MannKind Corp (MNKD) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation first quarter 2009 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 May 4, 2009 Joining us today from MannKind are Chairman and CEO Alfred Mann, President and COO Hakan Edstrom, the Chief Financial Officer, Michael Pfeffer and the Chief Scientific Officer, Peter Richardson. I would like to turn the call over to Michael Pfeffer, Chief Financial Officer of MannKind Corporation. Please go ahead.

Good afternoon. Thank you for participating in today's call. Obviously it's Matt Pfeffer, for those of you who know me but--I will be summarizing our financial result for the first quarter of 2009 as reported earlier today. Next, Hakan will provide an update on key accomplishments during the first quarter of 2009 and Peter will provide an update on clinical developments, finally Al will comment on the current situation in our outlook going forward and then we'll open it up to questions.

Before we proceed further, please note the comments made during this call will include forward-looking statements within the meaning of federal securities laws. It's possible the actual results could differ from these stated expectations. For practices which cause to differ from expectations please refer to the reports filed by the Company with Securities and Exchange Commission under the Securities and Exchange Act of 1934. This conference call contains time sensitive information that is accurate only as of the date of this live broadcast, May 4, 2009. MannKind's management undertakes no obligation to revise or update any statements to reflect events and circumstances after the date of this call.

So let's start with the financials. For the first quarter of 2009, total operating expenses were $57.8 million compared to $74.1 million for the first quarter of 2008 an $81.8 million for the last quarter of 2008. Research and development expenses were $42.9 million for the first quarter of 2009, compared to $58.4 million for the first quarter of 2008 and $68.8 million for the last quarter of 2008. The decrease in research and development expenses from the first quarter of 2008 was primarily due to decreased costs associated with the clinical development of AFRESA and decreased manufacturing costs associated with raw material purchases.

General and administrative expenses were $14.9 million for the first quarter of 2009 compared to $15.6 million for the first quarter of 2008 and $13 million for the fourth quarter of 2008. The net loss applicable to common stockholders for the first quarter of 2009 was $59.4 million or $0.58 per share compared to a net loss applicable to common stockholders of $71.4 million or $0.70 per share for the first quarter of 2008. Our cash, cash equivalents and marketable securities at the end of the first quarter totaled $30.2 million which compares to $46.5 million at December 31, 2008 and $269.1 million at March 31, 2008. Our cash burn for the first quarter of 2009 was $76.3 million in Q1 compared to $78.7 million in Q4 of 2008. With our cash on hand and availability of the remaining credit facility from Al of $260 million as of March 31, 2009, we believe we will be able to fund our operations through at least the first quarter of 2010.

I would like to now turn the call over to Hakan Edstrom our President and COO who will provide an overview of our accomplishments during the first quarter of 2009. Hakan?

Thank you, Matt. Good afternoon. We are now well underway with our NDA submission and would expect to receive an official word of the FDA accepting our NDA find in the near future. Our efforts to prepare for a PI inspection are also progressing well and we will be ready to receive FDA in our facilities upon their requests and we're also working very closely our supply chain partners ensuring they will be ready for an FDA inspection in due course.

During the past quarter, we reached an agreement with Pfizer, regarding the sale of Pfizer's large insulin plant in Frankfurt, Germany. This transaction was actually comprised of two asset purchase agreements, one for the plant itself and one for the quantity of bulk insulin, a manufacturing license and expense of intellectual property. We constructed the transaction any manner because the transfer of the real estate required the consent of [Insusor] the operator of the industrial park and also gave rights to a right of first refusal regarding the facility itself in favor of (inaudible). The transfer of other assets was not incumbent with these third-party rights so we dealt with those assets in a separate agreement. And on April 8, we obtained [Insusor] consent to the transfer of the real estate so we are proceeding to plan for a sale of the insulin plant to MannKind. [Insusor] consent also started a 60-day clock for the right of first refusal of Sanofi-Aventis. We are unable to comment and do not want to speculate about whether Sanofi-Aventis will or will not exercise their right of first refusal.

For now, we are working through the details of the two possible scenarios that we will face upon the closing of this transaction. A sale of the entire insulin manufacturing operation in Frankfurt with a workforce of approximately 80 employees, or only a sale of some bulk insulin, a license manufactured detail and sale line to enable the manufacturer of insulin in a new factory at a later time. We do have the organization flexibility to accommodate either outcome and we're making plans accordingly. And we will update you on the status of this transaction later on this quarter.

