MannKind Corp (MNKD) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation 2015 fourth-quarter and full-year conference call.

(Operator Instructions)

As a reminder, this call is being recorded March 14, 2016.

Joining us today from MannKind are Chief Executive Officer, Matthew Pfeffer; Chief Commercial Officer, Michael Castagna; and Principal Accounting Officer, Rose Alinaya.

I would like to now turn the call over to Ms. Rose Alinaya, Principal Accounting Officer of MannKind Corporation. Please go ahead.

Good afternoon, and thank you for participating in today's call.

Before we proceed further, please note that comments made during this call will include forward-looking statements within the meaning of the 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, March 14, 2016. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this call.

I now turn the call over to our CEO, Matt Pfeffer.

Thank you, Rose.

To open today's call, I wish to first take a few minutes to express the profound grief that I and the entire MannKind community have felt since learning of the sad news of Al Mann's passing on February 25. Al's history of innovation, persistence, and philanthropy made him an incredible role model for business people the world over.

The Company has received hundreds of messages in the last few weeks, from all walks of life. It is clear that Al and Al's work have touched people in a very personal way, and we are grateful for the many wishes and condolence sent by phone call, email, tweets and posts.

I was very lucky to spend a lot of time with Al, as we traveled to investor conferences, strategized in countless meetings, and together discussed the path forward for MannKind. Of the many lessons I took from those interactions, highlights for me are number one, always do the right thing, putting the needs of the patients first. And number two, never give up.

With these lessons in mind, I reiterate to the investors listening today the themes first discussed at my presentation at JPMorgan in January. MannKind is here to stay, and we fully intend to realize Al's vision for inhalable insulin developed here at MannKind, and manufactured by us, Afrezza.

MannKind's senior leadership is tackling every challenge with vigor, and with the goal of making sure people with diabetes have access to this compelling product, and that we make the best possible decisions for the long-term strategic advantage. Bottom line, we are committed to fulfilling the last chapter of Al's business legacy.

With that, I am pleased to now introduce the newest member of the MannKind executive team, our just announced Chief Commercial Officer, Michael Castagna. Michael's hiring is a critical step towards making Afrezza the successful product we intend. For those of you who have not yet seen the press release, Mike joins us from Amgen, where the launch efforts for portfolio products in oncology, rheumatology, and other diseases. Prior to that, he worked at Bristol-Myers Squibb, Sandoz, a subsidiary of Novartis, and EMD Serono, also known as Merck KGaA.

He has worked on the launch of over 10 brands, covering numerous disease areas. He has an MBA from the Wharton School and is also a licensed pharmacist, with work experience at CVS and Kennedy Health Systems. We are very happy to welcome Mike to MannKind today, and I have asked him to say just a few words on today's call. Mike?

Thank you, Matt. Good afternoon everyone.

Let me start by saying that I am absolutely thrilled to be here today as part of the MannKind team. As Matt said, I have spent my reasons years with Amgen, and have been closely following MannKind's trajectory.

I joined MannKind because I believe there's an incredible opportunity to reposition Afrezza for significant growth, and I want to be part of the team of making that opportunity a reality. As a small pharma, MannKind can approach their sales and marketing efforts of Afrezza with laser focus, unencumbered by internal conflicting product demands, or other challenges that often exist in large pharmas. I'm excited to take my experiences and apply them in an innovative way here at MannKind.

As Chief Commercial Officer, I am chartered with all sales and marketing functions necessary to successfully penetrate the market with MannKind products, beginning with Afrezza. To do this, I will quickly build a team spear heading sales and marketing to reach doctors and patients, and we will also build a team focused on insurance coverage and advocacy groups, infrastructure support. And while I'm not prepared on my first day to go into details on the strategy, I will say that plans will include the components to build awareness and knowledge of Afrezza amongst both doctors and the user community.

We will do low-cost DTC activities to people with type I and type II diabetes. We will also aggressively pursue improved insurance coverage, to allow users easier access to the product, while maintaining patient support and co-pay programs. Lastly, we know we need to better educate doctors and patients on how to use Afrezza, so patients can get their blood glucose under control. There other ways to build a business that will be discussed going forward, but of course, all these activities may be executed only when the product is returned to MannKind.

In closing, I am very excited to be on board. We are working very hard to fulfill and support all transition activities and lay the groundwork for Afrezza and future Technosphere products here at MannKind. I look forward to making Afrezza the success that everyone here believes it can be.

