MannKind Corp (MNKD) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the MannKind corporation second quarter 2009 conference call. At this time, all participants are in a listen only mode. Later, instructions will be given for a question-and-answer session. (Operator Instructions). As a reminder, this call is being recorded today, August 3, 2009. Joining us today from MannKind are Chairman and CEO Alfred Mann; President and COO Hakan Edstrom; and Chief Financial Officer Matthew Pfeffer. I would now like to turn the call over to Matthew Pfeffer, Chief Financial Officer of MannKind Corporation. Please go ahead.

Good afternoon, and thank you for participating in today's call. I will summarize our financial results for the second quarter of 2009 as reported earlier today. Afterward, Hakan and Al will comment on current events. 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 meaning of federal securities laws. It's possible that actual results could differ from these stated expectations. For 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 the Securities and Exchange Act of 1934. This conference call contains time sensitive information is that accurate only as of the date of this live broadcast, August 3, 2009. MannKind's management undertakes no obligation to revise or update any statements to reflect events and circumstances after the date of this call.

Let's start with the financials. For the second quarter of 2009, total operating expenses expenses were $53.4 million compared to $80.9 million for the second quarter of 2008 and $57.8 million for the first quarter of 2009. R&D expenses were $39.8 million for the second quarter of 2009 compared to $67.6 million for the second quarter of 2008. The decrease of 41% or $27.7 million in R&D expenses for the second quarter of 2009 was primarily due to decreased costs associated with the development of AFRESA and decreased manufacturing costs associated with raw materials purchases.

General and administrative expenses were $13.5 million for the second quarter of 2009 compared with $13.3 million for the second quarter of 2008 and $14.9 million for the first quarter of 2009. The net loss applicable to common stockholders for the second quarter of 2009 was $55.6 million or $0.54 per share, compared to a net loss applicable to common stockholders of $79.8 million or $0.79 per share for the second quarter of 2008.

Our cash, cash equivalents, and marketable securities at the end of the second quarter totaled $34 million, which compares to $46.5 million at December 31, 2008 and $30.2 million at March 31, 2009. Our cash burn for the second quarter of 2009 was $48.3 million in Q2 compared to $76.3 million in the first quarter. With our cash on hand and the availability of the remaining credit facility from Al of $215 million as of June 30, 2009, we now believe we will be able to fund our operations through at least the second quarter of 2010.

I'd now like to turn the call over to Hakan Edstrom, our President and COO, who will provide a overview of significant events during the last quarter.

Thank you and good afternoon. During the last quarter, the most significant event was certainly the acceptance by the FDA of our NDA submission. The acceptance occurred on May 16 and we actually received our 74 day letter about 10 days early. Thus our PDUFA date is now January 16, 2010. And we are now at the stage of fielding questions from the agency. To date, the questions have been very straightforward and consistent with our expectations. We are encouraged by the interactions with the FDA.

We are also preparing to meet with the agency in order to discuss our development plans for the next generation device which we recently disclosed on our website and in an interview in CNBC. We have already evaluated this next generation device, known internally as Dreamboat, in two Phase I clinical studies. The first of these studies showed the Dreamboat device is quite insensitive to inhalation technique and supported by a simple patient instruction program using a DVD. Studies have shown that inhalation of 20 insulin units with AFRESA administered with a Dreamboat device produced plasma insulin concentration comparable to administration of 30 units using the current MedTone device.

We plan to discuss with the FDA the definitive bioequivalent study design and to map out the approval pathway for the Dreamboat inhaler for use with AFRESA. We are very excited about this next generation device and would like to get it into the hands of patients as quickly as possible. The question of whether to launch AFRESA with the Dreamboat inhaler instead of the current MedTone inhaler has been discussed extensively with each of the potential partners with whom we have been in discussions during recent months. The resolution of this question is tied directly to our partnership efforts, so I'm afraid I cannot give you a definitive answer at this point.