Having completed our pivotal phase three trials and submitted the NDA we undertook an organization reduction in April to align the resources with our current needs. This action will help to further reduce our burn rate and extend our run rate into the first half of 2010 and also offset some of the additional burn rate that would result in the acquisition of the Frankfurt insulin facility. And I know that you will have questions regarding partnership discussions. Discussions are not actively underway with a number of big pharma potential partners. The range of discussions go all the way from early capability presentations through indepth due diligence to emerging deal term discussion. A schedule for any deal is still too early to predict, and to reiterate Al's comments from our last meeting, a third quarter target may be a reasonable goal and with that I would now like to turn the call over to Dr. Peter Richardson. Peter?

Thank you, Hakan. And good afternoon. As you are aware, we submitted the AFRESA NDA to the agency on May 16 and it was taken into the review process shortly thereafter. We anticipate an acceptance to the file through view by FDA in the next weeks and have to date have no indication of any reason to believe that this won't be the case. The decision to spend a few extra days on additional quality control and hyperlinking has resulted in a dossier that is easy to navigate for the reviewers and despite being one of the largest electronic files ever received by the Agency, the process of downloading our data seem to go without any problems. Our regulatory team and the other who's worked around the clock to achieve this, can be proud of the high quality NDA. We now move forward to preparing to clean effectively with the questions the Agency may have about our data as well as exploring further the rich and expensive data set that has resulted from the clinical program.

We look forward to the upcoming meeting of the American Diabetes Association but we and several of our investigators will have the opportunity to provide further detail with the data supporting both the efficacy and safety of AFRESA with patients with Type 1 and Type 2 diabetes. These presentations will provide further insights into the unique characteristics of this product which lead to the ultra rapid action profile and result in reductions near hypoglycemia and weight gain compared with state-of-the-art insulin regiments while maintaining the benefits and control of HBA1C. We will be presenting further details of our extensive pulmonary function testing and some basic pharmacological studies which characterize the mechanism of action with AFRESA and other products delivered using the (inaudible) platform. In total all 14 abstracts that were submitted were accepted. These papers report on various aspects of MannKind's sponsored (inaudible), a reflection of the degree of interest there is regarding the scientific platform on which we will build a truly differentiated product. We've caught something new with our (inaudible) studies investigating further aspects to refine the use of AFRESA in patients with diabetes.

I would also like to take this opportunity to remind you of progress we've made in our cancer immunotherapy program, MKC 1106. Regimen PP, in solid treatments and NT in melanoma. This unique approach using (inaudible) delivery is specific (inaudible), DNA fragments to time the immune systems to attack specific cancer cells and then using small peptides to boost the immune response to target the same cancers has progressed well. Our phase one trials have completed patient enrollment and the number of patients is still undergoing treatment.

Preliminary immune safety and clinical data from 1106PP trial were presented at the recent American Association for Cancer Research in Denver, Colorado. Both studies met their primary goals in immune response and safety and objective clinical responses have been observed in both trials. The release of the final data MKC 1106PP will take place in the second half of 2009 and for MKC 1106MT in the first half of 2010. Plans are moving into phase two are underway with the potential start of a phase two melanoma trial towards the end of 2009. (inaudible) is now very much in assuring rapid approval of AFRESA and expanding our knowledge of how to best use this unique product in diabetes as well as continuing to look into early phase studies of other opportunities for the (inaudible) platform to deliver products benefit from the the unique effects of rapid delivery by the pulmonary route.

I would now like to turn the call over to Al. Al?

Thank you, Peter, and good afternoon, ladies and gentlemen. Peter has described in some more detail and Peter and Hakan have both noted the submission of the NDA. This is an extraordinary compilation of an enormous amount of data with extensive preclinical studies in 49 clinical trials. We believe the data clearly supports the safety and efficacy of AFRESA. All of the primary end points in the clinical program were achieved. There is extensive evidence of superiority in many areas and there were no worrying safety signals.

On the basis of the data, we believe we present a compelling case for approval of the NDA for AFRESA. The FDA review process is underway with [adupa] date next January and the official acceptance expected shortly. Yet with all of the positive factors some cell sight analysts are still skeptical of AFRESA so let me try to address some specific questions and comments that have been raised.

First, FDA guidelines. Last spring the FDA published proposed guidelines for diabetes drugs. We believe that MannKind has more than satisfied those guidelines with AFRESA. We do not think any of the other programs to develop insulin for inhalation would have met those guidelines. Last year concern was raised about cardiovascular risk in aggressive glycemic therapy and the FDA established a target action level. We have analyzed all of our trials and are pleased to report that we have seen no excess cardiovascular events.

