MannKind Corp (MNKD) 2013 Q1 法說會逐字稿

Welcome to the MannKind Corporation first-quarter 2013 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, 2013. 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'll be summarizing our financial results for the first quarter of 2013, as reported earlier today. Hakan will then discuss our current operations, and Al will conclude with an overview, 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 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, May 9, 2013. 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 2013, total operating expenses were $36.4 million, compared to $33.5 million for the fourth quarter of 2012, and $33.9 million for the first quarter of 2012.

R&D expenses were $26.4 million for the first quarter of 2013, compared to $25.3 million for the fourth quarter of 2012, and $24.2 million for the first quarter of 2012. The increase in R&D expenses for the first quarter of 2013 compared to the same quarter in 2012 was primarily due to an increase in clinical-trial-related expenses, partially offset by a decrease in facilities-related costs and depreciation. The increase in R&D expenses for this quarter from last quarter was primarily, again, due to an increase in clinical-trial-related activities.

General and administrative expenses were $10 million for the first quarter of 2013, compared to $8.2 million for the fourth quarter of 2012, and $9.8 million for the first quarter of the previous year. General and administrative expenses increased quarter over quarter, primarily due to an increase in non-cash stock-based compensation expenses related to employee stock awards granted during the first quarter of 2013.

The net loss applicable to common stockholders for the first quarter of 2013 was $41 million or $0.15 per share, compared with a net loss applicable to common stockholders of $38.2 million or $0.27 per share for the first quarter of 2012.

Our cash, cash equivalents and marketable securities at the end of the first quarter of 2013 totaled $28 million, which compares to $61.8 million at year-end 2012. Financial resources, including remaining credit facility from Al, amounted to $125.4 million as of March 31, 2013. Our cash burn increased from $29.1 million spent in Q4 of 2012, to $33.5 million in the first quarter of 2013. As previously stated, we expect our spending in 2013 to be higher than 2012, as we complete the trials, and approach commercialization.

With our cash on hand and the amount remaining available under our credit facility from Al, we believe we will be able to fund our operations into the fourth quarter of 2013. 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, and good afternoon. Let me start today's call by saying that our key activities are proceeding according to plan; our trials are progressing, as indicated to you earlier as we described the clinical timelines. And the two studies will be completed in May and June, respectively, as we have already communicated. And following the last patient left with the database lock will take place for both trials in the first half of July. All key [closing activities] have been planned down to the minute details, and I'm very confident that we will be able to fulfill the requirement in a timely manner. As of May 3, only 78 subjects of the 518 randomized subjects remained in Affinity 1 Trial, and in fact, all of the patients in the Affinity 1 Trial are now through the treatment phase, and 91 subjects of the 353 randomized subjects are continuing in the Affinity 2 Trials. All other patients have concluded their treatment phase in both trials.

The other important milestone we have achieved for resubmission purpose is that we have reached an agreement with the FDA, regarding some of the particulars of the submission package, and hence, can proceed in an expeditious manner towards the resubmission. The next public milestone event will, of course, be the sharing of the Affinity 1 and Affinity 2 clinical data, which is targeted for mid-August. And then, the resubmission of the NDA in late September to early October. This is a snapshot of the clinical trial status today, and the regulatory preparedness. So with those few words, let me introduce Al for further comments.

Thank you, Hakan, and good afternoon, ladies and gentlemen. We are in the midst of some especially exciting times at MannKind. As Hakan noted, we are nearing the last patient, last visit for both Affinity 1 and Affinity 2. Actually, the treatment phase for Affinity 1 is now complete, and such completion for Affinity 2 is scheduled for next Monday. The trial metrics are tracking nicely to our projections, and we expect both studies to conclude in about one month, with enough subjects to fulfill the full statistical power of our planned analyses.

For months now, our team has been working toward the rapid database lock. We are positioned this Summer to quickly crunch the data after the last subjects exit the trials. We plan to announce the results of both studies by way of a conference call in mid-August. Our objective is to resubmit the NDA to the FDA in early October, plus or minus a couple of weeks.

