MannKind Corp (MNKD) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation second-quarter 2011 conference call. At this time all participants are in a listen-only mode. (Operator Instructions).

As a reminder, this call is being recorded today August 4, 2011. Joining us today from MannKind are Chairman and CEO Mister Alfred Mann; President and COO Mister Hakan Edstrom; Chief Financial Officer Mister Matthew Pfeffer, and Chief Scientific Officer Doctor Peter Richardson. 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 2011 as reported earlier today.

Next, Hakan, Peter, and Al will comment on recent events. 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 federal securities laws. It is possible that the 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 that is accurate only as of the date of this live broadcast, August 4, 2011. MannKind's management undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call.

Now let's start with the financials. For the second quarter of 2011, total operating expenses were $39.2 million compared to $37.4 million for the second quarter of 2010 and $38.1 million for the first quarter of 2011.

R&D expenses were $30.3 million for the second quarter of 2011, compared to $26.2 million for the second quarter of 2010 and $26.3 million for the first quarter of 2011.

The increase in R&D expenses for the second quarter of 2011 compared to the same quarter in 2010 is primarily due to a settlement reached with Organon in connection with the termination by us of the previous insulin supply agreement. In connection with this settlement, we received the first two shipments of recombinant human insulin from Organon and paid the first of two $8 million installments in the second quarter of 2011.

Additionally, we recorded a loss contingency as of June 30, 2011, of $3.9 million in connection with the second installment that was due and was in fact paid in the third quarter of 2011. In other words, as of today, we have paid a total of $16 million to Organon and have received a quantity of insulin in return for this payment. $8.4 million of this amount was expensed on account of the insulin that we acquired and $7.6 million was treated as a termination penalty.

General and administrative expenses were $8.9 million for the second quarter of 2011 compared to $11.2 million for the 2nd quarter of 2010, and $11.8 million for the first quarter of 2011. The net loss applicable to common stockholders for the second quarter of 2011 was $44.5 million or $0.37 per share compared with a net loss applicable to common stockholders of $42.3 million or $0.30 per share for the second quarter of 2010.

Our cash, cash equivalents, and marketable securities at the end of the quarter totaled $25.3 million. Our cash on hand and remaining credit facility from Al amounted to $104.8 million as of June 30, 2011.

Our cash burn in the current quarter was $40.2 million compared to $32.7 million in Q1 as a result of the previously discussed payment to Organon.

With our cash on hand and the amount still available under the credit facility from Al, we believe we'll be able to fund our operations in the first quarter of 2012. We continue to assess our operational plan for the balance of 2011 in order to find ways of extending our cash runway further into 2012.

With that, I would like to now turn the call over to Hakan Edstrom. Hakan.

Thank you, Matt, and good afternoon. I think the best way to summarize the activities of the last quarter is to lay out the timeline of our interactions with the FDA, which should give you a sense of the frequency and the quality of our ongoing dialogue.

As you know, we had an [end of] review meeting with the FDA on May 4. Well in advance of that meeting, on April 29, in fact, we received preliminary comments from the agency which allowed us to resolve many of the issues and to respond with clarification regarding remaining topics prior to the May 4 meeting.

And as we previously reported, the meeting itself was very productive. We further refined the proposed product [called] for their required type 1 and type 2 studies and reached agreement on several key issues.

For example, the agency concluded that the preliminary function measurements of [DLCO and TLC], it was not to be necessary. This reduction itself was simplified in studies and this realization of the requirement suggested any pulmonary function testing in the final label will not become a significant marketing obstacle. After all, in all of our testing we have seen only a tiny temporary effect on pulmonary function that has always been restored at cessation and is likely just a reaction to the powder inhalation.

Then again, ahead of schedule on May 26, the FDA provided us with the minutes of the May 4 end of the review meeting. In addition to summarizing details of the meeting, this document also gave us guidance on several topics that had not been covered at the meeting, but which the agents indicated wanted to discuss off-line.

On the basis of all the feedback, we moved quickly to finalize the protocols for the two clinical studies involving the next-generation inhaler. On June 8, we submitted the final proposed product for the type 1 study to the FDA. This omission was sent to the agency along with the type C meeting request so that we will be able to establish formal agreement with the FDA on this study.

Very quickly, in only seven days compared to the allowed 15 days, the agency again responded early to requests to granting us a meeting which is scheduled for August 10.

We have begun to prep many of the IRB starting clinics that will participate in this trial and we expect to hold an investigator meeting at the start of this trial soon after the August 10 meeting.

Our study in type 1 diabetes patients known as study 171 is a basal bolus define, comparing our first line combination with [Lantos] to NovoLog in combination with Lantos. The FDA indicates that if it does not expect pulmonary functions to be a primary endpoint. The primary endpoint is lowering of HbA1c.