Two, pulmonary function and related testing. MannKind has conducted extensive studies of the impact of AFRESA on lung function with no safety signals whatsoever. In most clinical trials we saw no effect on pulmonary function at all. All in sum, we've seen some tiny differences that are clinically insignificant. We have seen no meaningful glucose control difference in conditions such as asthma or respiratory infection nor in smokers. We've so far found no conditions that would justify contraindication although we propose that AFRESA not be used in persons with significant loss of pulmonary function. Our studies are been carefully reviewed by a cadre of independent medical experts, not a single one has expressed any concern about pulmonary impact, including cancer risk. Moreover, they've all stated their conclusions, there is nothing that would support the need for any pulmonary function testing. Though we cannot say with certainty that the FDA will not require some PFTs.

Three, lung cancer. It seems to me that the concern about lung cancer should have ended by now since there is no factual basis for such concern. Even for Exubera there was no conclusion as to causality acceleration and AFRESA is so very, very different. Inhalation of Afresa is certainly less risky than for some other chronically-entailed drug and even less so than breathing in a large city. An advisory committee has dismissed any risk of lung cancer from AFRESA. While we're seriously concerned about this risk, all of the data gives us confidence that any concern about lung cancer with AFRESA is without foundation and is bogus, nevertheless we must address some perceptions that have been created.

Four, projections. I want to correct an earlier comment that understated the AFRESA market opportunity. We have contracted for a number of independent market studies of AFRESA. One of those was conducted at the height of negativity last May. That study involving 252 physicians, including 85 endocrinologists and 167 PCPs used an overly conservative label that even contained an unlikely class warning about cancer risk. With the availability of an insulin with AFRESA's characteristics those physicians indicated that such a product would be expected to comprise more than 6% of their future prescriptions. These same physicians were also asked to judge the effect of various changes in the label. With essentially that same conservative label but without the unlikely cancer warning, they opined at an insulin like AFRESA would comprise about 11% of their prescriptions with a more likely label to share with you even higher yet.

For the sake of argument consider what would be the revenues of 11% of the approximately 23 million diabetics under treatment in the U.S. in 2014 would actually be using AFRESA. Certainly in such a scenario, AFRESA would be a significant multi-billion dollar opportunity and that is just in the United States. I do not see any basis for a sub million sales estimate.

Five, FDA approval. Some analysts have questioned whether the FDA would approve -- when the FDA would approve AFRESA or even if they would approve it. The Agency is data driven and they understand diabetes and glucose control. It seems to me that he enormous body of data in NDA provides a convincing argument for approval of AFRESA. I cannot imagine on what basis there would be any doubt about approval. After all , it is regular human insulin and it's genetics mimic normal prandial physiology in part better then any other glucose-lowering effect. Even the FDA noted that. And we have seen no safety signals. AFRESA met its primary pivotal study target of non inferiority to rapid analogs, today's gold standard, and has shown superiority in many key areas. So what would be the basis for not approving AFRESA? Indeed I'm personally confident of approval.

Six, the insulin factory deal with Pfizer. Hakan described this a bit. First understand where we are. Our current contract with Organon's (inaudible) unit provides for increasing quantities of up to a maximum in 2012. With our option to extend the contract at that level for only two additional years. To increase quantities would require factory expansion. And Organon wanted us to pay for that. With Schering-Plough's acquisition of Organon, we became concerned that this suppliers commitment might be in jeopardy. Thus we've been exploring various alternatives for insulin supply. The deal with Pfizer eliminates this limitation regardless of whether Sanofi-Aventis exercises its right of first refusal.

Seven, cost of goods. We have been working diligently to lower our cost of goods. Lowering of supply costs, process improvements in our factory, and our next generation inhaler have enabled us to achieve excellent cost levels. With acquisitions, the insulin supply we will now be in especially good shape. Most of the the analysts have assumed margins far lower than what we now estimate so their forecasts project a much smaller share of an extremely low estimate of market penetration. We believe those estimates to be far below the likely opportunity.

Eight, partnership. Last May, we, ourselves recessed partnership talks and we have always said that we would not discuss partnership status until there's an actual contract. However, I will say as did Hakan, that we're in serious discussions with a number of companies that we believe would be excellent partners for AFRESA. These major pharma companies would provide strong global representation with presence in the major regional markets. We want a partnership agreement completed this year, and as Hakan said, our goal is the end of this September. We have made so much progress at lowering our costs that the economics will be very attractive for both a partner and for MannKind. Now we want to concentrate on rapid penetration which we would gain with a partner.

