MannKind Corp (MNKD) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to MannKind Corporation's third-quarter 2011 conference call. (Operator Instructions). As a reminder, this call is being recorded today, November 3, 2011.

Joining us today from MannKind are Chairman and CEO Alfred Mann; President and COO Hakan Edstrom; Chief Financial Officer Matthew Pfeffer; and Chief Scientific Officer Dr. Peter Richardson.

I would now like to turn the conference over to Matthew Pfeffer, Chief Financial Officer of MannKind Corporation. Please go ahead.

Good afternoon and thank you for participating on today's call. I will summarize our financial results for the third quarter of 2011 as reported earlier today and discuss the status of our financing activities. Hakan, Peter, and Al are also on the line and will comment on our current operations before we 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 Exchange Act of 1934.

This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, November 3, 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 third quarter of 2011, total operating expenses were $32.8 million, compared to $42.5 million for the third quarter of 2010 and $39.2 million for the second quarter of 2011.

R&D expenses were $23.1 million for the third quarter of 2011, compared to $31.4 million for the third quarter of 2010 and $30.3 million for the second quarter of 2011. The decrease in R&D expense was primarily due to lower purchases of raw materials as a result of the termination of our insulin supply agreement. The final shipment of recombinant human insulin from Organon was received and paid for in the third quarter of 2011.

Additionally, the decrease from the same quarter in prior year was due to the positive impact of the Company's cost-cutting measures on operating expenses.

General and administrative expenses were $9.6 million for third quarter of 2011, compared to $11.1 million for the third quarter of 2010 and $8.9 million for the second quarter of 2011.

The net loss applicable to common stockholders for the third quarter of 2011 was $38.4 million, or $0.31 per share, compared with a net loss applicable to common stockholders of $45.3 million, or $0.40 per share, for the third quarter of 2010.

Our cash, cash equivalents, and marketable securities at the end of the quarter totaled $23.3 million. Our cash on hand and remaining credit facility from Al amounted to $68.3 million as of September 30, 2011.

Our cash burn in the current quarter was $37 million, compared to $40.2 million in the previous quarter, primarily due to the positive impact of our cost-cutting measures. With our cash on hand and the amount still available under the credit facility from Al, we believe we'll have -- we'll be able to fund our operations into the first quarter of 2012.

Turning now to financing, I'd like to provide an update on our progress. In prior calls, I've mentioned that we've had an array of financing options available to us and have been evaluating these options and our circumstances in the context of market conditions. Our goal was to ensure the financial security of the Company while minimizing, to the extent possible, dilution to our stockholders.

As you know, some weeks ago we announced that we are embarking on a secured debt financing. Because this was to be a private-placement transaction, SEC rules severely restrict our ability to discuss the potential transaction publicly. All I can say at this time is that we will continue to pursue financing to serve the best interests of our stockholders.

With that, I'd like to turn the call over to Hakan Edstrom. Hakan?

Thank you, Matt. Good afternoon. Since Matt has reviewed with you the status of the financing activities, I will focus on the operational activities underway regarding both the clinical trial program and partnering activities.

At our last quarterly call, we reported that we were about to meet with the FDA to discuss design of the two clinical studies that the agency had requested we conduct using the next-generation inhaler. We held this meeting on August 10 and confirmed the design of the two studies. And since that date, we have been aggressively pursuing the implementation of these studies, including the finalization of the protocols and all of the necessary activities, such as IRB approvals, the investigative meetings, and site qualifications that are required to launch the studies.

I am happy to report that we are meeting our internal goals for getting these studies underway. We screened our first patient in the Type 1 study on September 19, and we are well underway with recruitment and enrollment in that study.

The first patient's first visit in the Type 2 study is expected to take place a little bit later this month, and we remain on schedule to hit that target.

Let me also make a few brief comments on the topic of partnership activities. As you may remember, we informed you upon the receipt of the second CRL that we would stay in the partnership discussions until we have a better understanding of the outcome of the FDA interaction. Well, we are now able to share the minutes from our FDA meetings with potential partners, which has helped to remove considerable uncertainty about the regulatory path forward.

