MannKind Corp (MNKD) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Mannkind Corporation First Quarter 2006 Conference Call. [OPERATOR INSTRUCTIONS] Joining us today from Mannkind are Chairman and Chief Executive Officer, Alfred Mann; President and Chief Operating Officer, Hakan Edstrom; Dr. Dr. Peter Richardson, Chief Scientific Officer; and the Chief Financial Officer, Dick Anderson. I would now like to turn the call over to Dick Anderson, Chief Financial Officer of Mannkind Corporation. Please go ahead sir.

Well, good morning and thank you for participating in today's call. We will begin with prepared remarks and then take your questions. First I will summarize our financial results for the first quarter of 2006 as reported earlier today. Next, Hakan Edstrom and Alfred Mann will provide and update of our activities. We will then open up the call to your questions.

Before we proceed further please note that comments made during this call will include forward-looking statements within the meaning of the federal securities laws. It is possible the actual results could differ from these stated expectations. For a discussion of risk factors please review Mannkind's form S1 from the companies initial public offering and our annual report on form 10K in addition to period form 10-Q and 8-K reports and form S3, all as filed with the SEC. This conference call contains time sensitive information that is accurate only as of the date of this live broadcast, May 5, 2006. Mannkind's management undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

Let's begin with the financials. For the first quarter of 2006, total operating expenses were 45.1 million compared to 22.6 million for the first quarter of 2005 and 35 million for the previous quarter, which was the fourth quarter of last year. R&D expenses increased 7.4 million to 36.0 million from the previous quarter, primarily due to increased costs associated with the company's expanded clinical trials and related support for our lead investigational product, Technosphere insulin. General and administrative expenses increased by 2.6 million from the fourth quarter of last year to a total of 9.1 million, primarily due to the increase in stock compensation expense.

Our cash, cash equivalents and marketable securities at the end of the first quarter, March 31, 2006, totaled 102.6 million. That compares to 67 million at March 31 2005, and 145.6 million at December 31st 2005.

In the first quarter our cash burn averaged 14 million per month compared to 12 million per month for the fourth quarter of last year. We anticipate our cash burn will significantly increase over the next few quarters reflecting the expansion of our long-term safety trial. Our three additional, pivotal Phase III clinical trials, two of which were already initiated in March and the third will be initiated shortly, as well as the expansion of our TI manufacturing operations.

I would now like to turn the call over to Hakan Edstrom who will review our product development activities from the quarter. Al - Hakan is joining us from Sweden. Hakan?

Good morning. It's my pleasure to review our recent clinical programs. two weeks ago we have the investor day conference which we also webcast and we talked about Mannkind's effort to build a fully integrated company with multiple technologies. The Technosphere technology is currently our lead technology platform and we are applying it in several areas of metabolic and endocrine diseases.

At our investor day we also commented on our efforts to broaden our business development infrastructure to support and pursue technology alliances with other companies. We began to discuss our product pipeline with some information about our Technosphere extension program and we mentioned our cancer immunotherapy program, which is rapidly approaching the clinical phase. We actually plan to file an IND for cancer in the fourth quarter of this year and while we are very excited about our additional products, we certainly recognize that the financial community is concentrating its interest, as we are, on Technosphere insulin because of the tremendous need and the enormous potential in the market of diabetes.

A shocking prediction by the American Diabetes Association is that Americans born in 2000 and since 2000 have a 35% likelihood of developing diabetes. That's quite a sobering number and cannot let this happen and we must address this problem now. And we at Mannkind at focusing most of our resources on this need.

Lastly, we unveiled our plans to build Mannkind's infrastructure for commercial scales and manufacturing based on the results to date with our leading investigation [inaudible - technical difficulty]. Sorry, I had a problem with my text here. I'll be there momentarily.

We currently have ample manufacturing capacity to support all of our clinical trials and how we want to make sure that upon the filing of the NDA we have a fully qualified and validated manufacturing facility with the capacity to support at least 500,000 patients and the capability to grow very, very rapidly from there.

