our shareholders as we are obviously experiencing technical difficulties from the start of the meeting. We'll give them one more minute. If you guys have any questions, we can answer.

Excuse me, presenters, could you hear me?

For our analysts who are on hold, I apologize, we cannot hear you, but we will take your calls and obviously get you ready for an update after this earnings call today. I apologize for the technical difficulties. That's why we started late, and there's obviously a challenge here. (inaudible) fire alarms to where we are. But thank you to everyone. I apologize for that. I know we have a retail shareholder meeting tomorrow. I look forward to that. Please any retail shareholders listening today, e-mail Rose or IR, if you want to join that meeting. And any questions, please put those in advance as we're going to try to go through the topics and organize that in an effective way. And hopefully, we don't have any issues here. Thank you for your time.

Thank you again for participating. This concludes today's conference call. You may now disconnect.