Thank you, Matt.

Thanks, Michael.

We will now transition to the reporting of financial results, and I will have additional comments on the business as a whole afterwards, before we take questions. With that, I will now turn the call back over to Rose Alinaya, our Principal Accounting Officer.

Turning now to the financials, the net loss for 2015 was $368.4 million, including $206.6 million in impairment-related charges or $0.91 per share, compared to a net loss of $198.4 million, or $0.51 per share for 2014. Research and development expenses were $29.7 million for 2015, a decline of 70% compared to 2014, largely due to the effects of our restructuring measures in 2015, reduced development expenses resulting from our shift to commercial production of Afrezza, and decreased clinical trial related expenses. R&D expenses for the fourth quarter of 2015 decreased slightly from the third quarter of 2015.

General and administrative expenses were $41 million for 2015, a decline of 48% compared to 2014, primarily due to a decrease in non-cash stock-based compensation, and non-recurrence of professional fees in 2014 associated with the closing of the collaboration and license agreement with Sanofi, and the amendment of the financing facility with Deerfield. G&A expenses for the fourth quarter of 2015 decreased $3.2 million from the third quarter of 2015. Product manufacturing expenses were $51.8 million for the fourth quarter of 2015, related to under absorbed labor and overhead, and inventory write-offs.

Correspondingly, given the continued lower than expected sales of Afrezza, we assess the impact of the value and recoverability of our long-lived assets in accordance with accounting guidance. As a result, impairment charges of $206.6 million were recorded in the fourth quarter of 2015, of which $140.4 million related to impairment of fixed assets and $66.2 million related to loss on future purchase commitments, primarily insulin.

Cash and cash equivalents were $59.1 million at December 31, 2015, compared to $32.9 million in the third quarter of 2015. During the fourth quarter of 2015, we received $34.7 million in net proceeds from the sale of stock on the Tel Aviv stock exchange, $2.6 million in payments from Sanofi for product shipments, and $13.6 million in net proceeds from our after market sales facility. We still have $30.1 million available to borrow under the amended loan arrangement with The Mann Group.

We expect G&A to remain relatively flat in 2016 as compared to last year, as a result of our restructuring measures in 2015, offset by an expected increase in professional fees related to the Sanofi termination. We anticipate our overall R&D expenses will decrease in 2016 compared to last year, due to our focused efforts in the transition of the Afrezza rights this year, and minimal incremental cost associated with our development pipeline.

We will incur sales and marketing expenses in 2016, as the sales and marketing efforts transition from Sanofi this year. Product manufacturing expenses are expected to remain relatively flat as compared to last year, due to the Sanofi termination, and the associated transition period, as this year's production levels should be consistent with last year's volumes.

And now I turn the call back over to Matt for final comments.

Thank you, Rose.

The most noteworthy financial event in the fourth quarter was clearly the impairment charges recognized as the results of the continued slow sales of Afrezza by Sanofi through the end of the year, which culminated in their decision to return the product to MannKind.

As a consequence, we wrote down our Danbury manufacturing facility, and wrote off essentially all of our raw material and finished goods inventory, including some components not even yet received, but for which we have purchase commitments. These non-cash write-downs will have a positive effect, ironically, on our P&L going forward, as they will reduce overhead and material costs associated with future product manufacture.

While the results of 2015 were well short of our expectations, as we talked about in our earnings release, we are looking forward to the next 12 months with optimism and great excitement. With Afrezza expected to be back under our control next month, we are all enthusiastic about the opportunity to launch a lean, focused, commercial effort that highlights the differentiating qualities of our product.

With Michael now on board as our Chief Commercial Officer, we have taken a critical step in building our commercial infrastructure. Activities towards what will essentially be a relaunch for Afrezza are well underway. That is not to say that Afrezza will not continue to be available in the interim. Quite the contrary. We have committed to our patients and doctors that there will be no interruption in supply of Afrezza, and we intend to keep that commitment.

As everyone knows, we get rights to Afrezza back on April 5 or shortly thereafter. There will follow a flurry of activity in the weeks that follow, and the ADA meeting in June, in particular, will be an important meeting for MannKind and Afrezza. We have submitted four abstracts, and all four were accepted.

Of those abstracts, excuse me -- one of those abstracts was selected for a moderated poster discussion. We also intend to submit two additional abstracts as late-breakers. Many of these abstracts address the unique PK/PD profile of Afrezza, and include the positive outcome of recently-completed studies. We believe the data that will be presented suggests that the PK/PD profile is different enough from currently available rapid acting insulins, as to offer patients improved efficacy, and the possibility of reducing adverse events typically seen with insulin therapies.

