MannKind Corp (MNKD) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation 2016 first-quarter conference call. As a reminder, this call is being recorded May 9, 2016.

Joining us today from MannKind are Chief Executive Officer, Matthew Pfeffer, and Principal Accounting Officer, Rose Alinaya. I would now like to 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 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, May 9, 2016. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this call.

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

Thank you, Rose, and good afternoon, everyone. Thank you for joining us on today's call. The first quarter of 2016 had many challenging transitions for the Company, but we believe the MannKind 2.0 strategy to commercialize Afrezza ourselves and leverage our Technosphere platform for future growth is the right one to deliver long-term benefit to patients and shareholders alike.

In the first quarter of 2016, our mission was to transition Afrezza back to MannKind while ensuring no interruption of supply to our users. We executed on that plan, and we're very happy to announce the return of Afrezza rights on April 5.

Also in the first quarter, we completed our first licensing of the Technosphere platform to Receptor Life Sciences, and we recognized a $250,000 signing fee payment from them in our first-quarter financial results. This first program milestone payment from RLS is -- excuse me, the first program milestone payment from RLS is expected in the fourth quarter, as we complete initial product development milestones.

I'll now expand on our blueprint for the remainder of the year. Building a commercial organization from the ground up is our main objective in the second quarter. Our commercial leadership team is now in place with Mike Castagna at its head, along with his two key Vice Presidents. We expect to have a team of diabetes nurse educators deployed by the end of this month, and we're in the midst of hiring a 60- to 70-person US-wide sales force, which will be in the field by the end of June.

On the medical side, our Chief Medical Officer, Ray Urbanski, is currently recruiting a VP of Medical Affairs, who will deploy a team of geographically-based medical science liaisons. These MSLs are chartered with building relationships with key opinion leaders, professional organizations and patient advocacy groups within the diabetes market. Their work will support field sales activity and will also leverage our medical information capabilities, including a professionally-staffed call center which has been in place since April 5.

MannKind will have a presence at the ADA conference in June, with Afrezza the focus of six abstracts to be presented, including four papers related to the characterization and differentiation of Afrezza's PK/PD profile, which we believe to be critical differentiators of Afrezza compared to other insulins, as well as two papers related to the safety and efficacy of Afrezza, specifically around pulmonary function. In addition, we've secured a modest booth at ADA and anticipate staffing it with Company personnel.

In the second quarter, our R&D organization has been continuing to develop inhaled formulations of epinephrine, treprostinil and palonosetron, which Ray Urbanski has talked about in prior calls. For each of these compounds, our initial evaluation criteria are aerodynamic performance and ambient temperature stability.

For epinephrine, which was the last program to start but which is rapidly pulling into the lead position, two formulations have been tested, both of which met our performance criteria, and we will now evaluate their PK profile during this quarter.

A total of six formulations of treprostinil have been prepared and evaluated on the two criteria, and four of those formulations are moving to PK profiling, with additional formulation development work on all four continuing through the quarter.

Of the two palonosetron formulations we tested, both showed acceptable aerodynamics but will require additional work to improve ambient temperature stability.

Also in the second quarter, our clinical development group established a steering committee of several well-respected pediatric diabetes investigators to develop a revised protocol for our pediatric study.

Additionally, we have engaged the Juvenile Diabetes Research Foundation to provide inputs to our protocol and are meeting with them this week on this topic. We are evaluating amendments to the protocol to support approval criteria needed in certain international markets. We expect to have this protocol finalized in the third quarter and can provide more guidance then.

The third quarter marks our launch of MannKind branded Afrezza to the commercial market. Our manufacturing team has been working overtime, and I'm pleased to say that we are now in production of MannKind-branded product of Afrezza. Shareholders who attend our May 19 annual meeting in Danbury will have the opportunity to tour our production facility and see first-hand our fill/finish lines producing product carrying the MannKind brand. That branded product will be in commercial distribution channels starting in July, by which time our field sales force will already be calling on doctors.

