MannKind Corp (MNKD) 2015 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation Third Quarter 2015 Conference Call. (Operator Instructions)

As a reminder, this call is being recorded today, November 9, 2015. Joining us today from MannKind are President and CEO, Hakan Edstrom; and Chief Financial Officer, Matthew Pfeffer. I would now like to turn the call over to Mr. Matthew Pfeffer, Chief Financial Officer of MannKind Corporation. Please go ahead, sir.

Yes. Good afternoon. And thank you for participating in today's call. Due to some emergency eye surgery I had last week, the recovery from which requires minimal reading for the time being, parts of today's financial results for the third quarter of 2015 will be reported by Rose Alinaya, MannKind's Vice President of Finance, and I'll add comments afterward, before turning the call over to Hakan.

With that, I'll turn it over to Rose for the first part. Thank you.

Good afternoon. 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 would 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, November 9, 2015. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this call.

Now turning to the financials, the net loss for the third quarter of 2015 was $31.9 million, or $0.08 per share, compared to a net loss of $36.5 million or $0.09 per share for the same quarter in 2014, and $28.9 million or $0.07 per share for the second quarter of 2015.

Total operating expenses declined $12.3 million, compared to the same quarter in 2014, reflecting the commercialization of Afrezza in 2015, and reduced non-cash stock-based compensation expense. The slight increase of $2 million in total operating expenses for the third quarter of 2015 compared to the second quarter of 2015, is primarily due to increased product manufacturing cost in the third quarter.

Research and development expenses were $6.3 million for the third quarter of 2015, a decline of 67% compared to the third quarter of 2014, largely due to reduced manufacturing process development costs due to the shift to commercial production of Afrezza. R&D expenses decreased by $1.4 million, compared to the second quarter of 2015, mainly due to continued decreases in manufacturing process development cost, as operations focus on commercial production.

General and administrative expenses were $11.5 million for the third quarter of 2015, a decline of 40% compared to the same quarter of 2014, primarily due to professional fees related to the Sanofi license agreement incurred in 2014. G&A remains stable quarter over quarter in 2015.

For the third quarter ended September 30, 2015, our portion of the loss-sharing arrangement with Sanofi related to Afrezza was $14.7 million, which we subsequently finance by way of an advance under the loan facility with our partner. The amount outstanding under the Sanofi loan facility is now $43.7 million.

For the third quarter of 2015, we shipped Afrezza product totaling $4.1 million. And for the year-to-date 2015, we have shipped $17.1 million in Afrezza product, which were recorded as deferred product sales from our collaboration with Sanofi.

Cash and cash equivalents were at $32.9 million at September 30, 2015, compared to $107.2 million in the second quarter of 2015. During the third quarter of 2015, we fully repaid the remainder of the 2015 notes not previously converted to new longer-dated notes or into common stock. At the end of the day, of the $100 million of 2015 notes that were maturing, we converted $27.7 million into new notes due 2018, $20.5 million into common stock either directly or via our ATM facility, and paid the remaining $51.8 million from our cash reserves.

As part of retiring the 2015 notes, 9 million shares of MannKind's common stock were returned to the Company last month by Bank of America as previously announced. And now Matt will comment further on recent financial developments.

Thank you, Rose. Currently we have $30 million available to borrow under the amended loan agreement with the Mann Group, and an additional $38 million available under our ATM facility. To further build cash reserves, I am pleased to announce that MannKind has entered into preliminary contracts with a number of entities representing Tel Aviv's Stock Exchange index funds, for direct placement of our shares into those funds.

We expect to sell up to 50 million shares through these contracts, which will be finalized within the next week. As background to this deal, some of you may know that our Chairman, Al Mann, has a history of involvement in medical research in collaboration with Israeli-based entities. Perhaps the best known of these is his donation of over $100 million to establish the Alfred Mann Institute at the Technion, which supports the development and commercialization of biomedical innovation conceived by Technion researchers.

He has also engaged in business partnerships with pioneering Israeli companies. So it was a logical step for MannKind to pursue the idea of the Company listing on the Tel Aviv Stock Exchange. Per Tel Aviv Stock Exchange rules, MannKind being listed on the exchange means we are now included in several major index funds, which are now required to maintain substantial ownership positions in MannKind shares. These shares must be accumulated within a prescribed period following such listing.