Diabetes remains one of the biggest challenges in healthcare today, and the problem just seems to keep growing. I was struck by an article this last week in the LA Times which reported on a UCLA study in California, that 55% of the population has diabetes or pre-diabetes, which is a startling statistic. Such news makes us more determined than ever to see Afrezza succeed once it is back under our control.

There's a lot to do in managing this transition, but we continue to be highly motivated by the positive feedback we receive from enthusiastic Afrezza patients. We want to do all we can to ensure that more patients with diabetes have an opportunity to receive the same benefits with Afrezza, and ultimately realize Al's dream for those patients.

With that, I would like to turn it back to the operator for a brief Q&A session.

(Operator Instructions)

Cory Kasimov, JPMorgan.

This is actually Brittany on for Cory, thanks for taking the questions. Can you just give a little insight into your strategy for addressing your liquidity position, and then also any detail on expected spend to detailed Afrezza? Thank you.

The short answer is no. We never preannounce financing strategies. We have talked a little bit about our overall goals to increase the presence of Afrezza in the worldwide market, which could result in some cash coming in, and there are multiple discussions like that going on. Obviously, it's premature to commit to things like that. And we need to have a better feel for things like that what might look like and how the Sanofi situation winds up before we make any firm commitments on financing activities.

Clearly, we're not super impressed with the stock price at the moment, so we're not anxious to do anything dilutive, and we're exploring other opportunities. Beyond that, burn for building a sales and marketing organization, I think is premature. I'm not going to put Michael on the spot, it's literally his first day today, but we are in discussions on how best to do that. We have talked about this a lot before in a philosophic manner, and those statements remain just as true now as they were then.

Okay. Thank you.

Jay Olson, Goldman Sachs.

I'm just looking at the current run rate for the scripts, which have declined steadily since the beginning of the year. Can you talk about when we should expect that to reverse, and how fast that trajectory could turn around?

I think the first thing that has to happen is we have to have control of sales of Afrezza. It's really essentially not being marketed anymore. Once we can start that effort, than we expect it to turn around, and hopefully relatively quickly. Wwe have a lot of things underway to address that.

I have a very able person to my right who is going to be focusing all of his attentions, he's done this before, and we expect he can do it again, to make that happen. As far as specific timelines, it is a little bit harder to address that. A lot of it will depend upon the speed and the final strategy with which we deploy the sales force, and how fast we can turn around some of the issues we have with the insurers, which we know is a continuing problem. We have a lot of things in mind to fix that. It is less clear how quickly we can do that.

It is still a little uncertain at this point. I wish I could give you some specific guidance, I can't. I hope we will be able to in the near future.

Okay. Sanofi had put some pretty substantial resources behind Afrezza, with sales force, DTC spending, there was also a commitment to conduct some clinical trials. Can you give us an idea for the sake of -- purpose of modeling, our 2016, any guidance on the level of resources you intend to invest, and what the mix might be behind that?

It sounds a little bit -- first of all, I have to dispute your premise. I'm not sure Sanofi did put the significant resources you are implying, certainly not in the DTC area, I shouldn't get too much into detail there. I will just object to the premise, generally. And then the rest of the question sounds like a rephrasing of the prior question.

We've said we want to do this in a lot more focused way. Try to concentrate on the areas where we think we'll have the greatest success, and we have seen evidence of where those areas are. It is premature to go into too much detail, but again, I think you'll hear about that very soon, and certainly in the weeks to come.

Can you remind us how much the clinical trial will cost, that was agreed to with the FDA, and when that will start?

I assume you mean the long-term safety study?

Yes.

The final design of that study was never reached with the FDA. It is still under discussion, and until that happens, it is impossible to project what the cost will be, because there are too many moving pieces, and things that are still under discussion.

Okay. Is there any time frame on that?

Yes, there is. We have not publicly said, but I think you should expect to hear more details, let's just say, in the next couple of months.

Okay. Also, you have spoken in the past about making some adjustments to the price on Afrezza. Is there any color you can give on that?

Yes, I think we felt that there was some problems with how Sanofi priced it and took it out into the market, and we will re-evaluate that. I don't want to commit to anything specific. We haven't up to this point.