We have re-engaged with most of the existing interested parties, as well as several newcomers. We continue to hold such discussions, and we believe there is genuine interest in AFREZZA and the Dreamboat on the part of significant global and regional pharmaceutical companies, and we will be looking to capitalize on that interest going forward.

And with that, I will turn the call over to Peter, who will discuss with you the current clinical trials in greater detail. Peter?

Thank you, Hakan, and good afternoon.

Let me talk about the design of the studies requested by the FDA in the complete response letter. Study 171 is an open-label study in patients with Type 1 diabetes. After a run-in period, during which all patients will be optimized on their basal insulin regimen, subjects will be randomized to one of three arms -- a control arm in which patients utilize injected rapid-acting insulin at meal times, or one of two AFREZZA arms, one each from our first-generation MedTone device and our next-generation Dreamboat device. We will recruit sufficient patients so that we end the trial with a goal of 133 patients in each arm.

After the mealtime insulin is titrated, there will be a 12-week observation period on stable doses of the mealtime insulin to assess hemoglobin A1C levels, which is the primary outcome parameter. The inclusion of two AFREZZA arms will permit us to perform a head-to-head comparison of the two devices and bridge the two-year pulmonary safety study conducted with the MedTone device.

The basic design of this study, comparing different mealtime insulins in combination with a basal insulin regimen, is similar in design to a previous Phase III trial that we conducted in patients with Type 1 diabetes using our MedTone inhaler.

In this trial, the FDA has confirmed that we need only do simple spirometry, developed from the extensive measures of pulmonary function that we collected in the earlier studies. In our previous clinical program, we saw only a small clinically-insignificant drop in pulmonary function that resolved upon therapy discontinuation.

The other study will assess AFREZZA using the next-generation inhaler in patients with Type 2 diabetes who have been inadequately controlled on metformin with or without a second or third oral medication. Patients will be randomized to treatment with AFREZZA or placebo in a randomized fashion. Each arm is targeted to end with 123 patients. The study will have a 12-week titration period, followed by a 12-week observation period, and the goal of this study is to evaluate the efficacy of AFREZZA compared to a placebo powder.

Now, I'll hand the call over to Al.

Thank you, Peter, and good afternoon.

Let me start with our Q2 call in which we spoke of the two new trials that were called for in last January's complete response letter from the FDA. We also described how those studies had begun to evolve based on suggestions from the agency during and after the May 4 end of review meeting.

Perhaps a review and some color on what transpired would be helpful. Keep in mind that the first CRL raised certain questions about the MedTone device, including labeling of the cartridges and the methodology employed by the laboratory doing the insulin assays used in a bioequivalency trial, a trial that we had run to qualify and improve the ruggedized version of the MedTone that was designed for automated mass production.

It would've been difficult to satisfy the labeling direction on the cylindrical MedTone cartridges, and since the blood samples were no longer available, we would've had to repeat the bioequivalency trial in order to resolve the assay matter.

However, at the time of the CRL, we had developed a next-generation device that we had nicknamed Dreamboat. We were already performing a bioequivalency trial to compare Dreamboat to the MedTone device used in our extensive clinical program, and we were able to complete this study using insulin assay methodologies that addressed the FDA's technical comments in the CRL.

We determined that we could address the other labeling and other device questions if we responded to the CRL with a Dreamboat submission. Moreover, the next-generation device is so superior to MedTone that we, as well as our potential partners, had already decided that it only made sense to launch AFREZZA with Dreamboat.

After consultation with the agency at the end of review meeting, we responded to the CRL with a submission that included in vitro and performance data for the new device, thereby obviating questions in the CRL regarding MedTone. Our filing was accepted, and over the course of the next six months, we engaged in the routine exchange of questions and answers with the FDA that are part of regulatory review.

However, as you know, we received a second CRL last January focusing on the change to the new device and requiring additional clinical data with this device. In particular, the key message in this CRL was that the fairly short clinical trials in both Type 1 and Type 2 patients would be needed to compare the new device to that used in our previous clinical studies of AFREZZA, including the two-year MKC-030 trial.

