Mannkind Corp Q4 FY2021 Earnings Call

Good afternoon, and welcome to the MannKind Corporation’s Fourth Quarter and Year-End 2021 Earnings Call. As a reminder, this call is being recorded on February 24, 2022, and will be available for playback on the MannKind Corporation’s website shortly after the conclusion of this call until March 10, 2022. This call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from these stated expectations. For further information on the company's risk factors, please see their 10-K report filed with the Securities and Exchange Commission this afternoon, the earnings release and the slides prepared for this presentation. Joining us today from MannKind are Chief Executive Officer, Michael Castagna; and Chief Financial Officer, Steven Binder. I would now like to turn the conference over to Mr. Castagna. Please go ahead.

Thank you. Thank you, everyone for joining us this afternoon and sorry about the news this morning. I want to talk about three things as we look back on 2021. Number one, we moved Tyvaso DPI from concept to an NDA filing and passing the FDA inspection. And we are fully staffed and moving into ensuring the commercial product is ready upon FDA approval. Number two, we recapitalized the company early last year to put us on a sound path of success and ensure that we avoid making dramatic changes to our operating model or our structure and strategy, given the types of setbacks that we experienced over the last six months, including the sale leaseback, the convertible debt, and paying down old debt to ensure there's nothing major due in the near term. We continue to operate and focus on building out our strategic plan to grow our company on the pathway to success. And third, the pipeline—we really did advance the pipeline forward by purchasing Qrum. The feedback we’re getting on clofazimine, the data we're reviewing, is very positive. The advisors have been giving us great feedback, and we have our second advisory board meeting scheduled for March. Additionally, we did three-pronged relation deals, two of which were made public, and we continue to look for other opportunities to explore ways to use our Technosphere technology and to assist other companies with their products. As we reflect on Q4 and 2022, we were able to grow total revenues over $75 million and Afrezza in double digits year-over-year. In Q4, we achieved a record revenue of $11.3 million with Afrezza, which is exciting considering we faced significant challenges with COVID as we closed out Q4. Focusing on the first pink box orphan lung disease, our collaborations are strong and we’re extremely excited to assist patients as we navigate this critical decision. We are focused on building inventory and helping United Therapeutics prepare for launch. Regarding the pipeline, we’ve completed our first cohort in our SAD study. The second cohort is about to commence, and we expect to receive SAD results in Q2 and MAD results in late Q2 or early Q3. MNKD-201, the first time you're seeing this product, is called nintedanib, which is the Ofev brand. I'll elaborate on that later in this discussion, but we are now revealing that program. It is aiming to progress into Phase 1 in the near future. We also have MNKD-501, the TGF-β program, and both these are being developed and progressing towards their milestones. We actually discontinued the development of imatinib, or MannKind-701, as our focus this year is to eliminate distractions that were not proceeding as expected. This also led us to Afrezza. We examined our trajectory with Afrezza for this year and made the difficult decision to reduce our headcount by 30 FTEs to reinvest the money in maintaining Afrezza's momentum in the right direction and driving impact in 2022. While we saw positive prescription growth in 2021, it was not at the level we aimed for, and we believe we could have done better, but COVID did hold us back. However, in Q4, we launched a campaign called 'Seeing Is Believing' in which we provided a free continuous glucose monitor (CGM) to doctors who did not consistently prescribe Afrezza. In that pilot program, we observed that about 45% of the targeted doctors opted into the program, resulting in that group growing three times the national average compared to what we saw in Q4. We also initiated a primary care pilot in Q4, focusing on a sub-part of the country with 25 additional representatives dedicated to driving success in an area where there is very low awareness of Afrezza adoption and trial. Recently, we filed at ClinicalTrials.gov for our ABC trial, the Afrezza-Tyvaso combination, previously referred to as the pump switch trial. This trial will provide meaningful data in a pilot study examining the effects of keeping people on their pump while adding Afrezza or switching patients off their pumps to receive Afrezza. We're very excited about this study—it will be the first time we run this type of study in the history of our brand. On the liquidity side, Steve and the team have successfully ensured we have cash and investments exceeding $260 million at the end of the year. We've completed the Danbury facility non-dilutive sale-leaseback, serving to enhance our capital position while not altering our operating model as we continue to execute our plan. In our Q4 performance on Afrezza, you can see our prescriptions continue to grow year-over-year and quarter-over-quarter. Importantly, patient demand is not publicly visible because we transitioned from a free goods program at the end of 2020 into 2021. In our Afrezza assist program, we’ve seen the patient volume grow significantly from 221 patients piloted in Q4 all the way up to 989 patients in Q4 2021. This marks our first step towards removing friction from the reimbursement model, ensuring that patients starting Afrezza and doctors prescribing Afrezza have a seamless experience. This initiates the reimbursement process and sometimes transitions into free goods, which includes FG-paid prescriptions and our cash program. We are witnessing exponential growth in cash payments every month. While these are not major contributors to Afrezza's sales trajectory, they are a goal as we track patients who we do not see in subsequent data. For 2022, we've optimized our Afrezza footprint to ensure all our sales territories are viable and have positive growth potential. We are expanding the 'Seeing Is Believing' campaign to all our sales rep territories based on our Q4 pilot, which will launch in March, providing everyone an opportunity to expand that free CGM program to demonstrate what Afrezza can accomplish when used in conjunction with CGM and T2. The brand has the potential to achieve cash-flow breakeven as we approach 2023. A topic that has generated a lot of discussion is how we ensure Afrezza continues on a positive trajectory without becoming a drain on the company, allowing it to be self-sustaining in the years ahead. Our PH trial is seeing increasing enrollment every week. We've been invited to an MIDD modeling session with the FDA for potential label changes. We continue to observe positive clinical data being published regarding Afrezza as we look ahead. I want to transition to the next critical topic of the day: Tyvaso DPI. This holds a special significance for us; we aspire to bring this product to patients as soon as possible. Unfortunately, the FDA recently requested additional information from United Therapeutics related to a citizen's petition. The response from UT was solid and well crafted, yet it was still considered a significant amendment to the NDA. Consequently, the FDA has extended its timeline to May 2022. There is little we can do except to remain confident in our efforts and maintain our preparedness. UT has conducted a great study, and we possess substantial data regarding FDKP's safety. Thus, we feel good about our response to the FDA's requests and are committed to assisting UT in crossing the finish line. MannKind is focused on ensuring the commercial product is available upon FDA approval, while also anticipating an expansion of our plans as UT continues to run two additional trials for potential market indications down the road. We are prioritizing our efforts to align supply and demand adequately. I want to express my appreciation for everyone’s health and support over the past year. I apologize for the news this morning; it is not ideal or timely and was not what we expected. However, we feel optimistic about the resolution and the direction we're headed in the coming 90 days. This setback is only a minor part of the larger picture this year in the context of Tyvaso’s overall journey. We’re extremely excited to deliver this product to patients as soon as possible. Steve?