Clearly we can't do that until the product is in our control, and we have actually product to sell. There is a fair amount of product out still in the channels that will be sold first, that will be Sanofi branded products, and then you will see MannKind branded product, and that will be the point where you can start seeing those pricing changes.

What is your goal in adjusting the price? Is it going to improve your formulary status? Do you have commitment from PBMs to improve the formulary status, based on the lower price?

We have a lot of research we have done. We don't have commitments from anybody, because we can't really talk to them until the NDA is back in our control.

So we've done a lot of research on the issues that prevented the product from selling more, and where the mistakes were made, and so we have a preliminary plan. But we don't have commitments, per se. All the discussions are pretty formal. It's not the same as a commitment.

Okay. And then I guess, finally, do you expect to tap into the $30 million credit facility from The Mann Group?

I don't currently anticipate doing that, but it's nice to know it's there if we need it.

Okay. Thanks for taking the questions.

Adnan Butt, RBC Capital Markets.

Matt, so do you foresee the Company being able to announce a strategy about commercialization before, or by the time the product comes back, so early April? Is that feasible?

I think we will be formulating the strategy during that time, but really until we have product that we can sell ourselves, it is somewhat academic. In the meantime, it is still available through Sanofi channels, and once we have it fully under our control, and there is a lot of steps to this, that can be somewhat underestimated. So many of these steps can't really be entered into until we actually have the NDA back, which won't happen until after April 5. For example, if we want to change the packaging and have it say MannKind instead of Sanofi, we can do that, but we can't submit it to the FDA until we have the product back.

So that's going to be the kicking off of a lot of process. It's not the end of the process. I hope soon after that, either in conjunction with our next quarterly call or sooner, we will be in a position to be a lot more forthcoming and specific for how we are going to go about this. Today is not the time.

Sure. Okay. One more. In terms of cash, how long will current cash last, assuming things stay the same?

Things won't stay the same. But if they did, if we used that as a simplifying assumption, it takes us into early into the second half of the year. That is not drawing upon any of the sources that are available resources we have now.

Clearly, we have things underway. It's premature to announce them. I'm not terribly worried about it. It is not going to get us to profitability, that is for sure. So we need to do some additional things, and get us to the point where we can demonstrate these strategies that we have in mind. Where we really have the impact on the sales and the inflection of the sales curve that we expect it will.

Okay. Thank you.

Keith Markey, Griffin Securities.

I was just wondering, could you give us an update on the clinics that you are working with, to help to get the drug accepted better by the patients?

Are you talking about the diabetes care centers?

Yes.

Okay. Remember, those aren't affiliated with MannKind, but we do hear from them from time to time. The ones we talked about, I believe their first center is opening within the week or so. They had two more that they are assembling. I am not sure how far behind those are, I think they are going to closely follow. You should to see those popping up.

It is interesting, since that was first talked about, we've got an awful lot of inquiries from similar kinds of organizations, not an awful lot, maybe an overstatement, we've gotten several inquiries from similar kind of organizations interested in doing something similar. So it's an exciting time. I think the advantage of something like that is they can do some very specialized work. They, clearly in my discussions with them, have seen the advantages of combining Afrezza with, for example, continuous glucose monitoring, and getting what they're terming real-time diabetes control.

If you look at the patients that have had the most notorious successes with the product, it seems to be a trait that many of them share. They can quickly see what's happening with their blood sugar levels, and use a very rapid acting insulin such as Afrezza, which is really the only one out there with those kind of kinetics, to make corrections and keep good control.

So it's nice that they expand those successes of make a bigger name for themselves. We wish them the best of luck, but of course, we have to keep a comfortable separation between ourselves for regulatory reasons.

For sure. Thank you. And then I was just wondering, you mentioned the April 5 transition date again, and I was wondering if that is a hard and fast date, or if there is something that could actually delay it beyond the 5th at this point?

We consider it the target day. I think that's the likely date, but it's not a hard and fast date. Nothing is ever, you never get everything done that particular day.

That would be the date we target for the key things, such as, for example, the transfer of the NDA. And getting things like that, the supporting websites and all things should go live right then. They will be necessarily things that will trail past that, too.

Okay, great. Thank you.

We have no further questions at this time. I will now turn the call over to Matthew Pfeffer for closing remarks.

Okay, well, I just wanted to say, thank you all very much for your attention, and for your belief in MannKind. We look forward to giving future updates and answering some of these unanswerable questions at this point, as we move forward. And continue to show some progress towards commercialization of our product. So thanks once again, we will talk to you again soon.

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