MannKind Corp (MNKD) 2006 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation second-quarter 2006 conference call. At this time, all participants are in a listen-only mode. Later, instructions will be given for the question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder, this call is being recorded today, August 3, 2006.

Joining us today from MannKind are Chairman and CEO Alfred Mann; President and COO Hakan Edstrom; 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.

Good morning and thank you for participating in today's call. First, I will summarize our financial results for the second quarter of 2006, as reported earlier today. Next, Hakan Edstrom and Al Mann will provide an update of our activities. We'll 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 meanings of the federal securities laws. It is possible the actual results could differ from these stated expectations. For additional factors which could cause actual results to differ from expectations, please refer to the reports filed by the Company with the Securities and Exchange Commission under Securities Exchange Act of 1934.

The conference call contains time-sensitive information that is accurate only as of that date of this live broadcast, August 3, 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 second quarter of 2006, total operating expenses were 55.8 million compared to 27.6 million for the second quarter of 2005 and 45.1 million for the first quarter of this year. R&D expenses increased 9.3 million to 45.3 million from the previous quarter, primarily due to increased costs associated with the Company's expanded clinical trials and the buildout of our Danbury manufacturing facility.

General and administrative expenses increased by 1.4 million from the first quarter this year to a total of 10.5 million, primarily due to an increase in stock compensation expense and increased consulting and various other general and administrative expenses, such as legal and accounting expenses.

Our cash, cash equivalents and marketable securities at the end of the second quarter, June 30, 2006, totaled 50.9 million. That compares to 42.4 million at June 30, 2005, and 102.6 million at March 31, 2006.

In the second quarter, our cash burn averaged 17 million per month compared to about 14 million per month for the first quarter of this year. We anticipate our cash burn will continue to increase over the next few quarters, now that all of our major Phase III trials have been initiated.

In our previous SEC filings, we indicated that our available cash would take us into, but not necessarily through, the third quarter of 2006. Some investors have asked us what our plans are to continue to finance the Company. To help us meet future funding needs, on August 2 -- yesterday -- 2006, we entered into a loan arrangement with our principal stockholder, Al Mann, pursuant to which we are able to borrow up to a total of $150 million in one or more advances at any time over the next year that our cash balance falls below our projected cash requirements for the subsequent three-month period, provided that each advance be no less than $50 million.

We initiated the first $50 million advance under the loan on August 2 of this year. Interest accrues on each outstanding advance at a rate equal to the one-year LIBOR rate in effect at the time of such advance, plus 3% per annum, and is payable quarterly in arrears.

Upon the closing of certain financing events, including equity and debt financing or strategic transactions with third parties, in which we receive cash proceeds of at least $100 million, we are required to repay all or a portion of the principal and accrued and unpaid interest under the note equal to the difference between our cash balance immediately following the financing event and our projected cash requirements for the six-month period following the financing event.

We believe that this loan arrangement with Mr. Mann assures us that we will be able to continue to fund our operations through the second quarter of 2007. Please note that there are no warrants associated with this loan proposal, nor is the loan convertible into MannKind stock.

I would now like to turn the call over to Hakan Edstrom, who will review our product development activities for the quarter. Hakan?

Thank you, Dick. Good morning. Let me take a few moments to review our clinical programs. In April, we announced positive results from our 101 trial, a three-month-long study focusing on inhaled Technosphere insulin in people with type 1 diabetes who are experienced with basal/bolus insulin therapy and all of the complexity of titration.

The results of this trial demonstrated a comparable reduction of HbA1c levels compared to patients treated with NovoLog, an injected rapid-acting insulin analogue for prandial control, and in both cases, along with insulin glargine for basal insulin requirements.

Moreover, individuals receiving Technosphere insulin experienced a much slower post-prandial glucose excursion. They did not gain weight and we did not see any evidence of severe hyperglycemia. Furthermore, as in all of our trials to date, no changes in polymer function were noted in either group.