Also, at our investor day we announced positive results from our study the 1 to 1. A clinical [studivant] hailed insulin in people with type 1 diabetes. In this study over a period of three months, Technosphere demonstrated a similar reduction of HbA1c levels compared to patients treated with NovaLog or insulin [aspart], which is an injected rapid acting insulin analog. And more importantly, compared to those using NovaLog, individuals receiving Technosphere experience a much lower [postpenous lucos excursion] and they lost weight. And no changes upon their function work so in either patient group and there were no events of serve hyperglycemia. And we continue to recruit patients in our two-year Phase III primary safety study, the 030 trials, initiated in June of 2005.

The objective of this trial is to compare the preliminary functions of type 1 and type 2 randomized to either Technosphere insulin or standard of care and we expect to complete the recruitment in the second half of this year and we plan to announce results by this summer from our first completed Phase III clinical study, study 014, a six-month efficacy study comparing Technosphere insulin to subcutaneous injections of a rapid acting insulin analog the NovaLog in about 280 type 2 diabetes patients.

Study 014 is then being followed by larger study, study 102, a pivotal study in about 500 type 2 diabetes patients comparing Technosphere insulin to premixed insulins over 12 months period and we began the patient enrollment in late February of this year.

We also started a pivotal study in type 1 patients, the study 009, also back in late February of this year. This is a 12-month study in 500 type 1 patients, again comparing Technosphere insulin versus subcutaneous injections of rapid acting insulin analog along with a basil regimen. We plan to be in study 103 shortly, the last pivotal trial for an MDA filing of Technosphere insulin. The six-month study will evaluate the efficacy and safety of adding or substituting Technosphere insulin in patients with type 2 diabetes who are failing to achieve glycemic control with an oral agent.

We are working very diligently to carry out all of these trials on our products and we are excited about the possibility that R&D investigational products, the Technosphere insulin may help drive the change in diabetes management and control. And now I'd like to turn the call over to Al Mann, our Chairman and Chief Executive Officer. Al, please go ahead.

Thank you Hakan and good morning ladies and gentlemen. Until the 101 trial we have focused our clinical program on type 2 diabetes because we believe Technosphere insulin is ideally suited to treating this disease. Hakan commented on our 101 study, the first using Technosphere insulin in type 1. As many of you know, I have always argued that type 1 diabetes patients should use an insulin pump, but even today only about 20% of people with type 1 are on an insulin pump therapy, leaving about 80% still using subcutaneous basil bolus injections. It is difficult to achieve adequate control with basil bolus injections, even with all the complexity of such therapy, including the need for frequent blood sugar measurements, the need to make the injections about a half hour before meals, the challenges of carbohydrate counting and all those things.

At our investor day meeting on April 19 we presented exciting top line data from the 101 study of Technosphere insulin in type 1 diabetes. Even without the need for the complex [titration] of basil bolus therapy, we saw in that trial and all the trials of type 2 patients as well, that glucose excursions with Technosphere insulin therapy can be substantially reduced to even better than normal fluctuations with virtually no risk of sever hypoglycemia and the benefit of no weight gain.

In fact, in the 101 study we saw some weight loss for Technosphere insulin users compared to some weight gain for those using the perennial fast acting analogue. Indeed, the benefits we consistently see with our Technosphere insulin studies derive from the kinetics of our product. In meal challenge after meal challenge and at adequate dosing we see post perennial glucose excursions comparable to those for a person with a healthy pancreas and with very small negative excursions as well and no severe hypoglycemia.

Why these extraordinary results? Our 3B2 study showed that almost all of Technosphere insulin's glucose flooring effect occurs within three hours, more or less the time for a typical meal digestion. By contrast, with subcutaneous insulin most of the effect occurs much later, long after the meal is already digested. As a consequence to avoid hypoglycemia, people on conventional insulin therapy must snack throughout the day to chase their excess insulin levels. It is this snacking that is the primary cause of weight gain. It is primarily because of the synchronization of Technosphere insulin's effect that we've seen no weight gain in any of our studies and as noted, even weight loss in our 101 study and with very small glucose excursions.