Thanks Mike and good afternoon. I’m pleased to review select fourth quarter and full year 2021 financial results. Please supplement this call by reading the consolidated financial statements and MD&A contained in our 10-K, which was filed with the SEC this afternoon. Let's start by reviewing the revenues for the fourth quarter of 2021. Afrezza net revenue was $11.3 million compared to $10.1 million in 2020, demonstrating a growth rate of 13%. The growth components include a more favorable gross-to-net deduction percentage of 35%, largely due to a one-time reversal of a reserve for product returns from a retail pharmacy, where we entered into a consignment agreement in the fourth quarter, in addition to price increases and a volume increase driven by patient TRx demand growing by 8% alongside a more favorable mix of cartridges sold. The full year growth of 21% was propelled by a more favorable gross-to-net reduction percentage, price volume increases supported by patient TRx demand growth of 10%, and an improved cartridge mix. Looking ahead, we anticipate that the gross-to-net percentage for Afrezza will be approximately 40% to 41% in 2022. Moving to collaborations and services, revenue for the fourth quarter amounted to $1.2 million compared to $8.4 million for 2020. The revenue in Q4 was primarily associated with the deferred milestone recognition as discussed during the third quarter earnings call. We had expected a more significant amount of manufacturing revenue in the fourth quarter stemming from our commercial supply agreement with UT, but the accounting principles dictate that we can only recognize revenue associated with the agreement when we sell products to UT, which was not significant in Q4. The revenue related to the manufacturing activity for 2021 was deferred on the balance sheet, totaling $13.6 million as of December 31, 2021, which I will elaborate on further in a moment. As we continue our manufacturing activities in the first quarter of 2022 to support UT’s Tyvaso DPI launch, we do not expect to recognize revenue associated with the commercial supply agreement in Q1, as it will remain deferred until we begin releasing products to UT, something we expect to commence in the second quarter. From a cash perspective, we continue to invoice and collect from United Therapeutics for these manufacturing activities. The full-year revenue for collaboration services rose 11% to $36.3 million, primarily driven by our collaboration with the United Therapeutics accounting for $34.4 million. The graph on our next slide illustrates the quarterly Afrezza gross margin trends. Our gross margin increased in each quarter during 2021, closing the year at 62% for the fourth quarter, despite this quarter including $2 million in inventory write-offs—approximately $1.3 million for Afrezza run of cartridges that did not pass quality inspections and about $0.7 million for inventory repurchased from a retail chain as part of the consignment agreement, with an inventory reserve for products at retail stores that are likely to expire unsold. This repurchased inventory's wholesale acquisition cost dictated its cost basis, resulting in no gross margin on the consignment sales that quarter. The previous quarters also included a $2 million amendment fee in Q2 2021, which similarly impacted gross profit and margin for the year. As we look to 2022, we expect to maintain our favorable gross margin trend as we expand our revenue and commence manufacturing Tyvaso DPI on a 24/7 basis, thereby absorbing our overhead costs. I recognize that accounting for collaboration revenues associated with United Therapeutics has become complicated and potentially confusing, so let me take a moment to explain the manufacturing services performance obligation with UT, as we detail in our 10-K. The first line in this slide represents the costs incurred by MannKind associated with this performance obligation, which are recorded in our P&L. United Therapeutics funds these costs. We have been invoicing these expenses since the second quarter and collecting from UT. The manufacturing services costs reflect the increasing expenses we incur in our P&L, rising from $2 million in the second quarter to $6.5 million in Q4 as we ramp up our manufacturing and supportive operations in preparation for commercial-stage production. In total, MannKind incurred $13.8 million associated with this performance obligation, recorded in our P&L during 2021. In Q4, we recognized only $0.3 million which was mostly for Tyvaso DPI inhalers supplied to UT. The remaining $13.6 million is expected to generate revenue, yet we can only acknowledge revenue correlated with this obligation upon product sales to UT, thus this revenue remains deferred for recognition in subsequent periods. Entering 2022, we expect to recognize most costs associated with this obligation in the first quarter, leading to revenue recognition during Q2 as we initiate product sales to UT for Tyvaso DPI. Deferred revenue will be acknowledged over the lifespan of the manufacturing services agreement, currently running until 2031. Let me conclude my comments by saying, today, we filed an updated S-3 Universal Shelf to replace an expiring shelf registration. Additionally, we filed a new prospectus linked to our ongoing ATM agreement with Cantor Fitzgerald. We currently have no plans to access the shelf for the ATM; this action is simply a matter of good governance and financial management. We ended 2021 with approximately $260 million in cash and investments, planned to finance our growing pipeline, which Mike will update you on shortly, and to make targeted investments in Afrezza while exploring business development opportunities complementary to our operations. Thank you. I will turn it back over to Mike for final comments.