In summary, I've tried to address most of the questions that some have raised about AFRESA. Hopefully these answers will be sufficient and enable you to understand why I am so confident. AFRESA fills a very important need in diabetes therapy that is poorly met today. All that said, let us now open up the call to

(Operator Instructions) We have a question from Thomas Wei. Sir, your line is open.

Hi, Thomas.

Hello, thanks for taking my question. I wanted to get your sense given what you referred to as some of the controversies that people have been raising around the regulatory review. What do you think the primary points of debate are going to be on the AFRESA clinical package once this goes to an FDA panel? What are the primary points that the panel is going to be asked about?

I think that's predicting what will be the topic of an FDA review panel is actually quite complex at the present stage but I can say I think we actually really look forward to the opportunity of presenting our case to such a panel. I think the discussion that I can see is one in terms of the efficacy and how to actually translate some of the benefits that we're seeing in sense of hypoglycemia, what are the differences between the Type 1 and Type 2 population because I think it's much clearer that the very strong data that we have in the Type 2 population is showing reductions in hypoglycemia, of mild, moderate and severe. I'm not as clear in the Type 1's and I think that's partially because we've got further things to learn in terms of how to handle the AFRESA and more importantly, the background base insulin.

I think that there will be discussions in terms of pulmonary function testing. We presented a very robust package of pulmonary function data probably one of the largest the Agency has seen and certainly one of the largest I know of in terms of testing an inhaled drug. Those data, I think support very clearly no clinical indication for using pulmonary function testing. In fact when we talk about this, when we look at the lack of outliers in our database and our lack of concerning changes in pulmonary function, we believe that the best tool to looking at this is to use a doctor's stethoscope and their own clinical acumen and deciding which patients are right for AFRESA. We've said patients with underlying lung disease will not be suitable.

These are the two area in terms where we would anticipate the most debate. As we've said we have a robust of data around the cardiovascular numbers. We've actually generated a relative risk of essentially one and compared to other programs in diabetes, because of the need for the longer term of the pulmonary function data giving us two years of exposure in this potential body of patient, as well as the two year one year studies that we've done, we actually have event rates and numbers which present quite a number of cardiovascular events (inaudible). So I think that will be very important as well as the Agency dealing with that.

And on the point that you raised about the Type 1 population. Do you have any trials ongoing or any data that you could use to supplement your filings for Type 1.

We don't expect to have to supplement our filing but as you know during last year we launched study 117 which is really looking at optimizing the (inaudible) regimen in Type 1 giving a little more flexibility in terms of dosage timing. And actually combining it with the basal insulin given once all twice a day, really is used widely now by expert diabetologists and as our data would point out, Lantus really doesn't last the 24 hours in the Type 1 patients. And we're doing that study in order to focus on optimizing basal control and putting it in the hands of really quite a small group of leading endocrinologists and using it to treat the target guideline so we can really drive the HB1C numbers down. Then I think we'll actually start seeing the separation in terms of hypoglycemia and some of the things doing around that in terms of using continuous glucose monitoring, et cetera. Well again better allow the physician to use what's really been a novel tool in Type 1 patient to use AFRESA more effectively for managing patients with Type 1 diabetes better.

One last question just in the titles for the ADA meeting. What is the poster that's called Technosphere Insulin Dosage Strength are Interchangeable? I didn't quite understand what that study was.

I'm not proposing to talk about the ADA presentations ahead of time but I think what you're talking about is the fact that one of the the things in the program we are very keen to do is ensure that dosage similarity for AFRESA in whichever dose the patients have. At moment we have two unit strengths of cartridges one which normally has 15 units of insulin and the other one is 30 units of insulin. Our data shows that two 15 unit cartridges are exactly the same as a 30 unit cartridge and as we move forward we will be giving better information in how to use that clinically. That's important to clinicians, and to patients, in terms of being able to do something that was really a problem with Exubera where three 1 milligram blisters didn't equal three milligrams than was very confusing to prescribers, to patients and also I think in terms of you really want people to be able to use very similarly so that if they add a 30 and 15 together that makes 45 or if they want to use 15 cartridges that's fine too. Thanks, that's very helpful.

Thank you. Our next question comes from Cory Kasimov. Your line is open.