The small excursions are very significant. We've always argued that post perennial excursions are really the important metric in evaluating a diabetes therapy and we are now seeing growing support for this from key opinion leaders. The data reported in the 1992 landmark DCC study in type 1 diabetes showed that on average the risk of serious complications increases dramatically with increasing HBA1C. This result led to adoption of HBA1C as the gold standard metric for diabetes control.

Is it that simple? No it is not. When Dr. Earl Hirsch and others carefully reexamined the data from the DCC study they found that for patients with the same HBA1C the complications were far lower for those on intensive glycemic control than for those on conventional subcutaneous basil bolus therapy. Since those on aggressive therapy have lower post perennial excursions, these date led to the realization that glucose excursions are a major factor in preventing long-term complications of diabetes. We are learning more about predictors of serious diabetic complications and we now understand that diabetes health is more directly correlated to glucose excursions than to HBA1C. We have come to learn that it is these glycemic excursions that lead to oxidative stress and that it is oxidative stress that is the primary factor causing long-term diabetic complications.

Many years ago a metric was proposed to assess control based on using the mean amplitude of glycemic excursions, or MAGE as it's called. But at that time there was a no reasonable way to measure MAGE. In the recent edition of JAMA the Journal of the American Medical Association, there was a paper by Dr. [Monier] and his colleagues in Montpellier that identified a molecule found in the urine as a marker of oxidated stress, providing us with a simple metric for MAGE. This discovery was deemed to be so important that Drs. Hirsch and Brownley were invited to write an editorial article in the same JAMA issue describing this key finding. The link of diabetic complications oxidated stress and the roll of glucose excursions in oxidated stress. Such a marker that assesses glucose excursions will transform the way we assess diabetes control and will provide a tool to help prevent diabetic complications.

We had invited Dr. Hirsch to present an overview of our therapy and its clinical significance at our recent investor days and this fortuitously came just a few days after that issue of JAMA. In his presentation Dr. Hirsch described all this and commented on the ability of Technosphere insulin to reduce the dangerous excursions. Indeed this is extremely important for us at Mannkind and provides important support for the specific clinical benefits of Technosphere insulin therapy. The need for control of glucose excursions is becoming recognized by key opinion leaders.

When one studies the results of all our trials of Technosphere insulin, more than a dozen to date, you see a consistent pattern of low post perennial excursions, both up and down. We believe this may suggest that Technosphere insulin could become the therapy of choice for perennial glucose control and diabetes. Because with the unique advantages of Technosphere insulin in reducing these excursions, Dr. Jay Skyler has said in the public forum, that "Mannkind's product could potentially change the way we treat the course of the disease." Such support from highly respected opinion leaders bodes well for Mannkind's future.

I want to thank you all today for joining us and now let us open up the call for your questions. Operator?

[OPERATOR INSTRUCTIONS] Our first question comes from Annabell Samimy of UBS. You may ask your question.

Hi, thanks for taking my call. I had a couple quick questions. The first was regarding the special population studies. Have you initiated any of the special population studies outside of the early pharmacokinetic studies and which ones were specifically required by the FDA and which ones are being done by choice? And I guess related to that is do you expect to have to titrate smokers as is necessary for Exubera?

Hi, it's Dr. Peter Richardson. We saw this study in [inaudible] population and we will be continuing studies into - moving on in terms of the other special populations some of which we're doing at our discretion and others which are in, particularly in the areas of pulmonary disease are required by the agency. The question in terms of whether we expect to see differences versus the specific indications of smokers and Exubera, I think that's too early for us to say at this present time.

Okay, there's been no indication at this point from your pharmacokinetic studies or anything?

No, we've not had that. But we believe that the principal problem with Exubera is because the - of the porous nature of smoker's lungs that it effects the kinetics of their therapy very much and because of the nature of their kinetics that's probably why they had this problem. But since we're so fast, speeding it up a little probably won't make much difference but we, as Dr. Richardson just said, we need to do the studies to demonstrate this.