During the listing process, some of these funds approached us, suggesting they buy the shares from us directly, thus allowing their cash investment to be put to work inside the Company. We expect that the majority of shares for index fund purchases will be issued directly from MannKind, with remaining demand required to be satisfied by open-market purchasers from existing holders to fulfill these ownership requirements. All purchases are expected to be completed within next week.

Selling directly to these index funds offers critical benefits to MannKind's shareholders. First, these index funds are required to hold the stock essentially indefinitely as long as we are included in the associated index, providing a stabilizing force in the market.

Second, the index funds are required to hold the shares and not make them available for lending, and therefore will not be part of a potential shorting pool here in the US. You will remember that I have said more than once that the last form of financing I thought we should consider would be a traditional marketed secondary offering. There are many reasons for this, not the least of which is that such an offering would play into the hands of those who short our stock, allowing them a painless way to unwind their positions.

With that in mind, the Tel Aviv stock exchange listing and related index fund purchases provides a creative solution to MannKind's financing needs.

So in conclusion, we're pleased to enter the fourth quarter with the financial resources to fully support Afrezza's operations, as well as advance MannKind's product development efforts currently in process. With these transactions we expect to fund the Company's operations into 2017, and ensure we have the staying power to realize Afrezza's potential, and also leverage the Technosphere platform into new areas.

With that, I will now turn the call over to Hakan. Hakan?

Thank you, Matt. And thank you, Rose. Well, now that you heard about the Tel Aviv Stock Market introduction and the return of the 9 million shares from Bank of America, let me focus on what's happening with Afrezza.

The post-marketing studies mandated by the FDA are either well underway or under discussion. Four clinical studies were identified by the FDA's post-marketing requirements or PMRs. The first of these studies, the PK/PD Dose Response Study, has completed dosing. All subjects but one who were randomized for treatment, completed the full treatment course. Data analysis in the clinical study report is tracking ahead of FDA assigned due date.

Within-subject variability PK/PD study was initiated in July. And approximately 75% of the subjects have completed dosing. The remaining subjects will complete by early December 2015. This trial is also tracking ahead of FDA assigned milestone dates.

Afrezza use in pediatric patients is a required post-marketing commitment. Sanofi has initiated part one of the pediatric protocol, an open-label PK multi-dose safety and dose titration trial of Afrezza in pediatric Type I patients age 4 to 17 years. Three of the six study centers have been initiated and randomization has commenced. This study will first determine the pharmacokinetic and pharmacodynamic response in the older children, 13 to 17 years, and assess how best to titrate the dose in this age group.

Given demonstrated safety and tolerability, the younger age groups then will be evaluated. When part one is completed, the study is scheduled to expand the enrollment and transition into a one-year perspective multi-center open-label randomized control trial in pediatric patients 4 to 17 years old, with either Type I or Type II diabetes.

The last of the post-marketing requirements studies is the long-term pulmonary safety study, a five-year randomized controlled trial in 8,000 patients with diabetes maladies to assess pulmonary safety for Afrezza compared to the standard of care. The Sanofi/MannKind clinical team is currently reviewing the scope and design of this study with the FDA, including specifics of the patient population and study end points. The final milestone for the final agreed upon protocol is April 30, 2016.

Turning to sales, certainly we are disappointed with the growth of Afrezza sales during the first nine months of the year. We however understand the primary reasons for this slow uptake of Afrezza.

First, insurance companies are taking a strict stance regarding reimbursement and prior authorization. This is not unexpected, given that we are less than a year into the launch. But remember that the launch occurred only four months after our deal with Sanofi became effective. There was very little time to address reimbursement issues in advance. Discussions are ongoing with insurance companies, with the aim of simplifying access for patients.

Second, the initial rollout of Afrezza was targeted and focused on building awareness behind the product and appropriate usage. You could compare it to the initial launch of Prius by Toyota, or Tesla's electric cars. Both companies started out very tentatively with their initial models. It takes time to introduce a new concept and get it embraced.