Over the course of the third quarter, MannKind branded product will supplant the Sanofi product already in the channel, as MannKind's SKUs come out of production and begin shipping. Generally, distributors will continue to ship existing Sanofi inventory until it is depleted, at which point MannKind SKUs will be stocked. We expect that any unsold Sanofi inventory at the end of the third quarter may be returned.

This orderly transition benefits MannKind and Afrezza patients, as it allows MannKind to introduce its branded SKUs in a coordinated way while still ensuring continuity of supply to Afrezza users. MannKind will continue to be credited with 35% of profits from Sanofi branded sales in third quarter as part of our collaboration accounting. Sales of MannKind branded product will be included as sales in the income statement.

In the third quarter our commercial team is chartered with getting in front of our target physicians and rapidly building the prescription count. While we acknowledge that prescription counts have been slowed in recent months, this is attributable to concerns in some quarters about the future of the product, giving some doctors pause before prescribing it or renewing prior authorizations with (inaudible) insurers.

Given that, we are gratified that our loyal patient base has hung in there, and we're looking forward to adding to that base as our most important goal during the balance of the year. To support that goal, we have several new programs also launching in the third quarter.

First, we'll have a new spirometry solution for providers which will minimize the need for patients to go to multiple doctors and will eliminate one of the hurdles for starting patients on Afrezza.

In addition, we're launching a new sample program which will include revamped sample packs to give patients a better initial experience. In the past, patients who received sample packs were given 4-unit packs of 30 cartridges. Patients who needed more than 4 units per meal found their sample packs ran out before they got their prescriptions filled. Those who stretched the sample pack to last the full 10 days found that they didn't get sufficient efficacy, and too often didn't fill or renew their prescription.

So, we will have two new sample packs. One will be a combo of 4- and 8-unit cartridges, and the other will be 8- and 12-unit cartridges, improving the patient's initial experience on the brand. We are also introducing a new starter titration pack for Afrezza, with a combination of 4-unit and 8-unit dosage strengths, to enable new users of Afrezza to more easily titrate to the dose appropriate for them during the initial 30- to 60-day onboarding cycle.

In addition, we will launch a new patient reimbursement support hub in July to aid patients with insurance and preauthorization processes. We have feedback from the top Afrezza prescribers, who are very supportive of these programs.

Our marketing efforts during the third quarter will support sales by centering on direct contact with a target doctor population of endocrinologists, high-prescribing primary care physicians, and current Afrezza prescribers. Our message to them is that Afrezza is here to stay, offers our targeted patient population important advantages, and we have a team and programs in place to support patients who try the product and to maximize their success with the product.

The fourth quarter will be our first full quarter of sales with, we hope, only MannKind branded product being sold, and all Afrezza sales booked as revenue on MannKind's income statement. During this quarter, we'll look at not only prescription counts but also revenue trajectory as leading indicators for what 2017 holds in store.

Additionally, our medical organization will implement clinical-based work to support the appropriate use of Afrezza in our target population.

Specifically, we tend to initiate small, fast and inexpensive studies to demonstrate improved dosing and titration recommendations for Afrezza users. These studies will draw on the experiences of our most successful patients and doctor prescribers, and we thank them for their invaluable inputs. We're also planning a time in range study for patients with access to continuous glucose monitors. Our plan is to target these studies for publication initially, with a potential to evolve into a label expansion study thereafter.

We continue to have a high interest from a number of potential international partners interested in adding Afrezza to their portfolios. These partnerships are strategically attractive and will continue to progress in tandem with our marketing plans in the US, but these deals will not be completed in our target timeframe for financing. Therefore, we still have yet to address that, but we expect to very shortly. So, I'll appreciate your patience, as we're quite close.

Our commercial organization will cost in the range of $20 million to $22 million through the remainder of the year. As you will hear in Rose's presentation of our first-quarter financials in just a moment, we have continued to realize cost savings in other areas and anticipate offsetting some of these increased expenses with the reductions in these areas.