Okay and then I have to apologize, I didn't hear the first part of the answer with whether you started any of the population studies.

Yes, we have. We have started -

Oh, you have started. Okay great. Now, a separate question, what specifically can we expect at the ADA conference?

We will be presenting results further information on the study that we've just talked about, study 101.

Okay and that's it? Are there any symposiums or anything else of that nature?

We have no specific plans for additional symposia.

Okay, and then one last questions for Dick actually. Is there - can you break out the stock based compensation expense for both R&D and SG&A. was there any stock based compensation expense within R&D?

I'm just taking a look now. Let me come back to that, Annabell. We'll take the next question and then I'll give you that answer.

All right. Thank you.

Our next question comes from Thomas Wei with Piper Jaffrey, you may ask your question.

Thanks very much. Just to follow up on that last question about the ADA meeting, I thought it was the European fixed dose study that we were looking for to be presented there. Is it the type 1 study instead?

We have data in terms of clinical '05, which is a fixed descending dose study -- fixed -- forced titration study.

I'm sorry Anders I couldn't hear you very clearly. It's the 005 study? The fixed dose European study.

Correct.

Okay. And then, I just wanted to ask about the actual enrollment in the 2-year safety study. Can you actually disclose to us how many patients have been enrolled so far in that?

We do not disclose enrollment in the study.

And a clarification on pulmonary function testing. If hypothetically you had the same degree of pulmonary function impact as some of the other competitors, would these prior studies, the 005, 008 and 101 study have actually been large enough to show a statistical separation in FEV or DLCO?

As we have said at the present time, we've seen no differences in pulmonary function in the studies that have gone on so far. They have not been primarily designed to support that. We have definitive studies in place in terms of exploring pulmonary function which will have adequate power to approach answering that question.

We've had - nevertheless we've had quite a few patients in the number of studies, none of them are two-year studies, but most of the effect that was seen in Exubera happened in the first few weeks and we have seen 0 in all of our trials to date.

All right. Thank you very much.

Just to go back to the last question on stock compensation expense, for the quarter it was 2.1 million for G&A and 1.6 million for R&D.

Our next question comes from [Hudson Voyer] with Wachovia Securities. You may ask your question.

Thanks for taking my questions. I'm under the impression that option expenses have been about $0.10 per quarter historically. Can you confirm that? And my second question would be, can you give us more clarity on when you expect to start study 103?

Let's take them in reverse order. Study 103 we anticipate starting sometime in the next few weeks.

Thanks.

And I'll go back and take a look at the stock option expense question.

Thank you.

Our next question comes from Ian Sanderson with Cowen & Co.. You may ask your question.

Good morning and I think question for Dick here, just on the financing the burn rate is in excess of the - where you stand on the cash and how you plan to fund the company through the balance of the year number 1 and secondly, related to that. Any update on thoughts on partnership?

In terms of cash, we said in our 10-K, when we had 146 million at the end of December, that we expected that cash to take us almost through but not entirely through the third quarter of this year. Our guidance on that has not changed. In terms of a financing, we believe that we have a number of financing options open to us, including what Al announced at our investor day, namely that he would be willing to offer the company a conventional bridge loan, should we ask for one. In terms of the partnership question, our policy is not to comment on where we are in partnership discussions until we have something specific to announce.

Thank you.

At this time there are no further questions.

But to go back to the question on option expense, these are approximate numbers, but it looks like in 2005 we averaged about $0.12 versus 2006 $0.07. Those would be for comparable quarters [inaudible - cross talk].

Thank you all if that's - if there are no more questions, let me say that I'd like to thank you all for joining us today. The excitement about Mannkind and our Technosphere insulin is very satisfying to us. We're continuing our progress and with what we believe may be the most significant advance in diabetes therapy in decades. We look forward to sharing more data with you at the American Diabetes Association Meeting in June and at the European AESD meeting in September and also at our next conference call in August. Thank you very much for joining us today.

This concludes today's conference. You may disconnect at this time. Thank you for joining.