However, the agency wants to bridge comparing pulmonary effects with the new generation inhaler to the effects seen in the large two-year study, the 030 safety trial they were conducting with the earlier MedTone inhaler.

This comparison of the two devices would also be conducted as part of this study. We are proposing to randomize 157 patients per arm in order to yield adequate power for the primary endpoint of the study with a goal of 133 patients at completion.

We have a short list of open issues to discuss with the agency on the MKC171 protocol and we believe that we will reach definitive agreement with the FDA for this study during our meeting next week.

The type 2 study has evolved rather differently and Al will describe this in more detail. And before I turn the call over to Peter to describe some of the highlights from the recent ADA meeting, I am sure that some of you have questions about partnership discussions.

We have shared our regulatory feedback and planned clinical local activities with a number of global and regional companies. And once we have reached a final agreement with the FDA on the design of the protocol, and our potential talks have had an opportunity to conduct appropriate due diligence, we will make a determination of how to proceed. Clearly, it is too early to make any further statements regarding those opportunities at this time.

So with that I will hand the call over to Peter.

Thank you, Hakan, and good afternoon. At the recent ADA meeting in San Diego, we presented four posters. Two of these posters described studies that confirmed that there is no increase in cardiovascular risk associated with the use of AFREZZA.

The first of these studies was a microanalysis of all the clinical trials that have [developed a risk] of only 1.01 to cardiovascular events, which is another way of saying there is no difference from the controls.

We also presented a clinical study that demonstrated no effect on heart muscle conductivity, the QTc study, that no cardiovascular attacks have been observed, should not be a surprise. After all, we are delivering regular human insulin.

Another study presented at the meeting, was an evaluation of patient perception of insulin therapy using AFREZZA, including convenience, comfort, and ease of regimen adherence. In this trial there was a greater improvement in patient's perception of treatment when using AFREZZA than in patients receiving standard therapy.

The fourth poster was on the pilot study in type 1 diabetes investigating the addition of a supplemental dose of AFREZZA after a meal when late blood glucose measures too high. This study demonstrated a [non-impery] improvement in A1C over eight weeks compared to a rapidly acting analog with lower fasting blood glucose and fewer hypos.

Turning now to our oncology program, we recently held a recruitment in the clinical trials of investigational immunotherapy product for the treatment of melanoma. The trial had been recruiting very slowly given the approval earlier this year of [ureboy]. We are continuing to follow patients that already had been enrolled while we evaluate the next steps in our immunotherapy vaccine platform technology.

We are also continuing to explore the potential partnership and other options for our preclinical oncology drug program. We have seen a high level of interest in our progress toward the pharmacological manipulation of the unfolded protein response. However, current circumstances have required us to conserve the resources that we would like to allocate to this program.

Now let me turn the call over to Al to talk about the proposed type 2 study and our plans for moving forward. Al.

Thank you, Peter, and good afternoon. Our first-quarter call was dominated by news of the Complete Response Letter and its aftermath. We recognize that the FDA action and the substantial financial consequences of the delay would significantly impact MannKind. And if I can be so bold, also MannKind was at the [AA]. After all, AFREZZA addresses what is a poorly met need in what today is the greatest challenge to healthcare worldwide.

As you are all well aware, I remain absolutely convinced of the importance of AFREZZA and am fully committed to this program. As you heard from Hakan, since our May 4 meeting, we have had a number of written and personal interactions with the FDA. What is interesting input from the agency was an indication that it would accept a resubmission for the initial approval just for type 1 alone followed by data in type 2 as an efficacy supplement.

I do not know of any precedent for an indication for insulin in only type 1. But we see this suggestion from the FDA as still another positive indication, and as an alternate opportunity should it become relevant.

In any case, our intention is still to submit for both indications simultaneously, though we will be able to reassess this should it later seem advantageous to gain an earlier approval for the type 1 indication.

Hakan described study 171, the Affinity 1 trial in type 1 diabetes. We anticipate that this protocol will be acceptable to the FDA and that, at most, only minimal changes will be appropriate. If that is so, we will be able to hold the investigative meeting and proceed to open recruitment soon after the meeting.

Evolution of the type 2 study has been interesting. This trial was originally planned to be a basal bolus study similar to study 162, but with guidance from the agency as it evolved into something rather different. At the May 4 annual review meeting the agency offered up an alternative type 2 study that would compare present to an added oral agent or a placebo in patients insufficiently controlled on metformin therapy alone or metformin plus one or two additional oral agents.

A number of potential comparatives were discussed including Starlix, JANUVIA, sulfonylurea that are a continuation of background therapy. The FDA indicated they would be important for the type 2 study to focus on a more broad range of likely users of AFREZZA so that the results can be the most generalizable.