In addition, with the full value of product sales of our own branded product coming to MannKind during the fourth quarter, we're in a better position to benefit from a ramp-up of sales. As a result of all the above, we expect our cash burn rate to remain approximately $10 million to $12 million per month for the remainder of the year -- more or less the same ratio of burn as we've been reporting for about as long as I can remember.

With that, I'd now like to turn the call over to Rose Alinaya, our SVP and Principal Accounting Officer, who will run through our first-quarter financial results and discuss further some of our financial projections before we open the call to your questions.

Thank you, Matt. Turning now to the financials, the net loss applicable to common stockholders for the first quarter of 2016 declined to $24.9 million, or $0.06 per share, compared to the net loss applicable to common stockholders of $30.7 million, or $0.08 per share, for the first quarter of 2015.

Research and development expenses were $5.1 million for the first quarter of 2016, a decline of 45% compared to the same quarter in 2015, largely due to the reduction in force and closure of our Paramus, New Jersey facility in 2015, and reduced development expenses as we transitioned to commercialization of Afrezza.

General and administrative expenses were $7.4 million for the first quarter of 2016, a decline of 30% compared to the same quarter of 2015, primarily due to the RIF and closure of our Paramus office in 2015, in addition to reduced professional fees related to strategic planning activities incurred in 2015 and lower non-cash stock compensation expense.

Product manufacturing expense was $7.5 million for Q1 2016, due to the underutilization of our manufacturing facility during the quarter as the facility was nearly at idle, but also included a loss from foreign currency translation of $2.4 million related to prepaid purchase commitments.

For the first quarter of 2016, our portion of the loss-sharing arrangement with Sanofi related to Afrezza was $5.5 million. The amount outstanding under the Sanofi loan facility is now $68.8 million, which includes $2.8 million of accrued interest. Under the terms of this facility, it is not due for repayment until August 2024. Cash and cash equivalents were $27.7 million at March 31, 2016, compared to $59.1 million at December 31, 2015.

In the first quarter of 2016, as Matt mentioned, we received a signing fee of $250,000 from Receptor Life Sciences, pursuant to our previously-announced collaboration and license agreement. In addition, our employees continued to exercise their stock options, resulting in $467,000 in proceeds this quarter.

We still have $30.1 million available to borrow under the amended loan arrangement with The Mann Group. Our recently-filed universal shelf registration became effective a couple of weeks ago, along with a prospective supplement to refresh our $50 million ATM facility. There was no use of our ATM facility during the quarter or year to date.

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

We will incur sales and marketing expenses this year as our commercial efforts intensify. With the exception of last quarter's inventory write-off, we expect product manufacturing expenses to remain relatively flat as compared to last year, with sufficient inventories of critical raw materials on hand.

With that, we would like to open up the call for questions.

(Operator Instructions). Adnan Butt, RBC Capital Markets.

Thanks for the question. I'll ask two, please. First, in terms of raising capital, Matt, how long do we wait for you to give us some more definitive strategy? Is it going to be equity, debt, partnership, or some combination? When do you think you'd be able to provide an update there?

And then, just secondly, on your more detailed selling efforts, could you tell us that for your targeted endocrinologist and high-prescribing GP-focused targets, how many prescriptions do they write or how many patients do they see overall? Thanks.

Okay. So, let me try to answer the first part of that query, real quickly. It's going to be a little bit difficult. I mean, we've been pretty open that a large portion of our strategies revolved around opening some international markets and doing deals, as our first preference for raising money.

That said, we can't wait forever, and if we need to do a small equity financing to buy us a little time, we will do that. I hope we'll be in a position to answer that question with more details and specifics very soon. Frankly, I had the goal to do it by now, but didn't work out quite the way I thought it would; but it should be imminent, I believe. And all I can do is ask for your patience and hope that you'll stay tuned.