Regarding the status of our partnership activities, I will only say we were rapidly moving to a very advanced stage. We have previously announced that our corporate objective is to reach a partnership this year and with an internal goal of a deal agreement by the end of the third quarter.

Another event during the second quarter I wish to highlight is the completion of our transaction with Pfizer. In March of this year, we entered into a rather complex set of agreements, pursuant to which we agreed to purchase a number of assets from Pfizer, including an insulin factory in Frankfurt, Germany. In June, Sanofi-Aventis exercised its right of first refusal to acquire the real estate and related assets, so we did not end up purchasing the factory. We did, however, acquire the quantity of bulk insulin and license to the manufacturing process. We also have an option to purchase an additional quantity of bulk insulin from Pfizer at a specified price.

The transaction was designed to be a win for all parties, no matter which one of the several possible outcomes that actually occurred. For us, the outcome of this transaction allowed us to obtain a supply of insulin that together with our existing supply from [Organance] is enough insulin to make billions of AFRESA cartridges, enough for several million patient years of therapy. Peter is on vacation this week, so we will not have an update from him on this call.

I will now turn the call over to Al.

Thank you, welcome, and good afternoon. I would like to take a moment to comment about some market research results that we recently disclosed. We have contracted for several such market studies over the past several years.

As we approach commercialization, in May of this year we engaged BioVid Corporation to conduct quantitative research about the potential uptake of AFRESA so we might better assess the current potential global physician interest. BioVid is a well respected pharmaceutical research consultancy based in Princeton, New Jersey, and was recommended to us by one of our potential partners.

The research was conducted with physicians who were instructed to base their responses on actual patient records. Before participating in this study, the physicians were asked to pull records of adult patients with Type 1 and Type 2 diabetes. For Type 2 patients, they were instructed to have equal numbers of patients who are currently on insulin and patients had never been on insulin. The participating physicians were then given a product profile based on our proposed label for AFRESA and shown a video that described how to use our next generation inhaler. The physicians were then asked series of questions about their prescribing preferences for the particular patients whose records they pulled in advance.

This study was conducted in the US and Europe. The results from the European physicians are still pending. In the United States, 101 endocrinologists and 102 primary care physicians expressed an overall preference for AFRESA for approximately 25% of both Type 1 and Type 2 patients. This study included only adult patients, since our clinical program was only evaluating AFRESA in patients over 18 years of age and our current NDA seeks approval only in adults. Of course, we will be seeking to extend approval to pediatric patients and approval for that segment will hopefully not be appreciably delayed. After all, the kinetics of AFRESA and its convenience are expected to be even more important for pediatric patients.

These results are markedly higher than those we obtained last year when we conducted research immediately after the negative publicity regarding Exubera. Even then, we were encouraged that physicians expressed a preference for AFRESA for about 8% of their Type 1 patients and 6% to 7% of the Type 2 patients. Based on the latest study, it would appear the physicians are better able to differentiate AFRESA from competing insulin products. Moreover, this new survey was conducted before the release of all of the positive information and the data that AFRESA -- about AFRESA that was disclosed at the American Diabetes Association meeting in June. So we would expect that the message would now penetrate even further into the physician community.

Because the previous research focused only on the MedTone inhaler, the current results also show a strong interest for our next generation device. Hakan mentioned our current efforts to accelerate the development timeline for the new inhaler. I believe that the combination of AFRESA powder delivered with a Dreamboat inhaler is a major advantage and advance that will enable AFRESA to change the treatment paradigm for diabetes.

[Preference] shares do not translate directly into sales forecast. Rather, they are merely indicative of market potential. That said, we use an expert consulting firm that regularly generates forecasts and such market surveys for the pharma industry. Last year's study was translated into revenues in 2015 of much greater than $1 billion. I suggest that the more than three times higher preference share in the latest study will likely support our confidence that AFRESA will be quite successful. You do the math to make your own guess as to the opportunity.