Instead of a basal bolus study in late stage type 2 that would limit our ability to promote the use of AFREZZA in only about 25% of type 2 diabetics, the agency seems to be guiding us towards the study design that should enable us to promote AFREZZA to a much larger population of patients. For example, in addition to current type 2 insulin users, we would be able to address the roughly 42% of all such patients that use metformin alone or metformin plus sulfonylurea, and adding other orals would expand the potential market even further.

With that direction as elaborated in the minutes of the May 4 meeting, we carefully revised the protocol for this study now designated as study 174, circulated as protocol to our advisors and then submitted it to the FDA on June 17 again, along with a request for a type C meeting.

As with the type 1 study, the agency very quickly granted our request for a meeting and established August 10 as the date, again much earlier than the mandated September 15. They also agreed to combine the two meetings back to back on that date.

During this entire period, there have been continuing exchanges with the FDA, including an extensive communication earlier this week about the type 2 study. We expect to have a vigorous discussion at the meeting next week and hope to gain a clear definition of the type 2 protocol so that we can proceed in harmony with the FDA.

As you can understand from this, until then I don't want to comment further about any specifics of that protocol. But I will say that we are pleased with the constructive feedback that we have received so far from the agency.

I know that the FDA has been widely criticized for a number of recent rejections and for failing to meet its mandated schedules. However, our recent experience with the agency suggests that it is trying hard to provide constructive guidance in a very prompt manner. Indeed, we are encouraged by the many recent signals from the division of metabolics and endocrinology products regarding AFREZZA that we view as very favorable.

We believe that the feedback from the upcoming meeting and the associated minutes will place AFREZZA on the clear path to approval as we responded to the Complete Response Letter from last January. Although the trial in type 2 will be starting a bit later than that in type 1, enrollment and preliminary activities should be shorter so that it is quite likely that we will be able to resubmit for both type 1 and type 2 at the same time.

The Complete Response Letter also requested some miscellaneous CMC studies with the new inhaler including device robustness studies, a request to conduct a new human factors study with the next generation device and it also contains some comments related to package labeling. We have already addressed the packaging labeling comments and have completed the studies related to the device for robustness. We are planning to discuss these items and the proposed human factors study with the FDA in a separate meeting later this year. We have seen no meaningful risk in these miscellaneous questions.

In the meantime, we expect that we will still be shifting from planning to execution mode for the clinical trials. We have lined up most of the sites and CROs that we require for the studies. Investigative means are being planned. We have also restructured our clinical operations group to optimize the team for the conduct of these two trials. Our aim is to recruit these studies in the shortest possible amount of time.

Looking forward, we believe that we are in the process of substantially addressing any remaining regulatory risk for AFREZZA. We believe that we will soon have clarified the path toward approval and we are looking forward to the launch of AFREZZA. I continue to be very confident that the market potential for AFREZZA is huge; and projections based on the surveys and multiple market studies by independent organizations and also by potential partners forecast AFREZZA to be a major success.

If I were not confident of this, I would not have committed $930 million of my own money. In my mind, the only remaining substantiative risk is that we must obtain adequate financing to carry out our plans.

Matt and I are working hard to address this risk and are making progress. We aim to have more to discuss in the coming weeks. Some of the options we are exploring include conventional financing arrangements that you might expect. And we are also exploring some interesting much less dilutive financing arrangements. None of these financing structures is yet advanced to the point where there is anything to disclose.

After the meeting on August 10, we will finalize our decision and start the process in earnest for both partnerships and alternative financing. Thank you for joining us this afternoon and we will now take your questions. Operator?

(Operator Instructions). Jason Butler with JMP Securities.

Al, I know you don't want to give specifics about what the trial design discussion points all with the FDA, but maybe if you could talk broadly about how you see that trial in terms of patient population or endpoints or how it differs from a traditional -- the type 1, what we are used to seeing in a diabetes type 2 trial?

It is really difficult to answer you because there are several variations. We are submitting to the agency three different variations of the trial and we will discuss this at the meeting next Wednesday and it would really be inappropriate to try to discuss those at this point.

I'm sorry if I disappoint you, but I think we need to make sure that we have agreement with the FDA before we proceed.

Okay, then maybe on the type 1 trial, you said that you may be able to have the type 1 and type 2 trial done at approximately the same time. What are you thinking in terms of enrollment timelines for the type 1 trial and what are you doing to make sure that can happen in the time frame you expect?

Once again, one can never really predict the time of enrollment. We would like to be able to enroll it in six months, but we also recognize it could be nine months to complete enrollment. It could be more or less than that. So that it is hard to give you a very specific time. But the difference in the type 2 trial is there won't be as much of a run-in period or a titration period as there is in the type 1. So we hope to catch up.

Okay. Thanks for taking the questions.

[Steve Bernel] with Bank of America.