As Peter has explained, we arrived at the final design for these studies after extensive discussion with the FDA. Let me just say that we are very pleased with our collaborative relationship with the agency. The FDA has been especially supportive, even helpful, during this process over the last few months. From all this, we are confident that AFREZZA is on a path leading to regulatory approval.

As Hakan has explained, we have moved quickly to initiate the Type 1 study, and the Type 2 study will be initiated shortly. If our admittedly somewhat aggressive assumptions about patient enrollment continue to hold, we expect to complete both of these studies by the end of 2012 and to submit the result to the FDA a few months later. That should lead to a PDUFA date six months after filing in 2013.

We are now focusing on intense patient recruitment efforts in order to meet the timelines. During our next quarterly call in February, we should be in a better position to more accurately estimate the completion date for the two ongoing clinical studies.

It is becoming widely recognized that AFREZZA offers a truly very effective and safe tool to help address the worldwide diabetes epidemic. AFREZZA will fill a poorly-met need. After all, each of the current array of antiglycemic drugs has side effects, some with real safety concerns. Those drugs are commercially viable primarily because of the deficiencies of current insulin, especially prandial products.

If only there were a physiologic prandial insulin, such an insulin ought to be used not only in basal bolus therapies, but also in early Type 2, even in pre-diabetes. Some key opinion leaders are postulating that by largely eliminating both pancreatic and hepatic stress, AFREZZA will slow and perhaps even stop regression of Type 2 diabetes.

Of course, a long-term trial will be needed to prove that, but the predictions seem scientifically sound.

While the delay has been costly with these new trials and especially the Type 2 study in early-stage disease, we believe that from the start of the launch we should be able to actively promote AFREZZA throughout almost the entire diabetes community. This will greatly expand our market opportunity.

I view the concern about marketing risk raised by some of our observers to be unrealistic. Every marketing study by our independent marketing consulting firms, as well as by our prospective partners, has conservatively indicated AFREZZA to be a multibillion-dollar opportunity. Those rejections, as high as they may seem, in my view are only -- only underestimate this market potential.

Indeed, with almost 400 million diabetics in the world today, and a much larger number of pre-diabetics who could benefit from AFREZZA, I believe our challenge would become how to produce enough product to be able to serve a credible number of that huge prevalence.

In summary, with the path to FDA approval, the growing recognition and the huge market opportunity, and the strong partnership interests, we are looking forward to the launch of AFREZZA. In closing, let us thank you for joining us today, and we will now take your questions.

(Operator Instructions). Jason Butler, JMP Securities.

Hi, thanks for taking the question. I guess the first one, on the enrollment on the Type 1 trial, can you talk about what your assumptions were for the duration of the titration period and whether you're actually seeing that in the early experience in the trial?

Yes, the -- they're not really assumptions. They're fair to call defined, and we've agreed with the agency in terms of what the titration period would look like. So, you're looking at a 12-week titration.

We'd actually started with eight weeks, and the agency came back and said people are comfortable with 10 weeks, and we decided to increase it to 12 because with 12 weeks and 12 weeks of observation, we can meet the European standards.

Okay, great. And then, on the balance sheet -- a question for Matt. I know you said you can't talk much about the ongoing process, but can you give us any additional color on what you're doing and how that process is going?

I wish I could. As you probably know, because you've been doing this for a long time, Jason, that when you do private placements, you're really not allowed to discuss them because, by their nature, we can't promote them in any way or anything that the attorneys, using a very broad view, might view as a promotional thing, which kind of includes anything about terms or anything else.

So I can't address that. I mean, I'm sure anybody who's opened a paper recently knows market conditions have been challenging, which tends to slow down deals of all kinds, but beyond that I can't say anything about this specific deal.

Okay, and then, is it fair to say that you have contingency plans?

