MannKind Corp (MNKD) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Mannkind Corporation first-quarter 2012 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 9, 2012. 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 welcome and thank you for participating in today's call. I'll summarize our financial results for the first quarter of 2012 as reported earlier today, then Hakan will discussion our current operations and Al conclude with an overview before we open 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 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, May 9, 2012. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this call.

For the first quarter of 2012 total operating expenses were $33.9 million, compared to $30.6 million for the fourth quarter of 2011 and $38.1 million for the first quarter of 2011. R&D expenses were $24.2 million for the first quarter of 2012, compared with $22.2 million for the fourth quarter of 2011 and $26.3 million for the first quarter of 2011. The decrease in R&D expenses for the first quarter of 2012, compared to the same quarter in 2011 was primarily due to decreased salary-related costs, as a result of the February 2011 reduction in forest. However, the increase in R&D expenses this quarter from last quarter was primarily due to an increase in clinical trial-related activities, as trials 171 and 175 were initiated in the third and fourth quarters of 2011 respectively. General and administrative expenses were $9.8 million for the first quarter of 2012, compared to $10.3 million for the fourth quarter of 2011 and $11.8 million for the first quarter of the previous year. General and administrative expenses remained relatively stable quarter-over-quarter, but decreased salary-related costs as a result of the February 2011 RIF accounted for the reduction from the prior year.

The net loss applicable to common stockholders for the first quarter of 2012 was $38.2 million, or $0.27 per share, compared with the net loss applicable to common stockholders of $41.5 million, or $0.34 per share for the first quarter of 2011. Our cash, cash equivalents and marketable securities at the end of the first quarter of 2012 totaled $56.7 million, which compares to $3.2 million at the end of 2011.

Financial resources, including the remaining credit facility from Al amounted to $95.5 million as of May 31, 2012. Our cash burn increased of $21.1 million spend in the fourth quarter of 2011 to $33.1 million in the first quarter of 2012, reflecting the acceleration of our spending in 2012, as we enroll the planned clinical trials and approach commercialization. With our cash in hand and the amount remaining available under the credit facility from Al we believe we will be able to fund our operations into the fourth quarter of 2012. We continue to pursue additional funding opportunities to extend our cash runway, but I cannot comment further until we have something definitive to announce.

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

Thank you, Matt, good afternoon.

The focus of the organization during the first quarter has certainly been on the clinical trial programs and all of our clinical trials are progressing satisfactorily. Our two trials, the 171 and 175, are well underway. We've opened all the planned sites in the US, Russia and Ukraine, and they are actively bringing in patients to the studies. As of early in the month, we had screened approximately 75% of the planned patients in both trials. We have experienced higher-than-expected screen failure rates, that is patients that are evaluated for participation in studies do not meet the protocol requirements for inclusion.

To address this shortfall for patients we have initiated more sites in the US, using our own monitoring staff. We've also contracted with a CRO to start up a number of additional sites. In addition to help our sites identify potential patients, we are working with a vendor who will identify and refer additional patients to a study site. We expect these measures to help expedite this screening and enrollment process. As you will remember, we previously stated that we had hoped to complete enrollment in both the 171 and 175 clinical trials by the end of this quarter. While we've not yet given up on this timeline, it is foreseeable that the studies will not be fully enrolled until next quarter with last patient, last visit taking place sometime early in 2013.

And now let's turn over to our oncology portfolio. As you probably noticed by our press release on April 30th, we have successfully [ported] one of our promising (inaudible) compounds with Salt Lake City-based Tolero. We are very happy with this collaboration, since it will allow the program to get its focus it deserves, while allowing Mannkind the opportunity to participate in the success of the program, or even step back into a development and commercialization role at a specified point in time.

In closing in my section, I'm sad to announce the resignation of Dr. James Shannon from our board of directors. As was recently announced, James was accepting the position of global chief medical officer for GSK with placement in London. James has been a prominent member of our board and provided a very valuable service to our Company and our programs. In his new role at GSK, he was asked to resign his board positions given his anticipated workload. We thank James for his significant contributions to Mannkind and wish him much success at GSK.