We plan to announce the results from our first Phase III clinical study, Study 014, on September 16 at the European Association of the Study for Diabetes Conference in Copenhagen. We are presenting two papers at the conference. Study 014 is six-month efficacy study in about 280 type 2 diabetes patients comparing Technosphere insulin to subcutaneous injections of NovoLog, a rapid-acting insulin analogue.

Last fall in [our FDA] -- discussions with the FDA, we were encouraged to add a controlled withdrawal phase to at least one of our Phase III clinical studies. We then decided to add this controlled withdrawal phase to Study 014. As you may recall that in the Exubera trials there has been a small reduction in polymer function in the first few weeks of use. But when the patients stopped using Exubera, the loss relative to controls was restored over time. And even though we have seen no pulmonary function effect from Technosphere insulin, we decided to add this withdrawal study to this trial, hopefully satisfying the agency's request.

Study 014 is being followed by a similar but larger study, Study 102, which is a pivotal study in about 500 type 2 diabetes patients comparing Technosphere insulin to premixed insulin over a 12-month period. We began patient enrollment in Study 102 in the first quarter of this year, and it is now well underway.

And during the second quarter, we began enrolling patients for our latest Phase III trial, Study 103. This study has three arms and will evaluate the efficacy of Technosphere insulin alone and in combination with metformin, an oral medication, in approximately 500 patients with type 2 diabetes who are not achieving the desired glucose control with the combination of metformin and sulfonylurea, another oral medication.

Efficacy will be evaluated on the basis of changes in HbA1c levels over 26 weeks of treatment, as well as changes in blood glucose levels after a standardized mixed meal.

We're working very diligently to carry out all of these trials of our products, and we are encouraged by our achievements to date -- have initiated all of our pivotal trials by mid this year.

Many of you are asking about our partnership discussions. Well, all I can say at this time is that we continue diligent negotiations for a partnership deal for Technosphere insulin. And we will certainly provide further updates to the investment community at the appropriate time. At this time, though, I have no additional update to provide.

While our primary focus is on Technosphere insulin, MannKind has a pipeline with a number of innovative products addressing unmet medical needs. Our immunotherapy program is currently focused on therapies for the treatment of solid tumor cancers. The lead product candidate in this program, the MKC1106, is intended for the treatment of several solid tumor cancers, including ovarian, colorectal, pancreatic, renal, breast and prostate carcinomas. We are on target to file an IND for this therapy by the end of this year.

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. As Hakan mentioned, we have initiated all of our pivotal trials required for filing our NDA for Technosphere insulin. We are making great strides towards completing our aggressive program and believe we are on track to complete the registration clinical trials in time to file our NDA in late 2008, which would likely allow us to engine the market about a year later. This is an aggressive objective, and as might be expected, our greatest risk revolves around successful execution. Based on our trials to date, we do not see any real technology risk in meeting our approval goals.

We are pursuing two tracks in our clinical program -- one directed to registration, and the second series of trials to create product differentiation. Our clinical program has been constructed with the goal of securing a label with several advantages as compared with Exubera. We are not just seeking a "me too" label.

Based on our clinical progress and what we hear of the Lilly/Alkermes AIR program, we believe that both products are progressing toward approval at about the same time. The Lilly trials for AIR actually started somewhat after ours, but we believe that we'll each launch at about the same time, second after Exubera.

We've also begun to move forward with our plans for commercialization. We have already reported that we've begun to expand our manufacturing capacity with a plan to be able to treat approximately 500,000 people annually upon launch, with further capacity added to be able to treat 1 million people annually by the end of the second year.

We also engaged a firm to conduct some market research for Technosphere insulin, including a survey of 425 physicians, 125 diabetologists, 150 internists and 150 general practitioners, all of whom were not familiar with Technosphere insulin or MannKind Corporation.

The physicians were presented with five slides showing key attributes of our therapy -- our unique compact proprietary inhaler, our characteristic powder, the rapid pharmacokinetic profile, our product's ability to reduce post-prandial glucose excursions by about a factor of 2, and its ability to synchronize the glucose-lowering effects with mealtime requirements.

