MannKind Corp (MNKD) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation fourth-quarter 2013 conference call. (Operator Instructions)

As a reminder, this call is being recorded today, February 18, 2014.

Joining us today from MannKind are Chairman and CEO, Alfred Mann, President and COO, Hakan Edstrom, and Chief Financial Officer, Matthew Pfeffer.

I would you 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 discuss very briefly our financial results for the fourth quarter and full year 2013 as reported this morning and then turn the call over to Hakan. Before we proceed, any 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 from 1934. Conference call contains time sensitive information that is accurate only as of the date of this live broadcast, February 18, 2014. We undertake no obligation to revise or update any statements to reflect events or circumstances after the day of this call.

Turning now to the financials, the net loss applicable to common stockholder for 2013 was $191.5 million, or $0.64 per share, based on 299.6 million weighted average shares outstanding, compared with a net loss applicable to common stockholders of $169.4 million or $0.94 per share based on 180.9 million weighted average shares outstanding for 2012.

The primary factors resulting in this change were an increase in research and development expenses due to the increase in non-cash stock compensation expense, partly offset by decreased clinical trial related costs resulting from the completion of the Affinity studies. Also affecting this outcome, was an increase in general and administrative expenses due primarily to increased stock compensation expense and professional, legal and financing fees in 2013, partly offset by the non-recurrence of a litigation settlement accrual made in 2012.

Financing activities in the fourth quarter of 2013, as previously announced, included the receipt of $45 million from warrant exercises, as well as receipt of third tranche of $40 million under our loan agreement with Deerfield. These proceeds and more were used to repay $115 million of our convertible debt later in that quarter.

Some of our more astute investors and analysts have done the math and questioned how, given the above, as well as our continuing cash burn, we could possibly have sufficient cash to last us through the upcoming PDUFA date. Therefore, I'm pleased to announce that we have already solved this problem, having raised roughly $49 million in net proceeds from the use of our ATM facility during the month of December. So, that worry is behind us. As a result, our cash and cash equivalents at the end of the year totaled $70.8 million, which compares to $61.8 million at December 31, 2012.

Our cash burn during 2013 fluctuated, being $33.5 million in the first quarter, $27.3 million in the second quarter, $33.5 million in the third quarter, and $39.2 million in the fourth quarter of 2013. We expect to maintain and potentially accelerate some of the spending in 2014 as we prepare for commercialization of AFREZZA. With our cash on hand and the amount remaining available under our loan arrangement for now, we feel comfortable that we will be able to fund our operations at least into the third quarter of 2014.

Finally, I wanted to announce that during the months of December 2013 and January 2014, in a series of transactions, Deerfield fully exercised their option to convert $40 million of their debt into common shares. As a result, the principal outstanding under that loan arrangement has now been reduced from $120 million down to $80 million, and no further conversions are allowed under the agreement as it stands.

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

Thank you Matt. Good afternoon.

Well, today my comments are going to be relatively brief. In summary, the regulatory process is proceeding as anticipated. Our interaction has been the usual Q&A with some follow-up questions to our submission. We are also well underway in our preparation for the Adcom committee meeting on April 1, guided by a reputable consulting company with extensive experience of guiding companies through Adcom sessions and with the support of select experts in potential areas of Adcom interest.

The PDUFA date of April 15 still stands, and no indication has been received from the FDA that would alter that target date for approval. Our manufacturing operation in Danbury is ready for any and all inspections that the agency may consider and this includes our staff also working closely with our vendors, providing us with the inhalers, the cartridges and the FDKP vehicle. Beyond manufacturing inspection readiness is for regulatory purposes, we are also actively building commercial manufacturing readiness.

Upon approval and partnership agreements, we want to be able to support a commercial launch within six months of those events. Thus, we are in the process of ongoing facility configuration to accommodate two more filling lines and [obstinate] 375 million unit cartridge capacity, early in 2015. Regarding the [fort ship] process, I will only say at this time that we are pleased with support from Greenhill and Company and with the progress that we made towards securing a partnership.