Again, given the timing of our transaction with Sanofi, there was no time for traditional activities that normally occur before a product is introduced. Doctor awareness is developing now during the launch period. And we have to try to be patient while these efforts are underway.

The current D-to-C campaign has significantly raised awareness of Afrezza among the public. We have received an overwhelming number of consumer and doctor inquiries through the publication of ads. While this has not yet translated into much higher sales, the weekly penetration is improving, and it demonstrates a high level of interest in Afrezza.

We expect Sanofi to use this information in their marketing efforts going forward in conjunction with the afrezza.com and the afrezzapro.com websites. And in our conversations with doctors, the feedback is that patient satisfaction with Afrezza is high. This quote from one of the Afrezza patients is quite representative. I'm happy to report that I achieved my best A1C mark in 27 years as a diabetic. My reading of 7.4 was 1.3 points lower than my previous reading in June.

We believe patients like the versatility and the flexibility that Afrezza affords them in dosing, in addition to the dosing convenience. So based on the feedback from many doctors that I've spoken to, let's say that once the patients have had the opportunity to try Afrezza, they are very happy with the result. The challenge now is to translate that interest into prescriptions by addressing the market access barriers.

You know, Afrezza is exclusively licensed to Sanofi. And Sanofi has exclusive rights to commercialize the product on a global basis. In the meantime, we are actively engaged in developing a robust pipeline of additional product candidates that will create shareholder value.

As I mentioned last quarter, we were pleased to welcome the new Chief Medical Officer leading the development team. And in the last couple of months our development group has been very busy moving ahead with the formulation work on the pulmonary hypertension program, as well as lining up a dozen more product candidates with commercial potential.

And there is no way we can fund all of this potential activity. So we have also initiated discussions with several firms that could participate in product development as strategic or financial partners. I have made it clear that I am open to any creative approach that will give us as many of these programs as possibly funded, and get our technology into the hands of healthcare providers and their patients.

So to the participants listening to this call who have an interest in sharing the risk and the rewards of our product development effort or who have a formulation or dry delivery challenge that our technology may address, I would say this. Let's talk. My ambition is to have a robust portfolio for our candidates in the pipeline by this time next year.

And now in concluding my remarks, please join me in a Happy Birthday wish to Al Mann, our Executive Chairman, who turned 90 just a few days ago. He is certainly a remarkable individual. And we wish him all the best going forward.

So ladies and gentlemen that concludes our prepared remarks. We are now ready for your questions. Operator?

(Operator Instructions) Jay Olson, Goldman Sachs.

Hi. Thanks for taking the questions. I have a few of them. I believe there is a $25 million milestone payment that should be coming due soon that's related to manufacturing. Can you comment on when we should expect that?

No. There is no manufacturing milestone payment that's coming due now. The only additional milestone payment that would be forthcoming would be in conjunction with some R&D activities that would be in a collaborative activity together with Sanofi.

Okay. And should we expect to see that this year?

I cannot give you a timing for that one. That's a decision by Sanofi. And they have that as part of their internal programming. So I could not give you a timing on that.

Okay. And then just on SG&A, it seemed like it picked up a little bit in the third quarter. I know it was described as being stable. But it seems like it was up a little bit. Are there some details on why that happened?

Jay, are you-- I think it was like 10-point--let me just pull it up real quick. We're at $11.5 million in G&A for this quarter. And we were at $10.6 million.

Yes. I was around $10.5 million for both the first and second quarter. I was just surprised that it was up. Because I know that you had taken some cost-cutting initiatives.

You know, remember sometimes when you take cost-cutting initiatives, you bear some costs of making those cuts.

And if you read our Q, we did have a restructuring charge for this quarter based on those cost-cutting measures.

Okay. And then just on the pipeline, I appreciate the color there on the progress. Can you tell us how close you are to moving any of your pipeline assets into the clinic? And when is the soonest that MannKind could sign a partnership or a licensing deal to monetize some of those pipeline assets?

Well in regards to-- I would say they are certainly months away from going into a clinic. I mean they are in the formulation stage right now, particularly on the pulmonary hypertension. In regards to entering into other development partnerships or financial partnerships, the only thing I can say that actually over the last week we've had discussions with potential partners. However, there is still negotiations to be had. So I would say I would hope that we could possibly announce something before the end of the year, let's say, within the next quarter. But that's as specific as I can be at this point in time.