While this was not an in-depth scientific study, the results were very supportive of Technosphere insulin. Applying an approximate distribution of current therapy practice to the study results, the diabetologists proposed potential use of TI for about 41% of their patients, the internists 40%, and the general practitioners 48%. Even for initial therapy rather than diet and exercise, the percentages were 10%, 7% and 10%, respectively.

That these physician recognize the value in early use of a product such as Technosphere Insulin is very encouraging. Even with this minimal information, the physicians recognized that the kinetic of Technosphere Insulin are unlike those of any other insulin they have ever seen and that the problems of prior insulin therapies may be due to the delivery kinetics and not just to the insulin itself. We are pleased that both specialists and primary care physicians alike seem to realize the potential benefits of Technosphere Insulin.

New and better treatments for diabetes are truly needed. Diabetes is such a costly and poorly controlled disease. No therapy available today creates normal plasma glucose levels with safety. What is happening does not prepare for the future. The Centers for Disease Control and the American Diabetes Association are warning that 35% of Americans born since 2000 may develop diabetes. And the epidemic is not just in the U.S. Our country and the world could not afford this.

Not only current therapies, but also therapies in late-stage trials do not appear to match the treatment profile we have seen to date with Technosphere Insulin. TI is truly unique. Indeed, MannKind's study results to date have shown that Technosphere Insulin appears ideally suited to the reduction of glucose excursion. And glucose excursions are becoming recognized as the primary driver of oxidative stress and of diabetic complication.

Our entry into the market appears to be especially proficient because of the frightening predictions of increasing diabetic incidence in the U.S. and much of the world. As never before, the world needs ways to reduce the incidence of diabetes and to treat the disease so as to reduce the awful and costly complications.

As to MannKind's financial situation, Dick mentioned our cash position and referenced my loan to MannKind. We have said that primarily because of our larger clinical trial costs, we would exhaust our cash before the end of the third quarter of this year.

My purpose in loaning money to the Company was to eliminate any pressure on MannKind to enter into a financing or strategic transaction solely because of our cash position. The loan facility available to MannKind of up to $100 million is not secured and is not convertible into equity. The Company has initiated a draw of the first $50 million. In making this arrangement, I simply make it clear that I am fully supportive of MannKind. I'm sorry -- the loan facility is for up to $150 million, pardon me.

Thank you all today for joining us, and now let us open up the call for your questions. Operator?

(OPERATOR INSTRUCTIONS). Annabel Samimy, UBS.

I had a few questions on various fronts. On the 014 study, can you explain exactly why this controlled withdrawal was added? I didn't quite catch that. And at what point was it added?

Annabel, I am going to let Peter Richardson, our Chief Scientific Officer, answer your question.

The six-month vigil is in terms of trying to respond to the FDA's request that we observe patients after, in terms of any changes in pulmonary function occurring that way. It was added while the study was in process. And I think that will be supported in terms of understanding any changes in pulmonary function.

And basically, Annabel, what is happening is that you conclude the study, you stop the medication, but you followed the patient for another six months.

So it's just a follow-up period, essentially?

That is correct.

I just want to make sure I understand -- the six-month study, they concluded the study, and at that point, the medication was withdrawn. And then you just follow-up them, so it is just a follow-up?

That is absolutely correct, yes.

It is kind of bizarre, because there was no -- as is seen in the abstract, which is now public -- there was no reduction in pulmonary function. But this was to satisfy the FDA's request.

And it was specifically to track the pulmonary function?

That is correct.

My second question related to the clinical is that you had mentioned you are on two-track registration, as well as product differentiation. Which trials specifically are looking at the product differentiation? And what kind of primary endpoints have you designed or endpoints have you designed to be able to differentiate yourself?

As you know, the four pivotal studies that we've started deal firstly, in terms of [protocol 30], is a large safety study and will give us a very robust safety base for that. We have then the pivotal efficacy studies in type 1 and type 2 patients. That is 009 and 102. Our latest addition to the pivotal studies is looking at the effects in terms of adding on or replacing oral hypoglycemics. So those are the basics in terms of the pivotal registration studies.

There are additional studies which will we will be conducting to further profile the drug in the appropriate conditions. And we will be giving further information on those as they are put into place.