And with those short comments, I will hand the commentary over to Al for some remarks.

Thank you Hakan and good afternoon ladies and gentlemen.

As Hakan noted, the FDA's review of the AFREZZA NDA seems to be proceeding well. We've had a number of questions from the agency and have been able to provide responses to all of them in a timely fashion. So the FDA review appears to be on course for the April 15 PDUFA date.

An advisory committee meeting has been tentatively scheduled for April 1 and our preparations for that important step are well under way. So, why is there to be an advisory committee meeting? There's actually FDA guidance, which states that first in class medical products should be referred to an advisory committee and we are asking the FDA to approve something that we believe will be the first, the very first, ultra fast acting insulin.

After all, AFREZZA, which peaks in 12 to15 minutes and is almost gone in 2 1/2 to 3 hours, is so very different from current prandial insulin and over time the us use of such ultra rapid action should evolve into a new standard for diabetes therapy. Those rapid kinetics much more closely mimic natural physiologic pancreatic insulin. They do not have the delayed activity and the late persistent hyperinsulinemia of current prandial insulins.

AFREZZA thus enables substantial lowering of prandial glucose elevations and also safely lowering fasting glucose levels without having the disadvantages of the risk of hyperglycemia, weight gain and need for dosing about 15 minutes or so before eating that is present with the current rapid acting analog. An ultra rapid insulin without the late hyperinsulinemia after meal digestion should thus reduce the hypoglycemic risk that today is responsible for requiring fasting glucose to be maintained at abnormally high levels, thereby contributing to serious long-term diabetic complications.

The significance of AFREZZA, as a more physiologic prandial insulin was actually shown in a small study recently conducted in Type I patients at the Sansum Clinic and supported by a grant from the Juvenile Diabetes Research Foundation. In that study, superior prandial control was achieved without any hypoglycemia when using AFREZZA for bolus dosing and cosal control primarily for basal dosing.

The study results showed outstanding prandial control without any hypoglycemic depressions at all. The key lesson from that study is that AFREZZA can provide outstanding physiologic prandial control as part of a basal bolus program in Type I and late stage Type II patients.

We are actively looking forward to the advisory committee meeting. Our clinical and safety experts see that as an opportunity to discuss the safety and efficacy of AFREZZA in an official public forum.

After the advisory committee meeting, the next major occasion to talk in detail about the clinical potential, which today is exclusive only with AFREZZA, will be the annual meeting of the American Diabetes Association. That ADA session will be the first scientific meeting at which we will publicly present the full data from our recent Phase III studies, MKC171 and 175.

I know some investors had wanted earlier disclosure of the complete results of those pivotal trials, but in order to reserve the opportunity to present novel results at a major scientific meeting and to publish the studies in peer reviewed journal, it is necessary that we comply with the editorial policies of those organizations, which do not accept for presentation or publication any previously disclosed research findings.

Since in the coming period there will be so much discussion of the clinical aspects of AFREZZA, I will not make any further comments today about our clinical data. Instead, I want to highlight some other aspects of the commercial picture for AFREZZA that until now received less attention.

One topic we have not really talked about much is our patent position. When MannKind started our clinical trial program for AFREZZA over a dozen years ago, we had the potential for only a handful of patents and those would have provided protection only until 2020. The Technosphere technology and it's application in AFREZZA have enormous potential. Recognizing that significance and our intellectual property and our scientists and engineers have worked hard to expand and diversify our patent portfolio.

Today, Technosphere technology, including AFREZZA, is protected around the world by dozens of patent families that produce over 550 issued patents, with another 470 patent applications pending. Our current longest lived patents outside the US will expire in 2029 and 2030, but to compensate for slow prosecution in the US, terms of some of our issued patents have been adjusted and will not expire until 2032.