And with that let me now hand the call over to Al.

Thank you, Hakan and good afternoon.

As Hakan described, Mannkind's primary focus has been on completing the MKC171 and the MKC175 affinity trials to enable us to reach our objective of approval. Recruitment is well underway, and our clinical team is working hard to bring even more sites online so that we can get the last patient, first visit as soon as possible. I truly believe that AFREZZA will fill an important need throughout the entire spectrum of diabetes. The extensive clinical program to date has shown AFREZZA yields superior clinical benefit in so many measures, though not yet superiority in HV-1C.

Occasionally I get asked to explain why in our trials AFREZZA has only been non-inferior to standard prandial insulin therapy in terms of lowering HV-1C. The key to this is that out of fear of hypoglycemia, the physicians who have participated in our clinical trials are used to managing fasting glucose levels very high. They do so because the late post-prandial persistence in current prandial insulin products create hyperinsulinemia that can cause a significant drop in glucose levels.

Even though AFREZZA doesn't have the late post-prandial persistence, basal insulins have not been separately titrated for the AFREZZA cohorts in our trials, so that fasting levels are excessively high in those patients, as well. Since HV-1C is really an average glucose level over two to three months, these high-fasting glucose levels tend to mask the more physiological prandial benefits of AFREZZA.

With our current study, MKC171, we are targeting this issue head on by requiring that fasting glucose levels be lowered to under 110-milligrams per deciliter, unless there is hypoglycemia. In earlier trials, even with AFREZZA cohorts, clinicians have generally not increased basal insulins to adjust fasting glucose to goal.

In the affinity trial, the FDA has authorized us to engage an independent monitor who will review e-diary records and will contact the clinicians responsible for patients that are not complying with the protocol. This should not only ensure reaching the non-inferiority requirement for approval, but hopefully they even enable to show superiority of AFREZZA in HV-1C. I expect in this trial the compliant AFREZZA patients will reach HV-1C's below the age American Diabetes Association target of 7% and even the Endocrinology Society's goal of 6.5%, and without increased risk of hypos. Indeed, my belief is that many patients are likely to reach A1Cs below 6%.

While you may not be fully convinced of my argument, the problem is not unique to our trials with AFREZZA. In its approval of Eli Lilly's insulin Lift Pro in the 1990's, the FDA stated that they saw no clinical benefits of that rapid-acting analog over regular insulins. The justification for approval was simply that the Lift Pro didn't need to be injected so long before starting to eat. Today I doubt that anyone would disagree that the kinetics and dynamics of rapid-acting analogs, such as Lift Pro and Aspar are superior to regular insulins in that they bring important clinical advantages.

But even these rapid analogs are not adequately physiologic. Indeed, in the closed concern surveys of clinicians at the annual ADA meetings, one of the questions they asked in 2009 was whether the rapid analogs are fast enough. Only 4% thought they are. 94% expressed the need for still faster prandial insulin. AFREZZA is such a faster insulin, and without the late post-prandial persistence that is the primary cause of hypoglycemia and weight gain seen with insulin therapy today. Yet we still do still see some hypos in our trial, though much less severe and with lower frequency than for the comparative cohorts.

But why should we see any at all? We see this in basal/bolis therapies, especially for type 1 patients. An examination of the timing of these events points to the insulin -- the basal insulins as the likely primary cause of the hypos in those trials. Glargine, or LANTUS has for years been the best basal insulin, but it is by no means efficiently physiologic. Degludec, a new basal insulin, enables better basal control and there are other long-acting insulins in development.

Yet even though the average kinetics and dynamics of these new basal insulins are better, an increasing number of KOLs are recognizing that a basal patch pump would be the ideal companion of AFREZZA in type 1 and late type 2. And while that may be obvious for clinical results, the keys to market success of such basal/bolis therapy with AFREZZA and a basal pump will be simplicity and especially competitive economics.