So you are not disclosing right now what endpoints you are specifically looking at for differentiation. But one would presume it is the post-prandial glucose excursion variability, etc.?

Clearly, what we have demonstrated to this point is HbA1c and the important difference in post-prandial excursions. Further information around that will be coming from these studies, and we have a major focus in terms of demonstrating the drug's unique pharmacokinetic profile and the application of that in terms of the advantages it has for patients in post-prandial glucose excursion control.

Maybe let me ask it in a different way -- those actual secondary endpoints -- are you empowering the trial to demonstrate statistical significance in those endpoints, differentiating endpoints?

The pivotal studies will be powered for HbA1c and in terms of noninferiority design, with the post-prandial glycemic excursions, will be explored as secondary endpoints, pre-planned and will give robust information on the effect of the drug in that area.

And then one other question -- I'm just a little bit -- exactly how far along are you with your other programs, immunotherapy programs? You are still preclinical at this point, right?

As we said, we are on track to file the IND by the end of this year.

I'm a little bit curious -- given your cash situation, wouldn't you want to focus primarily on just getting Technosphere Insulin, driving Technosphere Insulin forward with the cash that you have rather than -- and getting a partnership or settling the issues with Technosphere Insulin first before you move forward with some of the pipeline products?

Annabel, we have said this before. We are not just a single-product company. But certainly, most of our resources are being applied to Technosphere Insulin. But there's a small amount that we are spending on other drugs for Technosphere Insulin or Technosphere delivery, our platform extension and also on our immunotherapy program.

And on the financing, you mentioned it was a year term. So after a year -- can you just go over that one more time?

What was that?

The financing -- MannKind has the right to draw down on the financing for up to a year?

That is correct.

And presumably, you should have a partnership in that time.

All we have said on the partnership is what Hakan said originally, and that is that we can make no further comments at this time.

Thomas Wei, Piper Jaffray.

Any update here on enrollment in the two-year safety study?

Our position, Thomas, has been consistent on this point, and that is that we don't comment on our enrollment except to say when the study has started and when the study will complete.

I thought that you had previously said that we were expecting enrollment to be completed by the end of the year.

Our position has not changed.

And when you think about the advantages of TI here, and leaving aside the core efficacy differentiation, how should we think about the relative importance of the lack of pulmonary function impact versus the lack of weight gain? Which of those do you think are more important to physicians and patients?

I think that will depend very much on the individual physician. Clearly, lack of weight gain is an important clinical aspect in management of diabetes. But for an inhaled pulmonary insulin, a lack of change in pulmonary function I think also will be an important differentiator for any product that manages to demonstrate that.

And for Study 014, since the title suggests that the six-month analysis has been completed at this point, can you help us understand from a top-line perspective if you met noninferiority to NovoLog and if there was any weight difference observed in the study?

We will be happy to share information around that at EASD when we make the presentation.

Bill Tanner, Leerink Swann.

I guess I appreciate that you guys can't talk a lot about the partnership, but, Dick, if you can just remind us sort of what the general terms are that the Company has been talking about in terms of a partnership. And I guess is there any contemplation -- I guess we don't really know if there's been some pushback over those or things are just proceeding at a slower pace or at a pace. So is there any contemplation of having to modify those?

Bill, as we have said earlier on the call, we can make no further comments at this time.

Fair enough. And then I guess for Hakan, maybe, just kind of a follow-up on the differentiation. So I guess I'm wondering, is there any point in time where anybody is really going to be able to do any outcomes studies? Because I think everybody probably appreciates the PK profile, and those post-prandial glucose excursion dampening is important. Is there ultimately going to be any kind of outcomes studies done? Or is it going to be left to the physicians, I guess, making the intellectual leap that if you do that, it should translate into better outcomes?

Well, it probably won't come from third-party physicians doing their own service. But certainly, that would be part of our progress, and really would be included in the lifecycle management of the product as we proceed further alone or together with partners.

So then ultimately, a label, I guess, when the drug is commercialized obviously would have the efficacy data. But then there would be some comparative PK profile data which should somewhat in itself, then, differentiate the product. Is that kind of the way to look at it?