Since we are so close to completion of these trials, and the availability of the actual data, I will not project quantitative results. I will simply remind you that the two Affinity trials have major and unique differences from the earlier studies, and I will just comment on the key differences of the respective protocols. Until now, the basal-bolus trials in Type 1 diabetes have all compared the effects of AFREZZA to those of rapid analogs such as Novolog and Humalog. To minimize the risk of hypos resulting from the excessive persistence of current prandial insulins, fasting glucose in such therapies almost always manage at very high levels.

Since AFREZZA does not have such persistence, fasting levels can be safely reduced. However, since in the earlier trials of basal insulins were not study drugs, they were not release titrated. A very significant difference in Affinity 1 is that the protocol includes the fourth titration treat-to-target algorithm for dosing of (inaudible) basal insulin during the basal optimization phase, requiring an increase in dose, and the fasting glucose level was lowered to below 120 milligrams per deciliter, unless there was a hypo incident. In the event of a hypo, the basal titration was to be truncated. We then optimized the prandial insulin, [as part] or AFREZZA over a 12-week period, and continued this stable insulin dosing for an additional 12 weeks. The primary objective in this study for approval is simply to show non-inferiority in average [HbA1c] for the group using AFREZZA, delivered with a dreamboat inhaler compared to that for those subjects using injected insulin [as part] with a predetermined delta of 0.4%.

The Affinity 2 trial is a very different evaluation in insulin-naive Type 2 patients, who are not well-controlled on metformin, or metformin plus one or two additional oral medications. I had always thought that AFREZZA would be a very effective antiglycemic in early Type 2, but it was the FDA which actually guided us to do this study. AFREZZA certainly should significantly reduce prandial excursions, and that should result in clear differentiation from the placebo cohort in this trial. Additionally, in our earlier studies we had seen reductions in fasting glucose levels, which key opinion leaders are saying because AFREZZA lowers insulin resistance. To meet the primary endpoint, the combination of those two effects needs only to result in reduction of HbA1c greater than 0.5%, more than that observed in the placebo cohort.

The availability of this Affinity data will be a pivotal event for partnership activities. Discussions and some diligence efforts are underway with a number of prospective partners. Several others have indicated they will require and resume their diligence activities upon the availability of AFREZZA data in August. Having multiple potential partners engaged in lockstep will keep us fairly busy this Fall. At the same time, our potential partners will themselves have to be quite focused. The company that can quickly translate its diligence findings into a decision to move forward will have a distinct advantage over its peers in the partnering process that we are creating.

So we are expecting some exciting events that we are confident will lead to FDA approval and launch of this important drug device combination, which is to address the enormous diabetes pandemic. The need is so great that I believe AFREZZA could potentially even become the most significant medical product ever. People ask why, at my advanced age and after such a successful career, I am so committed to AFREZZA, even having personally provided about $930 million of the $2 billion so far invested. If we could significantly contribute to resolution of the enormous diabetes crisis, wouldn't that justify all this? Perhaps you can now understand what is driving me.

So, thank you all for joining us today, and we will now open up the call to your questions. Operator?

(Operator Instructions)

Ian Somaiya, Piper Jaffray.

It's Matthew on for Ian, thanks for taking the questions. Just a couple if I may. So on the partnering front, I just was curious if you could give us an update on maybe the mix of type of partners that you are seeing, in terms of global versus regional and, if any new ones have emerged in the mix now that we are getting closer to data, and then I have a financial question for you Matt after that?

In regards to partnering, I would say all of those that you mentioned are represented. Both global partners that have the right type of representation on a global basis, and the skill sets that we are looking for. But there's also been some strong regional partners, so at this point in time we are entertaining say all of them that we deem to be qualified to launch the product on either a global or regional basis. And as we had mentioned earlier, yes, new potential partners actually came to the party following the announcement that we would also launch the clinical trials in naive Type 2 patients but certainly significantly increased the market potential for the product. So with that, you can ask the question to Matt.

Okay great, thank you. It has to do with the -- I was just wondering if you could remind us how your accounting for the insulin supply that you have, and just quickly give us some color on how that will change once AFREZZA is launched and the timing for that? Thanks.