Let me give you just a small flavor of the scope of our vast intellectual property position. Over the last few years, we have fine-tuned the carrier particles used to deliver insulin and various other active drugs and we have generated patent claims that cover those optical particles. The optimum particle have better aerodynamic performance, so that the powder gets out of the cartridge more fully and with more of it in the respirable size range, so that much more of the powder gets quickly into the deep lung.

There, at the PH of the moist pulmonary tissue the powder dissolves in a few seconds and the insulin and the inert Technoshphere carrier then transfer rapidly through the pulmonary membrane into arterial blood. The insulin is then very quickly available for glucose control and the carrier moves out and is disposed of in urine unchanged. Separately, in scaling up our manufacturing, we have prepared patents on novel processes and equipment developed for making Technosphere particles, for loading the particles with the active ingredient and for filling the powder into the cartridges.

By now, most of you are familiar with our innovative inhalers, which we call Medtone and Dreamboat. We also have a tiny single use disposable inhaler, effectively known as Cricket, which was developed for use in occasional occasions, such as to treat chronic pain. After all, getting pain relief in a couple minutes from a drug would seem to offer a rather significant and very valuable medical and business opportunity.

These various delivery devices and their uses with Technosphere powder formulations are protected by numerous utility patents, as well as by design patents. In the course of studying AFREZZA, in the clinic over the past dozen years, we have learned a lot about how to use our product to provide better diabetes treatment and these lessons have been translated into a number of methods of treatment patents that, for example, claim the use of an ultra rapid insulin in certain clinical settings.

Indeed, our people have been very, very busy over the years and today the almost entirely home grown technology and related patent portfolios surrounding AFREZZA and the technical process itself are robust and long-lived. The NDA for AFREZZA that was submitted to the FDA last fall, included 25 United States patents certified for inclusion in the Orange Book.

Once AFREZZA is approved, our patents on Technosphere particles will provide protection until 2030 and 2031, and patents on the inhaler system and its components until 2030, 2031 and 2032. With all the effort and investment gaining such patent protection, we can expect to enjoy many years of market exclusivity for this novel and very valuable product.

Given the imminent PDUFA date, it is important that we proceed in preparing for commercialization of AFREZZA. We're making excellent progress, preparing for post launch manufacturing. The second and third fill finish machines are now being installed in our Danbury facility and when completed and validated, soon after launch, should give us the capacity to produce up to 350 million cartridges per year as Hakan had noted. With later addition of equipment that factory is to have an annual capacity of about 2 billion cartridges.

Our current NDA submission covers just two cartridge dose strengths that are respectively equivalent to three and six units of injected rapid acting analogs. Many patients may initially need to use more than one cartridge in order to get a full dose for a meal. Soon after approval, we plan to submit a supplemental NDA to add a nine unit dosage strength, and later we plan to seek a 12 unit dosage.

Our ultimate objective is that most patients will need only a single cartridge per meal. The studies for the nine unit dosage strength are complete. The SNDA is in preparation and ought to be filed very shortly after approval.

As you gear up for commercialization, we have also been pursuing additional market research activities. In addition to the quantitative research performed last fall that was mentioned in our previous earnings call, we recently concluded some qualitative research to give us more understanding as to the patients for which physicians would likely prescribe AFREZZA.

In this latest study, we examined physician use of current diabetes treatments and the potential role AFREZZA would play in future therapy algorithms. We contracted with a highly regarded market research company to conduct in-depth interviews with endocrinologists and primary care physicians in a number of different locations around the country.

The aim of this market research was to generate a profile of likely patient candidates for AFREZZA and enable our understanding as to how AFREZZA might impact the way in which those physicians would treat their diabetes patients. This market -- latest market study utilized a very conservative scenario.

The new product was not specifically identified as AFREZZA, but only as product X, an inhaled ultra rapid acting insulin delivered with a small inhaler in a small -- in a prandial therapy, which would produce an HbA1c glycemic [cosal] control that was just non-inferior to today's best rapid acting analog insulin, though with lower incidence of hypoglycemia and less weight gain.