I would like to comment on another issue. Several weeks ago Form 4s were filed by our senior officers, including myself, and some people interpreted this as sales of our stock. In reality, all these officers were acquiring MannKind stock, so let me explain. Under our long term incentive plan, the company had granted restricted stock units or RSUs that vest over time. Since RSUs are a form of compensation, income tax must be withheld at the time of vesting. It is customary throughout all of industry for a company simply to withhold shares valued at the amount of that tax. In effect, the employees are actually acquiring stock, but a lesser number from the grant. The withheld stock for the taxes treated as a sale to the company's treasury, but not to the market. The SEC requires a Form 4 for the amount of stock that is held. The tax withholding is described in a footnote on the Form 4, but it seems that not everyone noticed the footnote.

I am mentioning all of this because we will shortly be filing Form 4s for additional RSU grants that vested on August 1, and there will be such vesting events in the future. Before reacting to any such form 4s, please first look at the details of the transaction. To avoid concern about my own personal commitment, I have elected to pay the tax on last Saturday's vesting in cash and not by withholding shares. Rest assured, I am invested in MannKind for the long haul. As Hakan mentioned, we are moving quickly toward an advanced stage in our partnership efforts. As he and I have repeatedly said, we want a partnership in place before year end, with our internal goal of this quarter. I hope that we will be able to make an announcement by the end of this current quarter.

That's really all we wanted to say today. So let me now turn this over to the operator for questions.

Thank you. (Operator Instructions). Our first question is from Cory Kasimov from JPMorgan. Your line is open.

Thank you for taking the questions. I won't ask anything about partnership right now, but I'm wondering from a clinical standpoint -- some of the outstanding studies, the commercially focused study like 117 and some of the other ones out there, when might we expect to get a read on any of those?

Peter is not here today, so I hate to answer for him. The 117 program is moving forward primarily with the new Dreamboat inhaler and can't restart until September. You aren't going to see data from this until well into next year, probably after mid-year.

Okay. And then as far as that Dreamboat inhaler is concerned, can you talk about what you believe at this point in time you need to do from a regulatory standpoint? When you talk about potentially using this as the inhaler at launch, does that -- would that imply protracted timelines to get that ready to go?

We haven't really said that. We are simply saying that it depends to large extent on what the FDA requires for us to do. When we changed to the model D MedTone from the model C, which was just a moderate change in the design in order to make it more rugged and more manufacturable, the FDA simply -- actually the preFDA meeting, at the very last minute the member of the FDA team from the device bureau said why -- I think we will be more comfortable if you did a bioequivalency study, so that's what we did. And that's what the latest a few weeks -- which was why we didn't finish the end of the year. But we did complete that study and it showed bioequivalence and that was fine.

We are hoping that that is all the FDA will require this time, because we are not really changing the powder. And the Dreamboat is simply much more effective in emptying the cartridge and doing it more consistently. We are hopeful the FDA will accept the introduction of Dreamboat, which will have a lot of advantages for the patients as well. But we can't make a decision until we get a response from the agency.

Okay. But safe to assume at least in terms of the Phase 1 data you have in hand now that the PK profile with Dreamboat is in line with what you seen with MedTone based on your internal -- ?

It actually reduces the amount of powder by roughly one-third, so that -- which is very nice because among other things it lowers our cost of goods. More importantly than that is that it improves the performance for the patient in many ways.

Okay. Thank you.

Not that the MedTone was not great. It was also great. This is even more great.

Next question comes from Jon LeCroy with Natixis. Your line is open.

Thank you for taking my call. Did the FDA institute any of the changes to the inhaler? Or was that all internal at MannKind? Can you discuss a little bit about what was in your 74-day letter from your filing of Technosphere Insulin? And then I'll have one follow up.

The development of the next generation device which we call the Dreamboat was certainly all an internal effort, and where we found ways to further improve the delivery efficacy of the product. So from that point of view, that was not done because any type of outside experience. And in regards to the 74-day letter, at this point in time with Peter not here, I would say that certainly it did not have content of anything that was [out of price]. So we are working effectively with the FDA moving forward on our NDA.