Sure I'm happy to. So, it's pretty simple really, all insulin has been purchased to date has been expensed. So it is not being carried on our balance sheet which means it will bear no cost, those costs will not be reflected in our P&L until such time as we have to start acquiring insulin again. Typically we cannot capitalize those kind of raw material costs until such time that you have an approval. So it is going to leave us with a slightly artificially low COGS number for a good period of time until we use up all the insulin. Assuming all the insulin we have on hand is usable, we expect that will probably be somewhere in the neighborhood of $10 billion with a B of revenue before we're go to run out with our existing insulin supply. So we should have a pretty decent COGS numbers for quite a while.

For at least a couple years.

Is their anything to suggest that the insulin will -- the shelf life or anything like that will prevent it all from being useable?

We evaluate it regularly. We have seen no degradation so far. It's all in freezers.

Ultimately we can't answer that question with certainty, but the rules say you do it and make sure its still in spec before you put into use. It's not really known what the ultimate shelf life is going to be but Al's correct, we do check it very regularly; we have not seen any noticeable degradation so far. It wouldn't be typical to expected it to happen all at once you would expect it to be a slow gradual process, so our expectation is it's going to be usable for a good long while. We will keep our fingers crossed there. We are hoping that Al's right and it won't take us very long to generate $10 billion of sales and use it all up.

Thank you very much.

Cory Kasimov, JPMorgan.

Hi, this is actually Whitney on for Cory. Two quick questions. First, if you could comment on the dropout rate in the Phase III ongoing and then if you could also tell us a little bit about the pulmonary safety study that is currently enrolling and how that fits into the development program?

We will ask Bob to answer that question.

This is Bob Baughman in Danbury. The current dropout rate in both studies is tracking as scheduled. It is slightly higher than the original protocol in the Type 1 study but we did have some over enrollment because it is a global study, and you literally can't shut it down all in the same day. Both studies are currently tracking to meet their statistical endpoint of being able to provide 90% power for the statistical evaluation.

As to the study, the 134 study which is being conducted in asthmatics and COPD subjects, that is a study that has been on the books for many years. We filed that study on clinical trials.gov in 2008. It is a very difficult study to recruit. We not only have the diabetes component but we have pulmonary function laboratory tests confirmed asthma or COPD. And unfortunately, many of the subjects cannot participate because they have exacerbations of their disease within a year of the study. So we've been working very hard, we are currently expanding to about 70 sites in the US. We will be an eight foreign countries -- Russia, the Ukraine, Slovakia, we will be going to Argentina, Brazil and elsewhere. The study will be ongoing at the time of our planned submission, just like it was for Exubera when they filed. And the pulmonary safety issue is always a discussion item when you get to the label with the agency, so based on the available data and those subjects that will continue to enroll after we file, that will be part of the discussion with the agency for what will ever appear in the label. Did I answer your question?

Yes you did, thank you very much.

Keith Markey, Griffin Securities.

I was just wondering whether or not you feel the limitations of cash on hand getting into the fourth quarter might influence your rate of decision-making regarding a partnership perhaps in the third quarter?

That's a compound question for us. The simple answer is no. That's why if you remember back many quarters we've reported much lower cash balances than this because we typically respond with what we call financial resources which includes available borrowings. So we think we are in pretty good shape from a cash standpoint. That said we are always looking at other opportunities. I do not believe we will let any cash considerations affect our partnering activities.

By saying that you have enough cash on hand to go into -- and credit to go into the fourth quarter, that doesn't take into account a potential conversion or exit price of the warrants that are outstanding, does it?

No it is does not. And that's strictly based on the way the auditors characterize these things or force you to characterize them. We are not taking that additional $90-so million dollars that we expect to get from warrant exercises into consideration into that. If you took that into consideration, obviously it would go much further.

Great. And then I was just wondering if you might be able to give us a little bit more color on the agreement that you reached with the FDA regarding the submission package?

Yes, basically, it was sitting down in a pre-NDA meeting to have an agreement in regard to the statistical models utilized. And what else would go into that one, so I don't know, Bob, if you have any further information to give on those agreements?

No, that's correct. What we did is we asked for the agency for the format in which they wanted the data presented. As you know, the guidelines have changed over the last couple of years and we had sent them a number of questions on the format of the re-submission and with the new statistical tests that are being evaluated. And we got a very positive response for them so we feel that we are on the right path for the re-submission.

Okay great. Thank you very much.

Steve Byrne, BofA Merrill Lynch.