One of the more interesting findings in this study was that many PCP's stated and intention to use that product, which is AFREZZA as a second line of therapy in Type II diabetes with very high blood glucose, such as with an HbA1c over 9% and most PCP's also expected to use it instead of a third oral drug in Type II patients. Endocrinologists were a little more conservative for patients at that early stage, but some saw an insulin, which was AFREZZA to be a good option for patients newly starting on insulin and also as a clear replacement for rapid acting analogs where their patient is already using insulin. Similarly, all PCPs expected that their use of current rapid acting analog would decline significantly in favor of this product, which was AFREZZA.

The quantitative study last fall was used to repair a sales projection for AFREZZA, even with a patient definition limited to only non-smoking adult patients without any pulmonary deficiencies, that led to a multi billion dollar sales projection, and just in the United States. Of course, the entire world needs to find ways to address the diabetes pandemic. AFREZZA provides a significant step in that direction with a major advance in prandial glucose control beginning in early stage Type II and in combination together with improved basal control would offer great promise in addressing the entire global diabetes crisis.

Clinical studies with improved basal control are already being planned. Hakan earlier commented on our partnership activity and our market research, which naturally is also of interest to our potential partners. We are pleased with the progress of those discussions and with the performance of Greenhill in organizing our partners in process. There are many opportunities being explored, but we'll not announce anything regarding partnerships until we have something very definitive to report.

2014 ought to be a very exciting year for Mannkind and AFREZZA, potentially with US FDA approval, finalization of the label, FDA certification of our factory, agreement on distribution partnerships, and the commercial launch in the US. Hopefully we'll also be able to resume development of several of our other exciting product opportunities.

So much will be happening of over this year but I will not say anymore for now. We'll make further announcements as we achieve various significant milestones. Thank you all for joining us today and we'll now invite your questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question is going to come from Simos from Cowen & Company. Please go ahead. Your line is open.

Thank you for taking the questions. Al or Hakan, in your discussions with FDA right now, are any of them related to the outcome and is there any way to help us narrow down what the focus of the outcome may be other than saying efficacy and safety of the product?

The discussions with FDA at this point in time is purely focused on the submission. We will really not know where the FDA would be coming from in terms of their questions until the briefing document becomes available. So, we do not know yet what the focus of the outcome committee will be and that's why we have to prepare ourselves for, you know, a broad range of questions across both efficacy and safety of the product.

Okay. So, given that in the past, we had not expected to have an outcome and now there's kind of a change in thinking at the FDA. Can you help us understand maybe from your interactions with them and I know there's been a change of the leadership of that section of the FDA, how that came about, what did they communicate with you in terms of why now they wanted to do an outcome where in the past they had not requested one?

First of all, as you noted, there was a change in the leadership of the division that's responsible in the bureau but the second point is that we're asking the FDA to approve a new class of product and there's an FDA guidance that requires that.

Right, but that had been the case in the past, Al. We've heard you and the rest of the management team say that there's no reason to expect one.

Well, the prior leadership that didn't think she needed one but then I'm not sure there was any focus on the new class of product.

Okay. Then in terms of your thoughts about timing of European submission, I guess we'll wait for potential approval in the US first before we get there or is this something you may want to do with a partner?

Certainly if this is appropriate, depending on the partner that we end up with, certainly we would rely on them to do so. However, I would say that we are self in preparation for submission to the European community, if need be. But that certainly would follow after US approval because our resources are really tapped out right now in preparation for the FDA review and subsequent approval.

Okay. And then final question and I'll jump back in the queue. In terms of potential commercial effort that may be needed for AFREZZA in the US, can you give us an idea of what types of size of sales forces and marketing help you would need, the type things that you're talking with your partners about, and would you want to keep, for example, US co-promotion rights or would you want to just out-licensed the AFREZZA to the partner?

Well, you know, if you look at, say, the size of the sales forces, I would say in generally to cover the entire markets, (inaudible) endocrinology, you're probably looking I would say in the 1,000 range in terms of sales reps and regional support people and managed care. So that's probably a guideline number. In regards to co-promotion rights, at this point in time where we stand I prefer not to comment on that.