And I think -- what I like to say is the letter included a number of questions which were -- none of which were difficult, but which really shows that the agency had even by that time already begun very thorough review of our submission. We were very pleased and excited actually that they made so much progress.

All right. And maybe one follow up. Your stock is up substantially. Any thought of raising money, or if you've looked into that maybe how have those discussions gone?

That sounds like a question for me. This is Matt. As you know, this is a heavily regulated area. So as a matter of policy at MannKind, we don't comment on financing plans generally.

Thank you.

Your next question comes from John Newman with Oppenheimer.

Hi, thanks for the question. I will ask the question about the partnership second. First, if you were to launch AFRESA using the MedTone inhaler and then you were to follow that with the Dreamboat inhaler, it sounds like the Dreamboat inhaler is a bit more efficient and using less drug. So how would you deal with a potential reduction in revenue per patient if you introduced that switch? And then secondly, one quick question on partnership. What kind of expectations would you have for an upfront milestone there? Would you be looking at a partnership that's more back end loaded? Thanks.

First of all, in terms of the efficacy of the product, at this point in time we will sell our cartridges in 15 and 30 units. We do not expect to see any type of pricing difference. There is certainly a cost difference but not a pricing difference on the product. And in regards to any upfront discussions, those are -- I would say outside of our area for comments at this point in time.

Great. Thank you.

Our next question comes from Simos Simeonidis with Rodman and Renshaw.

Hi, guys. Thank you for taking the question. Was there a $45 million drawdown this quarter? And then a question for Matt again. Would you think you could reach the steady state for just a couple quarters in terms of your spending? Is it what we should expect for Q3 and Q4? Thank you.

I hate to be that specific about the burn rate. I think I said earlier in the year we will be decreasing throughout the year most likely, and you should expect as the year progresses somewhere in the nature of a 30% to 40% reduction. We are essentially already there. Beyond that, I hate to comment too specifically about it if it's going to continue to climb, but you may see additional small declines going forward.

And there was a $45 million drawdown from Al's line?

That's exactly right.

Thank you.

It's essentially consistent with -- you can see what our burn was for the quarter.

Thanks.

(Operator Instructions). And next question comes from Keith Markey with Griffin Securities.

Hello. Thank you for taking my question. I was wondering if you could give us an update or what your plans are as far as the pediatric indications go?

We are in discussions with the agency now. We need to create a plan for the pediatrics. As they are typically very conservative about the youngsters, they wanted us to get the program completed for adults before we started. We don't have anything to specific to announce. We believe this will be a major opportunity, because for pediatrics, the kinetics and the convenience will be better -- it will be more important, not better, but more important than even for adults.

Thank you very much.

You're welcome.

Next question comes from Michael Tong with Wells Fargo Securities.

Good afternoon. Just a quick question on the pros and cons of launching with MedTone or Dreamboat. Who's actually driving that decision process in terms of which inhaler to launch with? Is that MannKind or is that actually the potential partner?

Potential partners are really very involved in that discussion. And no final decision has been made yet. It really depends on when the agency will approve it more than anything else.

And so just a follow-up on that then. Given the early mid-January PDUFA date, what's a possible scenario that the partnership can or the partner will step forward before that milestone event?

Before the PDUFA date?

Yes.

Well, we said that our goal is the end of this year. And internally, we set our comp plans on the expectation that we would secure an agreement by the end of this quarter. That is before the PDUFA date. So we expect this to be done before the PDUFA date.

Thank you.

This concludes the question and answer session for today's conference.

Thank you very much, ladies and gentlemen, for joining us today. We look forward to updating you at our next quarterly call or sooner. We are making great progress and we are pleased with how things are going for us today. Thank you very much.

This concludes today's conference. You may disconnect at this time.