These therapies would not only be safe and effective, but would be available without much of a premium in cost. And while competitive pricing may seem a daunting challenge for these advanced products that objective is within reach for both AFREZZA and a basal patch pump. Indeed, in the process of better control we'll significantly the overall cost of diabetes.

In summary, I believe that in the near term for early-stage type 2 diabetes, patients will -- with the optimum therapy will prove to be AFREZZA or AFREZZA plus metformins. The data from our study MKC175 should help support this prediction. In type 1 and late type 2, I expect AFREZZA plus an improved basal insulin, and especially a simple basal patch pump will prove to be the ideal therapy, and without the side effects of most of alternative antiglycemic drugs that are widely used today.

We are well on the enrollment of both MKC171 and MKC175, and we are confident of successfully meeting the trial endpoints. With completion we believe we have a clarified path to approval of AFREZZA. Our challenge is now to assure adequate financing until we carry Mannkind through to approval of AFREZZA and prepare for its launch. These are now my areas of primary focus.

Last year, in response to a question about my willingness to continue to invest in Mannkind I gave an answer that was based on liquidity of my portfolio. That remark was misconstrued by some as an unwillingness on my part to put more money into Mannkind. Nothing could be further from the truth. I am selling off some of my other ventures. One such sale was closed just last month. However, I don't want Mannkind's financing strategy to rest only on my exits from other ventures.

As Matt described, Mannkind did place an equity offering in February that netted us about $80 million as a bridge while we work to put in place additional financing that should fund our capital needs through this critical period. We are continuing to pursue and evaluate some potentially non-dilutive and minimally-dilutive financings in order to preserve shareholder value. It is wise that I not comment further on these opportunities until we can make a definitive report. With that, I thank you for joining us today and we invite your questions.

(Operator Instructions) And the first question will come from the line of Karen Jay, JPMorgan.

Hi, this is Karen in for [Craig Hazama], we thank you for taking our questions. I have a couple. My first, I'm just curious on the enrollment for the trial's going a little slower, I was wondering if you could comment on the number of sites and how it might have compared with your prior late-stage trials and if there's anything you can pinpoint in the patient inclusion criteria, or product modality or administration that might be driving the slower enrollments?

Bob, could you make the comment on the number of sites that we're working with?

Yes, Hakan, we have 47 sites in the US and 29 sites in Russia and the Ukraine currently enrolling in the 171 study, and we have 45 sites in the United States enrolling in the 175, as well as 21 additional sites in Russia.

And so was that fairly comparable to what -- I guess what I'm getting at is, was it an underestimation of sites when you began the trials?

That's correct.

Okay. And nothing in the inclusion criteria that you think might be limiting for patients?

No, they're not.

Okay. And then maybe a follow up on the cash runway and how much was the recent deal helped to extend that and are licensing other cancer compounds a big priority for you in the near term?

Well, this is Matt, I'm happy to try to answer that. Certainly -- first I'll address licensing. It certainly is a priority, but we're not prepared to address anything specific there until we have something to announce. The recent financing, as Al mentioned, was intended to be a bridge while we examine some other alternatives.

We have long said we were looking for some dilut -- non-dilutive or minimally dilutive financing sources. There are still some of those out there. But, again, as I mentioned, we don't want to pre-announce something before we have something specific to say. So we're working on that and feeling cautiously optimistic, but it's not done until it's done. In the meantime we have cash that will take us comfortably into the fourth quarter so we have breathing room, and I hope we'll have more to announce on that soon.

Okay, thank you.

And the next question will come from the line of Ian Somaiya, Piper Jaffray.

Hi, good afternoon, everyone. This is Matthew in for Ian. Just a couple quick questions. I was just wondering if you could provide any more insight on the BTK deal, maybe any specifics on how the $130 million in up front -- potential $130 million in up front and milestones are broken out and more qualitatively your perspective on how your BTK compares to others that are more advanced in the clinic, maybe the pharmacyclics (inaudible) just acquired?