Peter?

Yes, I think that would be -- based on the data that we have shown so far, you can see the differences in the PK profile, which I think are exciting and interesting. We will confirm those data in the largest studies that we have underway, if they run according to plan. And we will have a profile which I think will be of interest to physicians and patients in terms of the advantages that we have demonstrated.

How that translates further into long-term outcomes will be based upon the scientific data that is accumulating around the importance of post-prandial excursions, as Al mentioned, in terms of the oxidative stress and the differences that makes in terms of the outcome for patients, and eventually have the ability to execute definitive studies to show that on an outcome basis, but they will come after the initial licensing approval.

The survey that was done of 425 physicians -- these people were shown just a few slides showing the kinetics and the synchronization, essentially. And they recognized the significance of that information when they suggest that overall something like 43% of their patients would be appropriate candidates for this therapy.

And Al, on the survey -- if you mentioned it, I apologize for missing it -- was there any gauging of general interest for inhaled insulins just in general by the physicians? Was this something that obviously TI, it seems like the enthusiasm was significantly greater, but was there any indication as to just what the general interest in inhaled insulin was at all?

That question was not covered in our trial. But Cowen & Co. did a study of 600 patients early this year, and these were 200 each of people who had been using insulin, type 1s and Type 2s. And their results were really directed to primarily to Exubera, and they had extraordinary acceptance and endorsement in that study.

But in our study, it was simply related to our therapy, in which the physicians were shown a little bit of the effect of our drug basically withy showing the kinetics and the result in glucose excursions. And as a consequence of that, they recognized that this would be a significant improvement in diabetes therapy without the risks of hypoglycemia.

Jon LeCroy, Natexis.

Can you talk a little bit about -- I think it is the 010 study, the three-year trial you guys are doing, and whether that is required for filing the NDA? And then also, can you touch on whether you have started your three special population trials in the smoker, COPD and asthma? And then also, what is the number designation of those three trials?

Okay, 010 is a continuation, largely safety study to give us further experience, the long term of those patients that started Technosphere insulin in the early studies, will continue. So it is an important but nonpivotal study.

In terms of the special population studies, yes, we started some of those special population studies in asthma and in smokers, and they're underway. And in terms of the designations, I would refer you to what we have previously said.

I think previously you said there was an 016 and an 027 asthma and smoker --

That is correct.

(OPERATOR INSTRUCTIONS). Michael Tong, Wachovia Securities.

Just going back to the controlled withdrawal study again, if you didn't see any decline in pulmonary function at the end of six months, what are you actually looking for in the follow-up period? And what are you trying to learn there?

That's a good question. In terms of a lack of full and peak [expoetry] flow, [FED1] and DLco, we are observing to show no further change -- no change.

It really is coming from what I mentioned in my script, from the Exubera experience, that they did see some initial effect, but also that the patients return to baseline after discontinuing the trial. So again, that was what we believed precipitated the FDA to request those trials. We felt that we could introduce that in one of our clinical trials programs without impacting the timelines, it would be appropriate.

And secondly, going back to Al's comment about NDA submission, targeting for late 2008, and also Dick's earlier answer to a prior question about completing the two-year study -- safety study enrollment before year end, that seems to be a fairly tight timeline. Can you reconcile those two events?

We haven't said exactly when before end of the year we will complete the 030 study. But we will have everything else prepared in advance so that we are still targeting end of '08 for our submittal.

And then finally, with the new loan agreement, that is going to take you through Q2 of '07. How do you -- as you stated, this is one where you want to take the pressure off the partnership agreement. How do you stop potential partners from waiting you out until Q2 '07?

What I had said publicly is that I am prepared and that I had already put in about $319 million, and that doesn't include another small amount from other members of my family. And I have said I am willing to double that.

So the $150 million loan was created simply because I said that while we are in partnership talks, as long as they are progressing, I did not see any justification for going out and doing a financing. And so, I said, let's take the pressure off. And let's just continue as we go forward. And if we do a partnership, then we can decide if and if there's any need for any additional financing and then do as appropriate. And if we don't do a partnership, then we will do a financing. That was the reason for the loan. I just wanted to take the cash position off the table during our partnership negotiations.