Okay. And then just with regard to the additional equity financing that's been lined up, would that enable MannKind to continue to commercialize Afrezza in a scenario where Sanofi were to opt out?

That's a tough one to answer. I guess that's not in our operating plan at present, Jay, but it could.

Okay. What is the soonest that it could happen? I know you've been asked that before. I think you've said January. Is that correct?

That's the soonest we could be given notice that it could happen. But then there will be a notice period that would follow that. And the duration of that notice period is dependent upon the nature of the termination, if it were to occur.

Yes. And I have to say, Jay, that at this time we have certainly no indication that Sanofi is [planning] the partnership. Actually our teams are working very closely together on plans for 2016 and putting budgets together. So we are certainly operating under the assumption that we will continue to pursue the partnership and the associated Afrezza activities.

Okay. Thank you. I appreciate the questions.

Cory Kasimov, JPMorgan

Hi. This is Whitney on for Cory. And I guess most of my questions have been asked. But I guess just on Sanofi's third quarter call they obviously mentioned a revision downward for diabetes sales and specifically for Afrezza. They talked about re-based expectations and lower penetration. So I guess just curious what your perspective is on this, and kind of I guess what you think the key is to increased traction. Obviously you talked about D-to-C and some of that other stuff. But I guess what are going to be-- what do you see as kind of really changing how we should be thinking about this trajectory from here.

Well certainly over time we are building awareness and continue to build awareness. And again, as I mentioned in my remarks, we have received an overwhelming number of responses from patients and doctors that want to have more information about the product. And the other component I think that's very critical, and I know Sanofi is working on that at this point in time, again is to facilitate access for reimbursement to insurance companies that can certainly help in speeding up penetration and patient usage. So that certainly will continue together with the [PTC] programs that are underway already.

Got it. And then last quarter you mentioned, and you're still mentioning insurance coverage I guess, and access as bigger issues to adoption versus the pulmonary function testing. Is that still the case?

I would say yes. Certainly in terms of pulmonary function testing, with the support of the sales reps and all the people from Sanofi, doctors know where to turn in making that happen. So that was initially a delay. But they know how to address that. The prior authorization and the dealing with the insurance companies is, I would say, more cumbersome. It takes more time, and there is a greater risk that either the patient or the doctor kind of loses the patient to kind of wait for it to happen. So from that point of view, we believe that to be the major-- a bigger obstacle than just pulmonary function testing.

Got it. Thanks for taking the questions.

Adnan Butt, RBC Capital Markets

Yes. Hi there. This Arshad Hydra in for Adnan. Thanks for the question. If you could maybe provide a bit more color into what you have seen as far as Afrezza demand is concerned, maybe if not quantitatively, maybe qualitatively. That would be great.

Well, I mean, what we're seeing, we certainly are getting a lot of phone calls and contacts and through social media and other ways where we get in contact with patients. That's why I use the quote in my remarks here. Because I see and I hear that on a very regular basis. And also when we're out there talking to doctors, endocrinologists in terms of finding out what they know about Afrezza and how they know.

I would say very consistent feedback is the fact that the patients like the flexibility that Afrezza gives them in terms of dosing, the convenience, which seems to be translating into the fact also they use the product on a regular basis. So say compliance all the time could help.

So again, I would say that the overall feedback is positive. I'm just kind of hoping right now we can get a greater penetration faster. Because it seems that it translates into certainly a significant business opportunity.

Okay, great. Thank you. And as far as payer resistance is concerned, can you maybe touch a bit on how you plan to address these issues? I know you've touched upon it earlier in the call, but maybe a bit more.

Well the only thing I can say there, because I don't have the detailed insights, because that's again a responsibility of Sanofi, as part of the partnership. So they have the primary contact with the insurance companies. And they are the ones on the negotiating, say contacts, on a go-forward basis. So the only thing I can say, there certainly is an awareness without and with Sanofi that this is an area that needs to be addressed and that they are currently addressing the issue. But that's probably where I have to kind of end my remarks.