Matt, can you help me with a little bit with the accounting on these payments to Organon? It looks like half of it is being expensed, half of it is being treated as a penalty. Where's it flowing through the income statement and is it roughly 3/4 of it is in the first -- in the second quarter and other quarter in the third?

No, I'm sorry. I'm sure my comments were intended to make that clear and I guess I didn't succeed. No, there were -- the total amount was $16 million for everything. Of that, some portion of it, in fact the majority was actually in payment for insulin with the balance a penalty. We split into two actual cash payments to coincide with the two shipments of insulin, one of which was received in the second quarter and one received right at the third -- at the end of the second quarter, but we paid for it in the third quarter.

So what you see is in the second quarter, we paid $8 million in cash. In addition we accrued the portion of the next quarter's payment of $8 million that represented penalty. We didn't accrue the payment or the receipt of the insulin because you don't accrue receipts of insulin, but you can accrue expenses. So there's a little mixture here of actual cash going out and accruals.

So, the number that I was talking about was the additional $3.9 million was the penalty portion of the second $8 million payment that was actually paid in the third quarter. But we are in the third quarter now and it is not been paid. Make sense?

That helps. And the portion that is actually for the insulin itself, is that the cost of goods line item?

No. We have traditionally always expensed all of our insulin purchases so that's going just through R&D. It won't start going through cost of goods until such time as we have approval for the product and can start capitalizing those expenses. Insulin or really any inventory purchases at this point are all expensed as we buy them.

Thank you much.

Michael Higgins with Rodman & Renshaw.

Thank you and thanks for taking the question. First on 172, can you describe for us what's left in your discussions with the FDA? What the finer points are that you are working with them?

There's 174, but once again there are some very substantive questions as to what the comparator is going to be. We have three different proposals to the agency and we hope to refine that at the agency meeting next Wednesday. And it really would be inappropriate to try to describe all three of them today.

Michael, I hate to break in. Were you asking about 171?

No, I'm looking for the type 2 trial.

Okay. That's 174.

Okay. Thanks. In terms of the 171 is this just a timing thing? I guess we thought we may have had 171 started by now and it sounds like you have got a meeting coming up shortly. Did you just need official sign off from the FDA? Or what caused that delay?

Well, we've said that we were going to wait until we had approval from the agency of the protocol and we hope to have them effectively approve that next Wednesday and we will be getting minutes of that meeting within 30 days, but we will start the enrolling patients and doing some of the preliminary stuff before that happens.

Okay. That's helpful. I'll stop there. Thanks.

Avik Roy with Monness, Crespi, Hardt.

I apologize if you addressed this in your prepared remarks, but what is remaining on your credit facility with MannKind?

What, about $80 million, is it?

$89 million.

80, I think.

Okay. Thank you very much.

Are there any other questions?

Keith Markey with Griffin Securities.

Thank you very much for taking the call. I had a question. I had to get off the line briefly during the discussion of the type 2 trial and I was wondering if you could run through the number of patients that would be involved in that and the breakout between the different arms?

Well that's a case, again, that is one of the issues because the several trials, options that we are proposing include even questions of [superiority versus non-inferiority]. So that the number of patients will be essentially defined next Wednesday hopefully.

Thank you. I did miss that. And the goal would be -- well, how quickly do you think you will be able to get that trial started assuming everything goes reasonably well with the FDA and the (inaudible--microphone inaccessible)?

Hopefully within a few weeks, but I can't commit that.

Okay. Thank you very much.

Leah Hartman with CRT Capital.

Good afternoon. Just a follow-up on the number of sites that you -- I know it depends on the number of patients, but the number of sites and how quickly you think you can get those ramped up, given the extent of the previous trials?

We are performing trials in Europe, in Latin America, and certainly in the US and I would say that it will be in excess of 50 sites and the contact is already underway with the sites and getting them ready. So as soon as we have had the investigator meetings, they should be ready to go.

And these were sites that you have used previously?

It's a combination of sites that we used previously, yes. In terms of the type 2 studies that may be of a different format, we are probably adding new sites as well.

Understood. All right. And then, finally, once you get the minutes of the meeting, do you plan to come back to us assuming those will be minutes ahead of the Q3 release?

I would say if we find minutes that would be -- in some way change the circumstances under which we operate, we certainly would communicate that. Otherwise we will proceed along what we described today.

All right. Thank you very much and best of luck.

Are there any more questions?

Sir, there are no questions at this time so I will hand it back to Mister Alfred Mann for closing remarks.

Thank you all for joining us today and we look forward to updating you as soon as things have continued to develop. There is a lot going on now and we will hope to be in touch very soon. Thank you.

Ladies and gentlemen, thank you for your participation in today's call. This does conclude the presentation. You may now disconnect. Have a good day.