Well, this is Matt, I'll try to address the $130 million and I'll leave it to something more -- somebody with a more scientific advance to discuss the BTK program in that level. As is traditional for these kinds of deals, in order to satisfy our requirements to give an idea of the scope of the transaction, we tend to accumulate the milestone payments into the total amounts as general long-standing practice to give an idea of the scope of the transaction.

But people you contract with these kinds of deals don't want you to and we usually assent to not give details because that is important information in the hands of the next person they do deal with and that's why it's become such common practice. The exceptions are, we try to give some idea of the scope of the transaction by accumulating the milestones, which we did, and if there were a material up-front payment we would typically disclose that.

Obviously, we didn't feel we had anything to disclose and beyond the bounds of confidentiality there's not much more I can say about those particular aspects. Who wants to talk about that?

What was the second part of your question?

Just any perspective that you might want to share, or thoughts on how you think your BTK program is different or stack -- or lines up against those that are a little bit further along in the clinic?

None of us here is a researcher, so I would only say that based on the assessment that we've gone on our programs in trying to find partners we've certainly been encouraged by their reaction to the program. It is still, for us a pre -- really a preclinical program, so from that point of view I think we need to be a little bit careful in making statements beyond what we have right now and the fact that we've attracted interest and been able to close a deal for the project itself.

Okay. And if I may, just one other housekeeping question, I guess for you Matt. What's the updated diluted share count? And does that reflect the main group transfer that was pending as of the last quarterly call?

As of the end of the balance sheet we had about 168 million shares outstanding, but that does not reflect all of the shares that will ultimately be shifted out, so you can look for an update on that shortly following our stockholder meeting next week.

Okay, thank you.

(Operator Instructions) The next question will come from the line of Steve Byrne, Bank of America.

Hey, guys, it's Tassin here for Steve today. I just had a question on the status of the 175 and 171 trials. Given the fact that you're a little bit behind in enrolling, what does that do towards your timeline in 2013 for responding to the CRL with FDA?

I would say that with the initial activities that we have now underway, we are still very optimistic in regards to the fact that we will be able to complete the trials in early 2013 and say about 90 days following that, we will be able to submit the NDA to the FDA. So we are not really changing our targets in regards to be able to submit the applications in the first half of 2013 based on where we stand today.

Okay. And then as far as your expenses for the quarter, should we expect that to be a run rate for the rest of the year?

More or less. It should start to stabilize out now. We've been projecting some increases for some time and we started seeing it in this quarter. There's a chance, depending on how the enrollment trends go, that it could in the -- at least in the clinical trial area go up a little bit next quarter, but I don't think it would be substantial. And we're -- in the meantime, we're spending less in other areas so it's hard to see how all that will wash out. But that's a fair guess from this point, Tassin.

Okay. And my third question is, maybe you could talk a little bit opportunities that you see for AFREZZA in the emerging market world outside of the US?

Al?

Well, we have conversations going on with a number of regions. There's a lot of interest in AFREZZA. This is, of course, a drug -- a therapy that will be effective in the entire spectrum of diabetes and so, there's an enormous market potential here. And as I say, we've seen a lot of excitement and a lot of interest in a number of countries.

So would you wait for an ex-US partner before applying to these regions, or would you start the process at the same time that you would do the US process?

Well, we've already started the process. We're in discussions with several at this time, although we can't make any announcements yet.

Okay, thanks.

And there are no more questions at this time. I'd like to turn the call back to Mr. Mann for closing remarks.

Thank you all for joining us today. We look forward to our next call in August and would hope to be able to present further progress of the status of our clinical trials and other developments. Thank you all and goodbye.

Thank you, again, ladies and gentlemen for your participation. This concludes today's conference. You may now disconnect and have a great day.