I have taken the liberty of -- while there were not speaking roles on the -- this call for Mike Castagna, our Chief Medical Officer or, for that matter, Ray Urbanski, our Chief Medical Officer, I did ask them to attend just in case there were questions that were more appropriately answered by them. So, I'll take advantage of that and have Mike answer your question about the prescribing patterns and so forth.

Thank you for the question. On the number of targets, we're just finalizing territory alignments, but we're pretty close over the next few days. The -- it'll be 5,000 to 7,000 targets, and it's really up to us to cover all 5,000 or 7,000, just depending on how many people we want to hire. But the coverage is approximately 65% of the insulin market, just to give you a rough number.

And obviously, depending on the type of prescriber, some may see 30 patients a day; some may see 50 patients a day. The docs I've been in touch with are seeing 30 to 50 patients a day, easy. And so, I think the top decile prescribers is probably what you can expect that we're looking at, is somewhere between 20 and 50 patients a day that they're seeing.

Okay. And if I can just follow up in the same pathway, what do you find to be the hurdle from the payer side? So, is it more getting doctors to write more prescriptions, or is it converting those prescriptions into something payers sign off on?

I'll try to answer that question a little bit. There's a couple of nuances in there I don't want to get into on the call. But the first one is, Medicare Part D contracts, as you may or may not know, take 12 to 18 months in advance to secure. So, we didn't have that opportunity, as we got the product back on April 5, to lock those in for 2016 and 2017. We're working on closing that gap where we can.

So, that population we're looking at a few different solutions on, and seeing -- where we can get Medicare coverage, we will. That takes a little bit of time, just given all the regulations in that space.

On the commercial side, again, we just got the product back about a month ago. We've been in touch with all the top payers already. Understand there are some opportunities, but what we're trying to do is really gauge how much of the volume can be comfortably approved through prior authorization process as opposed to trying to renegotiate existing contracts that are already out there for 2016.

So, we will have updates on that over the coming quarter. But I don't want to go into too much details, given there's a lot more detail in managed care, and where's covered and not covered, but we will have that in the near future.

Okay. Thanks. I'll get back in line.

But I will answer one last thing on that one. We are seeing roughly 7 out of 10 patients get approved through their prior authorization process, and I think that's a comforting statistic as we go back out there to see when doctors do do prior auth, that they are getting approved.

Thanks.

Keith Markey, Griffin Securities.

I had a question -- I was wondering if you could elaborate a little bit on the use of the diabetes nurse educators for us.

Sure. I mean, typically they're used to call on the centers who have nurse educators to provide them support. They can also be used for patient trainings and community seminars. And they can be potentially used for -- depending on how we go about our spirometry program, they could also be used for implementation and training around that.

So these could be events -- sort of gatherings of patients who are new to Afrezza or thinking of trying it -- using the drug?

Correct.

Okay. And then I was wondering if you might --

And they --

Hello?

I was going to say, they'll be HIPAA-compliant. So, I think that's the key we're looking at: making sure they can interact with healthcare professionals and patients at the same time.

Right. Okay. Thanks. And then I was wondering if you could tell us a little bit about the timeline for development of the epinephrine product as you see it -- elaborate as far as you can go, I would be happy. Thank you.

Matt, you want me to answer that?

Absolutely, Ray.

So, with the epinephrine program, we are progressing with -- as Matt said, with a couple of formulations that we believe we'll be able to bring in through clinical testing. So, we're looking at having a pre-IND meeting with the FDA sometime in the November timeframe, with an IND filing sometime in January. [Patient] clinical phase activities will probably start sometime later in 2017.

Thank you.

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

Well, thank you all very much for your attention. We look forward to reporting progress on the sales front and working on other important developments, including our pipeline, collaborations and international expansion during the remainder of the year. We're preparing for our annual stockholder meeting in Danbury and look forward to seeing you if you're able to attend. With that, I thank you once again.

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