Absolutely. We have lots -- I mean, we've said many times that we have a range of things available to us. Most of them out there still are, so there's always Plan B, Plan C, and probably Plan D behind that.

Okay, and do at least some of those contingency plans enable you to get something completed by the end of this calendar year?

Yes.

Mike King, Rodman & Renshaw.

Thanks for taking my question. Good afternoon. I wanted to just see if I could get a little more color on the -- are there any other items that need to be achieved before the Type 2 study starts?

No. We are in the process of rolling out. We'll be starting to initiate centers very shortly.

And then, forgive these next couple of questions because I'm still learning the story, but I wanted to know. To my knowledge, Dreamboat has not been approved for commercial use with any other inhaled drug, correct?

That is correct.

So the comparison trial between Dreamboat and MedTone will both suffice for efficacy as well as safety? I mean, the FDA is not -- I guess my question is whether the FDA's going to ask additional questions about Dreamboat safety in terms of other pulmonary effects, notwithstanding what was done or seen with Dreamboat.

The agency has not raised any questions about safety for some time. Of course, they always ask for an update of our clinical reports on patients and adverse events, but they've not asked -- they've not raised any questions about safety of Dreamboat or MedTone, for that matter.

If I could just add, the primary endpoint of the study is hemoglobin A1C and that will be the primary comparison.

The design and the discussion with the agency has been to form that bridge back to the extensive pulmonary safety data that we generated over the large and long previous studies out to two years. So that was where there was considerable discussion as to how exactly this would be approached, and it's been agreed in terms of the numbers that we've got into this study, have been agreed by the agency as adequate to look at that using, as I said, this simple spirometry.

So we've actually dropped some of the more complex measures which we had in the previous protocols because of the confidence in the agreement that these simple measures are sufficient to make the comparison that's been asked.

Okay. And so, therefore, things like smokers or asthmatics or other special populations have already been satisfactorily answered by the data that you generated with MedTone?

We believe so, and as you know, we've done short sessions in those populations demonstrating no difference in the pharmacokinetics or the dynamics of the drug in those areas, so that has not been an area of discussion or concern.

Smokers and patients with asthma are excluded from these protocols.

Okay. Would you envision doing a smokers/asthmatics study post-marketing?

There is a study in patients with asthma and COPD which is ongoing, but it will not be a requirement for submission.

Okay, and then, just in terms of the trial design, two questions. The A1C, is it a non-inferiority design?

In the Type 1 study, it's non-inferiority with a margin of 0.4 and the standard design feature around that. In the Type 2 study, it's the superiority versus placebo.

And then, finally, just in terms of what are your assumptions for -- have you said what your assumptions are for dropout rates over the course of 171 and 175?

We're looking in terms of the initial recruitment will be approximately 30% greater than those coming through until now as a comfortable margin (multiple speakers).

So you will over enroll?

Yes.

Okay, great. I'll get back in queue.

Keith Markey, Griffin Securities.

Hi, thank you for taking my call. I was just wondering, sometime back you had an announcement about Juvenile Diabetes Association being interested in conducting a clinical trial with AFREZZA, and I was wondering what the status of that is?

They have contracted with a major diabetes clinic to do what's really a closed-loop study using AFREZZA with a basal pump with a closed-loop operation of the basal pump, which, frankly, is a damned good idea because you eliminate the enormous swings that you need to deal with, and also the extensive persistence and the hyperinsulinemia you'd see with -- when you're dealing with prandial insulin.

So, this really sounds like a very good study, and that study, it's underway. The early part of the program was mostly analysis, but they're moving now to a human study shortly.

Terrific. And I was also wondering, you have done a little bit of testing of the Dreamboat inhaler with children, obviously not with medicine involved, but I was wondering, can you elaborate on what your interests are in that area and how you see it moving forward?

Yes, the device actually tests very well in children. The handling and the characteristics you look at, which is ensuring that you have a linear emptying of the device across the range that can be provided, shows that children can handle this down to the age of four years, and actually, of course, the other [quality] of that is to test in (technical difficulty) and in perm population. So those handling studies have actually done very well, in terms of that.