Thank you, Steve, and thank you everyone for all the help this year. Looking at the MannKind pipeline here, we’ve updated this slide and it should be reflected on our website shortly. I wanted to clarify MNKD-201, a new reveal here, which people might not be aware is the brand name for a product representing over $3 billion annually. Idiopathic pulmonary fibrosis is a challenging disease to treat, and we believe that this product can show, hopefully, equal or better efficacy with fewer side effects than currently available treatments. We’re very enthusiastic about this program and are continuing to progress in the talk studies and animal models to identify the appropriate dosing to move forward into human studies. The other program mentioned, MNKD-501, has been adjusted as we believe it's crucial to conduct a limited number of projects well. Afrezza is developing nicely. We recently had a productive meeting on indexing our path to Phase 2, filing the IND, and expediting the timeline to ensure this product reaches patients as soon as possible. There isn’t anything else on this slide that I’ll detail. I’d like to discuss some of the progress in our next slide concerning the 2022 milestones. As seen every year, we outline key milestones for our investors each quarter, and we hold ourselves accountable against these targets. For the remainder of this quarter, we are scheduled to focus on Tyvaso DPI manufacturing, initiate our Phase 1 and Afrezza ABC study which has received IRB approval and will soon be open for enrollment. As we transition to Q2, our focus will center on ensuring we maintain adequate inventory for United Therapeutics and proceed with MNKD-201 and MNKD-501 in the PK/PD studies while observing animal models to evaluate potential benefits. By Q3, results for clofazimine should be ready, and we plan to file for the IND in Q4 to advance to Phase 2 as soon as possible. Overall, our priority is to act as stewards of the capital provided by shareholders. We need to analyze how to maximize our investments in our growth drivers that drive shareholder value. From 2017 until now, the company has transitioned from $11.7 million in annual revenue to $75 million this year, and over the last 24 months, we experienced growth despite the enormous challenges of COVID, particularly for Afrezza, all while maintaining our manufacturing team in a demanding environment. Looking ahead, we have a bright future, with significant opportunities to generate shareholder value. Our ongoing expectation is for Afrezza to continue growing, and we believe that pediatric indications will represent a pivotal moment for Afrezza that will yield a turning point in its future. We've carefully designed this large Phase 3 trial over the past 12 years, ensuring the proper dosing of the product to achieve exceptional results. Nonetheless, one challenge remains—children are unpredictable. Thus, obtaining reliable data is essential. Our study incorporates inputs from the last four years, correcting previous mistakes, as we anticipate continued Tyvaso royalties upon FDA approval alongside manufacturing revenue as Steve has already outlined. Furthermore, we recognize that investors have not assigned significant value to our pipeline, but we believe that as these programs advance, there will be renewed investor interest, either through international partnerships or other opportunities that can increase shareholder value. All of this is excluding potential new collaborations or international ventures that we are currently exploring. We are optimistic about future revenue diversification and leveraging that to create shareholder value for the next decade. I appreciate everyone's time and now I’ll open up for questions.