Great. Thanks, good afternoon guys. I guess to start off with the participate talks looks like you're making good progress there. I just wonder if you could characterize for us what-- in terms of a general structure-- what you think is kind of the ideal structure a collaboration at this juncture? How much input? How much of a role will you play on the commercialization of the product?

Well, we certainly will establish a number of alliance groups that will address commercialization, manufacturing and clinical and regulatory aspects. Those are part of our discussions with potential partners. So we believe that we have made significant progress and significant learnings during the course of developing the AFRESA operating. So from that point of view we certainly will be an active and participating partner in the commercialization on both the domestic and a global basis.

Now would you want a sales force that's strictly targeting specialists or would you be going after primary care physicians as well? Or would you leave that to the pharma partner?

If we look at say the North American market, if we decide to launch our own sales force that would be essential thanks would be focused on the specialist and we would leave the primary care market to our partner.

Okay. Good. And then just in terms of the phase three B data you referred to especially trial study 117, when could we expect to see that data, at least a top line look at it?

Peter?

We're still recruiting that study in the six month follow-up. So we're anticipating somewhere first, second quarter of next year.

So maybe ADA next year. And then quickly two housekeeping questions. In terms of the bridge loan from Al, just make -- just want to confirm you draw down $60 million of that in the first quarter?

Yes.

Okay and then how should we think about the operating spend going forward now that the trials are done? Spending came down this quarter. You just undertook the restructuring. How should we think about that over the next couple of quarters?

Well it will continue to go down, slightly. I'm not going to give very specific projections, but I think we've said before we're targeting somewhere in the close to 30% reduction. We were in the low 20s this quarter and we're heading in the right direction.

Okay. Thanks for taking the questions.

Our next question comes from Michael Tong. Your line is open.

Thanks, good afternoon. Just a quick question on the partnership front as you look at a U.S. or global partner. Can you refresh my memory as to your current plans and time line for European approval?

We are in preparation -- there's some additional studies that were required by the EMA in terms of the approval. So our expectation based on where we are right now and certainly focused on the NDA that we will build our file and we've started to make contact with European say regulatory agencies and consultants to make sure, so I would say the early part of 2010 is when you would expect to see a filing in Europe.

Okay, and updates on your GLP1 program?

Presenting data with ADA I like forward to sharing the results from the studies that we conducted earlier this year.

Great, thank you very much.

We have one final question at this time. (Operator Instructions) Our last question at this time comes from Tom Russo. Sir, your line is open.

Tom?

Hello, can you hear me now?

Yeah.

You guys commented earlier on the insulin operation and the cost of goods. Just when you think about potential partnerships -- would your first preference be more of a royalty agreement or are you looking for something like a profit share? I'm just trying to understand the most important aspect of lowering COGS. Is to be most attractive to a partner or you looking to have more of a profit share-type outcome?

I would say, Tom, at this point and time we are kind of in sensitive parts of our operation. At this point I would say I would decline to comment on that. While we are looking for certainly a very mutually beneficial agreement with potential partners but I don't want to make an improper statement at this point and time.

Okay. Thanks.

We do have a follow-up question, gentlemen, from Thomas Wei. Your line is open.

Thanks for taking the follow-up. Just a couple of quick regulatory questions. One is, what are the additional studies that are required for filing in Europe, and second if you're targeting a partnership by the end of September, is it fair to say that regulatory risk is not a major consideration for the partners who have gotten to that term sheet stage that you refer to in the prepared comments?

I'll answer the second question. None of our partners seem very concerned about the regulatory risk and the first question we'll have Peter respond to it.

Yes, Thomas. We want to put some additional thing we've done in study 117 to incorporate getting echocardiogram which is something the European authority asked us for. We're just waiting for those to come through in terms of -- .

I'm sorry, what? Why are they interested in getting echos?

I think this is the questions that they asked us during the course of the review so we've incorporated that into one of the the studies in. I really can't give you information in terms of why they're asking for that.

Was there some valve finding pre-clinically?

None at all. Absolutely no pre-clinical signals whatsoever.

And then just circling back on the prepared comments part. Did I hear you correctly? Can you clarify, you are at the term sheet stage? Somebody has offered you term sheets?

What I said was that we are in emerging term sheet discussions.

Okay. Thank you. That's very helpful.

Gentlemen, we have no further questions.

Well, thank you, very much, ladies and gentlemen. This has been a very important quarter for MannKind and as we move forward, we think you will be hearing some very exciting news in the coming months. Thank you and we'll talk to you again in three months.

That does conclude today's conference call. We thank you all for participating. You may now disconnect, and have a great day.