We have not embarked on the studies using active treatment until we gain approval in the adult population because I think that's the appropriate way to approach this. But we certainly believe that the device will be well suited for use in children.

And finally, I was just wondering if you thought there would be a considerable amount of off-label use when the drug first launches, maybe within the first year, for children?

I don't think we can comment on that.

Thank you very much.

Ian Somaiya, Piper Jaffray.

Thank you for taking my questions (multiple speakers).

Can't hear you.

Can you hear me now? Just had a couple of questions. The first was on the financing. I know you can't speak specific about the financing, but I was wondering if, depending on the ability to execute the financing, does that really play into timing for a potential partnership? Are you less likely to partner the drug if the financing is successful before approval?

Those are independent issues that we will deal with separately. We're moving forward with financing and we're also moving forward with the partnership discussions. We would like to complete the financing first, but they're independent.

So, does one have any implications on the other in terms of structure? Would the structure of a deal differ depending on your ability to complete the financing?

Probably not.

The one other question I have is I know you've been fairly steadfast in your opinion that AFREZZA has multibillion-dollar opportunity, and your partners or potential partners have shared that opinion. I was wondering if any additional trials need to be done to sort of maximize that opportunity, just in terms of a Phase IIIB program (multiple speakers).

We had a list of some half a dozen Phase IIIB programs that were planned, and in fact one of them is being resolved with the new 175, which is where we believe that we will be able to show a very significant opportunity to treat early-stage Type 2 patients.

All of the other drugs today have problems. All of the other insulins have problems, and we have an insulin that mimics normal physiology and we believe that it will, by eliminating the hepatic and pancreatic stress, it will enable us to treat these people more effectively and probably much more safely than with any other method.

Is that something you would assume would lead to a label claim, or how would that be incorporated into the product label?

What the agency has done is they've steered us into a trial in early-stage Type 2 in metformin failures, or metformin plus one or two other orals, and that will enable us to have a label that will permit us to market the product into the early-stage Type 2 patients, incredibly increasing our opportunity.

We -- virtually all of our studies were done in late-stage Type 2. There was really only one of our 50-odd studies that we have done that was not in late-stage Type 2 or Type 1. So this is -- this significantly increases our potential market opportunity right from the get-go.

And if I were just to ask one final question, do you feel in your Phase III program or Phase IIB program that it makes sense to do a head-to-head study versus an activation to put -- or potentially look at a strategy where you evaluate switching patients who are effectively under control and moving them to AFREZZA, just sort of (multiple speakers)?

Comparing them to what?

Well, if you're thinking about first-line therapy, then an active control would be, obviously, an oral drug.

That's what we're doing. That's what 175 is.

(Multiple speakers). No?

175 you're correct, is against placebo, and I think that was designed -- one, that is probably the most drug-forward design that we could adopt in this population and get us the high certainty. Certainly in IIIB discussions, the plans for head-to-head against appropriate insulins and oral therapies have been discussed, not only with potential partners, but we have outlined trial designs, but we're not going to embark on those until we have clarity as to where we are with the IIIB -- the Phase III program as it exists, which is our focus at the present time.

Sorry, I misunderstood the question. I apologize.

It's quite all right. That makes sense. Thank you very much and I'll get back in queue.

(Operator Instructions). Avik Roy, Monness, Crespi.

Hi, guys. Al, have you given any further thought to whether your debt will be involved in any transaction or deal outside of the financing that you're attempting, some of the other things that you're looking at, the contingency plans?

Let me let Matt answer that since I might be conflicted here.

Unfortunately, that falls squarely in the category of things we can't talk about, I'm sorry to say.

(Operator Instructions). There are no further questions. I'll hand the conference back to you.

Thank you all for joining us today, and let me just say that a great deal is evolving for MannKind in all fronts and we look forward to updating you as the various elements of the trials continue, and also the financing, the partnership discussions as they develop, and again, thank you for joining us today.

Thank you, ladies and gentlemen. This concludes your conference call for today. You may now disconnect.