Okay. Thank you for doing the questions and good luck in April.

Thank you.

Thank you.

Thank you. And our next question is going to come from Cory Kasimov from JPMorgan. Go ahead. Your line's open.

Hello, good afternoon guys. Thank you for taking the questions. First of all, just to follow up on what Simos was asking, has the FDA specifically told you that they consider AFREZZA a new class when they said they did not in the past?

They didn't say they did not in the past. We just never focused on that subject.

Okay.

No comment has been -- sorry.

And then regarding your prior regulatory interactions with the FDA under prior NDA's, how much label discussion took place then? So, if you were to have a clean panel on April 1st, how much additional label negotiation do you think you would have to still work through to get a decision done within two weeks?

Well, I hate to speculate. I know that we initially had planned that really during the course of a week you can accomplish that. So, that is still our working assumption. But again, that's a guesstimate from our side.

Okay. And then lastly, just wondering how much partnership discussions, broadly speaking, have changed, if at all, since the announcement of a panel meeting.

Again, I think as my answer to Simos, I would not comment on that at this point in time.

All right. Okay. Fair enough. I guess we'll wait until April to asks ask these questions again. So thanks and good luck.

Thank you.

Thank you. And then our next question is going to come from Steve Byrne from Bank of America. Please go ahead. Your line is open.

Hakan, you mentioned a little bit about an expansion in the manufacturing processes. Can you just reiterate that? I didn't quite catch it all. You'll have three lines fully operational by April and then what is your expansion plans beyond that.

No, what we do have right now, we have one commercial line in operation. We are in the process of reconfiguring some space and into installation of the second and third lines. So, in early 2015, we should have a capacity up to 375 million cartridges.

Okay. All right. I thought that was incremental to the three. Okay. With respect to the 175 trial, where the glucose monitoring at least you hypothesized affect patient behaviors, do you have thoughts on how to redesign such a study, perhaps as a phase 4 study and is that something that you would want to undertake soon or wait until you had a partner on-board?

Well, I would say at this time certainly it would be if anything a Phase 4 study and right now we are certainly at capacity in terms of utilizing our clinical and regulatory people. It would most likely be also a discussion with a potential partner to make sure we accommodate insights and input from a partner. So I would say look at that post approval.

That is, as you commented, a very significant opportunity to move prandial insulin into early stage Type II which has never been done because of the limitations of current prandial insulin's and in fact with the growing skepticism about the safety of even some of the popular alternative anti-glycemics, something like AFREZZA which mimics natural physiological (inaudible) insulin, ought to be something that should receive some clear attention.

And assuming that prospective partners would have some concerns about the Adcom and the pending label, would you anticipate formalizing the partnering process with deadlines if you didn't have a partner by approval?

That's a hard question.

Yes, I don't fully -- if you're thinking about the fact, I mean, could a say partnership be in place in terms of tentative agreement and they become effective upon approval, that is certainly an option. I didn't grasp exactly where you are thinking, if this was beyond approval of the product?

Yes, that is what I meant Hakan. If you don't have approval by -- if you don't have a partner by approval, at that point would you change the partnering discussions to formalize it in a way that you had specific deadlines to conclude the deal?

Quite honestly, I don't -- I wouldn't see a significant difference in our approach from where we are right now. We certainly also have deadlines on performance that targets target dates. So, I don't see a significant change in our process.

And just one last one. What do you anticipate the majority of patients to use some combination of the three and six unit dose or just one of those in particular?

My recollection is that most patients will get away with using one dose, then of course, you have a combination, you can combine the 10 and the 20. And we will cover up to close 80% of patient needs with one, two or maximum of three cartridges. And that does not seem l to be a problem from a patient compliance point of view.

Of course, we want to pursue as quickly as we can the nine and 12 unit equivalent cartridges and we actually have another process that takes us up to very high dose levels but that's not ready for submission yet.

Okay. Thank you.