[Douglas Landy], CIBC World Markets.

All my questions have been answered. Thank you very much.

Thomas Wei, Piper Jaffray.

Just a clarification on the controlled withdrawal. It seems like it was implemented pretty late in the course of the study. If I'm remembering correctly, you had your six-month -- last patient six-month follow-up in February. How does that work? Were there already a lot of patients beyond the six-month mark at the time that you implemented the change? And are you going to be able to collect controlled withdrawal data on all 280 patients enrolled?

The change was before those patients coming to the end of the study. So I believe that we have been able to collect the six-month data on the patients that are participating in the study.

David [Blaustein], Bettenberg.

I think you have talked about this, but I just wanted to ask it a little bit differently. Where is the bar with respect to the FDA, specifically on DLco as one of their [PFPs]? How many patients do you need to check the DLco, and what time -- is it a year, is it two years? Maybe you can help me out with that.

Well, DLco is an important measure of pulmonary function. And I think that is recognized by the agency and by ourselves in terms of that. So we have taken great trouble in terms of putting in place a very comprehensive pulmonary function assessment into all our pivotal studies. And I think this has been one of the strengths of the studies and the amount of detail that we're putting into that.

We will have data generated during the duration of the pivotal efficacy studies and also through our two-year safety study, where we will have comprehensive pulmonary function testing done. That will be a very robust database to explore, including DLco.

So you will have two years and right now you have six months, is that correct?

In some patients, we will have six months. But it is an ongoing study. So we will be only looking at that in terms of any preplanned analyses that would be there. We do not look at the data in a comparative way during the conduct of a study.

Let me ask you one other. As of now, how many patients do you have at six months for DLco?

I do not have that number available.

Salveen Kochnover, Jefferies.

I was wondering if you could comment on your IP position, seeing that --

We cannot hear you.

Could you comment on your IP position, seeing that Novo is currently suing Pfizer? And then in addition, are you currently doing any work around reimbursement?

We feel very confident about our IP position. And of course, we are facing many risks that we try to outline in the risk factors in our Q. But again, we feel that we have a comfortable situation in terms of freedom to operate.

In regard to reimbursement, yes, we're certainly looking at that. We are following very closely what is happening to Exubera. And as we proceeded further into our Phase III programs in preparation for commercial launch, more and more of our resources are focused on reimbursement and marketing issues.

Could you expand a little bit on IP? Could we get maybe some description on your key patents?

Well, I think Hakan has answered the question. The information on our IP is contained in both the business section and the risk factors section of our 10-K. Also, I think if you go to the U.S. patent office and look up patents under MannKind, you can probably get the information you're looking for.

[Shivani Malhotra], Morgan Stanley.

It is Jami Rubin. My question might be premature, but give your differentiated profile for TI, would your application qualify for priority review?

It is too early for us to comment on that. And that will be very much a discussion with the agency depending on the data that we put to them.

Kevin [Cokler, Broadfin].

Just was wondering, is there any data coming out at the upcoming AADE meeting that will be presented?

I don't believe we are presenting at the AADE.

Our next data point in terms of presentations will be the EASD in Copenhagen.

And just lastly, on the trials, are you using continuous monitoring in any of these trials?

In some of the trials, we are going to be doing this. Mostly, we are going to do those studies primarily in some of our marketing studies to try to really show differentiation.

I am showing no further questions at this time.

Well, thank you all for joining us today. And we are moving forward at MannKind very positively, and we are pretty excited about the future. We continue to harvest data from our trials that are very supportive and demonstrate our Technosphere Insulin as being a very unique product. And as Hakan said, we are now moving toward. We expect -- or I guess it was Peter -- we are about to file our NDA in the next few months -- I'm sorry, our IND for our first cancer product, which is also, we think, a very exciting product.

So until our next quarterly conference call, we wish you adieu, and thank you all for joining us today.

Thank you. That concludes today's conference. You may disconnect at this time.