Fair enough. Thank you.

Josh Schimmer, Piper Jaffray

Hi. Thanks for taking the questions. While you're not planning to or expecting Sanofi to return rights to Afrezza, what-- if they were to do so, what would happen to the outstanding notes obligation under the collaboration with them?

Well, the way these things typically go, it's a negotiated item. The terms of the no-call are for repayment in some 10 years later.

All right. So that would not be brought up front if they did choose to terminate?

No. They would have no ability to get that money back for some 10 years.

Okay, just to clarify. Thank you.

But that would be the worst-case scenario.

Keith Markey, Griffin Securities

Thank you. I had two questions. One, Hakan, on the last conference call you stated your beliefs that sales would begin to accelerate-- sales growth would accelerate this quarter. Do you feel that that's still a reasonable statement?

Well, I've certainly seen the weekly prescriptions start to trend up. So while it's-- I would have hoped that it would be faster than what we've seen, but I certainly deem that as a signal of the fact that awareness is increasing. And with increased awareness there's also more opportunity for patients to try the product, and for the physicians to get used to the product. So they can share their experience with other physicians that may be a little bit, say slower, in terms of their willingness to try out the product, and find the right, say, type of patients that they would be appropriate for Afrezza.

So I'm still optimistic.

Okay. Thank you. And then I have sort of a-- I think that you're facing somewhat of a chicken-and-an-egg question here. On the one hand, Sanofi probably doesn't want to spend a whole lot of money on direct-to-consumer advertising, especially television, for instance, if they don't have reimbursement in place. But on the other hand I'm just wondering. Do you think that if they did some direct-to-consumer advertising that really generated a great deal of interest that patients walking into the doctor's office and talking to their insurance companies would have any beneficial effect on trying to move those negotiations forward?

Well I know that there are certainly plans, from Sanofi point of view, in moving in that direction. The timing tends to usually be based on what level of awareness do you have in the professional community. So you're not, say, surprising doctors with patient demand or patient questions that they may not be prepared for. Whether it would impact the negotiations with the insurance companies, I don't really know how compelled they are. But that type of information, it would certainly demonstrate to them that there is a perceived need of the product out in the marketplace.

So I think from our point of view it certainly would not hurt. The question is, what is an appropriate timing and approach to have that as, say, a support mechanism.

Yes. Okay, thanks. And one last question. I was just wondering, what is your estimated cash burn rate through 2016?

Keith, I know you've asked me that question a bunch of times. And I think I've always answered $10 million to $12 million a month. I think I'll depart from that this time. Because I think it will go down. It's probably more like $8 million to $10 million a month going forward. But a lot of it depends on timing of raw material purchases and what our production levels are, quite frankly. Because you saw we had still have some manufacturing production costs.

Yes. You've made a few cutbacks. But, yes. You've made a few cutbacks. But I thought that I'd just revisit. Thank you.

Yes. So I do see it. I can say that I think it's going to be significantly down. I mean whenever you make cutbacks, especially painful ones that involve people, there is termination costs and so forth. So it dampens the effect in the initial quarter. But you start seeing them trickling through later. So I think $8 million to $10 million is pretty safe. But again, it's very much dependent upon our production levels.

Okay. Thank you.

We have no further questions at this time. Mr. Hakan, any closing remarks for today's call?

Thank you. Yes. In closing, let me just say that looking at the diabetes market, we all know that there are millions of patients suffering from diabetes. And it's increasing at an alarming pace. And we are nowhere close to a cure when it comes to diabetes. We are not even particularly good at treating diabetes, with patients getting worse over time.

Doctors need more and better tools in their toolbox. Patients need better therapies that are convenient to use to help compliance and disease management. Afrezza certainly represents one of those tools that can help doctors and patients. We know it works, and it works well. Yes, Afrezza is a new approach to diabetes care. However, it is insulin. And we know that insulin is the most effective treatment for diabetes.

It may take a somewhat longer time to establish the utility of Afrezza. But we are in it for the long haul. We are not giving up on more than 300 million patients that's growing very quickly that eventually could benefit from Afrezza in the US and the rest of the world.

So with that, thank you so much for listening this afternoon. And have a good evening.

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