This is actually Sara on for Steve, I had a question, do you need long-term safety data under a meta-analysis of cardiovascular risk to refile and has the agency asked for this?

Not really. We have already a cardiovascular ratio of 1.01. That's based on prior studies. We will of course update that with the two Affinity trials but we can't imagine any problem, that's essentially a non-event in cardiovascular risk.

Okay. Thank you.

Jason Butler, JMP Securities.

I just wanted to follow-up on the fourth titration aspect of the trial protocol. Are you, you are able to monitor whether physicians are adhering to this titration protocol. Are you seeing a lot of protocol violations and are you actually able -- have you been able to impact those violations?

Bob, you want to answer that?

Yes. We use an electronic diary. The patient does a self monitored blood glucose, they enter it from their glucose meters into the e-diary. That gets uploaded to an independent titration management committee, and they evaluate the glucose and the subjects insulin dose. They then evaluate that in our algorithm and they communicate with the prescriber. They make a recommended dose and the prescriber can choose to follow that dose or he may not or she may not if she believes that it is not medically appropriate. They then fill out a form indicating their option and then that gets filed. What I can tell you we've had two independent reviews of our forced titration program and both have come back with pretty good marks. We are very comfortable that the physicians are following the protocol.

Okay, great, thanks for taking the question.

(Operator Instructions)

Michael Higgins, Brinson Patrick Securities.

I wanted to ask on a marketing -- potential marketing scenario. We talked about you guys finding a partner and that partner takes the product to all the different physician types. Would there be a possibility that you hang onto the co-promotion rights and if so, would you consider picking up the sales force or product prior to that launch?

Yes. That is a potential, particularly for the North American market. Where we believe it is of value for us to stay in touch with the clinical community. So for instance, you could see a situation where a partner would take the PCP market and we would focus on the endocrine market, which would require substantially less sales people but still keep you involved with the clinical community. So that will certainly be a component of our discussions with a potential partner.

If you did that, and if you kept the endo rights for example, any thoughts on picking up an endo sales force and or product prior to the launch of AFREZZA?

We really have not gone that far in regards to looking at picking up products prior to. Actually we will most likely make sure that we have the right to do so but not the obligation, and then it will be really to determine by our own readiness, our financial readiness and the type of arrangement that we make with the potential partners, so you would expect this to happen in conjunction with a partnership not a priori.

It will really depend upon which partner and what their capabilities are and what their market presence would be. So it's hard to really make a statement at this point until we get a little further along with the partnership discussions.

Okay. That makes sense. Maybe a co-promotion on those endos. Any recent meetings you can mention to us regarding a meeting with European authority?

Not more than I know that is currently being discussed within the clinical and regulatory organization back in Paramus. We have basically said that really as of, say the fourth quarter, as of we have submitted the file to the FDA. We will again refocus our efforts in regard to European applications. And again, as we have said before, it also depending on the partner and the timing of the partner, we will certainly utilize their resources and their capabilities. But, we are readying ourselves and actually we are, from a staffing point of view, looking at that we have the capabilities inside if we will need to pursue this independently.

Keep in mind that we extended our trials, the two Affinity trials by an extra two weeks so the data would comply with the European requirements for an approval.

Understood. One last one on a housekeeping, I assume you are planning to put out two press releases one in May, one in June, on the completion of the trial?

It's quite possible. We haven't actually made that determination, but a lot of people ask that question and it becomes -- the more people that ask the question the more likely we are to do it. Frankly, I think our expectation was that it wasn't that important since we're on target and we're saying now just a few weeks away we are going to hit those dates. But there's a very good chance we will do it anyway just to reassure people.

Understood. I appreciate it. I'll jump back in the queue. Thank you guys.

That was the last question I will turn the call back over to Mr. Mann for any closing remarks.

Thank you operator. And thank you ladies and gentlemen for joining us today. Our next quarterly call will be in August. In all likelihood we will have to release second quarter earnings shortly before we are ready to release the Affinity results. If so, we will timely publish our earnings results, but we will delay our typical quarterly call for the few days until we can provide a comprehensive presentation of the Affinity trials, along with a discussion of the financial results. With that, I thank you all for joining us today. Good day.

Thank you. Ladies and gentlemen, this concludes MannKind Corporation's first quarter 2013, conference. Thank you for participating, you may now disconnect.