Thank you. And then our next question is going to come from Keith Markey from Griffin Securities. Please go ahead.

Hi. Thank you for taking my questions. I was just wondering if you could tell us a little bit about the partnering and negotiations themselves, just simply, for instance, have you received term sheets or are you beyond that?

Keith, quite honestly, the only thing I'm able to comment on at this point in time is that we are pleased, in terms of our interactions with Greenhill, and we are pleased with the progress that we're making together with them in partnership discussions. At this point in time it's not appropriate for me to make any further statements.

Okay. Well, I'm not sure if I should ask this but I'll give it a shot. Just wondered whether pricing has come up in your talks, so far, and what your feeling is? In the past you've talked about a small premium to some of the short acting insulin analog prices for AFREZZA. Is that still reasonable to think of that holding true?

If you remember what we stated was that we do see a price parody with pens, insulin pens, and those are already at about a 20% premium over, say, regular injected insulin. So that is a working assumption that you could count on.

Okay. Very good. Thank you.

You're welcome.

Thank you. Then our next question is going to come from Graig Suvannavejh from MLV and Company. Please go ahead, Graig.

Thank you very much. Thanks for taking the questions. A couple. One, as you think about getting near the advisory panel meeting, is there an expectation we should have that you will host a conference call one way or another depending on the outcome of the advisory panel meeting?

Graig, we haven't really actually discussed that. I'd say, it's quite possible, but of course the outcome of the meeting will be immediately known, so it will be known to everybody, it's not like we're going to have to announce that information. Depending on what, how that comes out, it's quite possible we will. Stay tuned. We'll let you know.

Okay. Great. Follow-up question then would be just I know you've done some recent market research work with PCP's and endocrinologists. Is there anything new that you can add in terms of any work that you might be doing with payers and potential reimbursement or is it still to early in the process for you?

We had meetings with payers over a year ago and they were very supportive. But we've only talked individually with them since.

I have to say that we worked also extensively with Kantar Health, as a consultant advisor to us, where they have represented us and the opportunity and actually with another outfit as well that unfortunately, I don't remember the name right now. So, I would say that we've spent a considerable time in assessing, kind of, pricing rebates and the commercial aspects of our products. So, I feel that we are well informed and it's certainly reflected by in discussions with potential partners.

Our objective is to try to get into Tier 2 as quickly as we can and that's why we've targeted where we are.

Okay. Great. One last question, if I may. I know you mentioned for the first time, at least to me, that you've got this Cricket inhaler, so maybe thinking maybe a little further out, maybe premature to do so, but let's assume that the product gets approved. Let's assume you get a partner. What are the next pipeline priorities for Mannkind?

I would say that the next pipeline, other than getting the nine and 12 unit cartridges approved, would be the revised process that we've been working on that gives a large -- a much larger range of dose sizes with a single cartridge and some other very, very significant advantages that we don't talk about yet.

Let me also say and make a quick correction to what Al said before in terms of the Cricket will be used for people would be in acute pain, not chronic pain, so that would be an opportunity where you would have a disposable device like the Cricket.

I said it was a disposable device only for acute pain. It's not for diabetes.

Thank you very much.

Thank you. And then our next question is going to come from Christopher James from Brinson Patrick Securities. Please go ahead, your line is open.

Hello, thanks for taking my question. I just have one quick follow-up regarding the advisory panel. I guess from your ongoing discussions with FDA, do you anticipate that departments outside of, let's say metabolic and endocrine, will be involved? For example, do you anticipate FDA would want individuals from pulmonary devices and pediatrics to bless it. I'm trying to get a sense of the potential.

Yes, while the meeting is run by the one division, we do expect that other divisions certainly will be involved since they've been intimately involved in the overall review of the submission.

Operator?

Yes. I'm here.

Are there any other questions?

No, there are no additional questions at this time. So, I'd like to turn the call over to Mr. Mann.

Thank you all for joining us today. And we look forward to further communication with you in the coming weeks and certainly in April. Thank you all.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.