Thank you. Our first question comes from Brandon Folkes with Cantor Fitzgerald. Your line is open.

Thanks. I have questions and congratulations on all the progress. You acknowledged all the progress you’ve made in the business over the last few years, very strong capital position. How do you think about business development and potentially bringing in more commercial assets in the near to midterm? Naturally, you’re focused on the pipeline, but with the partnership with United Therapeutics, Tyvaso remains a significant opportunity. How do you view the prospects of securing additional commercial assets that would be well integrated into your operations? Thank you.

Thank you, Brandon. That's a great question, and we find ourselves in a favorable position, despite the news today in terms of business development. We’ve received numerous inquiries regarding various opportunities. We continue to evaluate those thoughtfully. We recognize that many single-product companies are facing challenges and burning capital, which presents a chance for us to harmonize their infrastructures with ours. We will remain open to these opportunities as they must align with our strategy and benefit our shareholders. Such opportunities often require time and energy, and we need to ensure they do not distract us from delivering core value. Many companies may be on the verge of running out of funds, opening the door for MannKind to become a potential home for them. Thus, we’ll continue to review such options as they arise.

Thank you. Our next question comes from Gregory Renza with RBC Capital Market. Your line is open.

Yes, Michael, thank you for the update today and thanks for taking my questions as well. I just wanted to follow up regarding the pipeline and how COVID-19 has influenced that. Firstly, as we transition out of the pandemic into a more endemic state with some degree of stability or normalcy, how does the landscape for pulmonary partnerships look? To what extent has the pandemic offered insights or opportunities for your technologies to fit into that context? Secondly, concerning COVID-19, I’d appreciate any commentary you could offer on the current stage of the Omicron variant and what trajectory you anticipate for Afrezza throughout the year. Thank you very much.

There are many components to that question, but I'll do my best, Greg, and thank you. I commend the progress of clofazimine; as we’ve discussed with our advisors, there is a significant backlog in pulmonary infectious disease trials at present. We believe that the timing of clofazimine progressing into Phase 2 will coincide with the clearing of backlog trials, and we expect no significant resurgence of COVID this year, though there may be isolated incidents. Our assumption is toward a more normalized future. We are optimistic that by the time clofazimine enters Phase 2, the backlog will have diminished. Unfortunately, many peers are incurring substantial costs without much patient progress in their trials. Regarding partnership opportunities, we established a small development deal with NRX Pharmaceuticals for a COVID treatment last year. Our technology can be beneficial, whether in vaccine boosters or self-administered medications. Furthermore, the millions now suffering from lung damage due to COVID-19 will likely expand the market opportunity for treatments targeting IPF, COPD, and pulmonary hypertension, thus creating a flourishing segment, given the pandemic's impact. So, while COVID has adverse effects, it ultimately positions MannKind for a range of future opportunities. This addresses your inquiry about our technology platforms and our own product development. Concerning Afrezza, we've faced challenges over the past two years. We hired around 30 personnel between 2020 and 2021 to fast-track growth. However, the pandemic disrupted our efforts. Coming into this year, we were amidst COVID-related uncertainties regarding potential locked-down conditions or supply interruptions. Thus, we made difficult decisions to reallocate expenses to more controllable factors, such as our actions in response to the pandemic. The more confidence we have that COVID is not causing recurring lockdowns and our representatives can access doctors’ offices, the more we can build out our sales force with new teams. Excitingly, we’ll have our first sales meeting in three years shortly, which I greatly anticipate. I believe that from this meeting, we will initiate the growth we’ve begun to see and expect to sustain it thereafter. While our private practice business has advantages, it’s critical to engage with academic centers, as they tend to react more slowly to opening back up, thus presenting our ongoing challenge. I hope this provides clarity on our perspective of 2022.

That’s very helpful. Thank you for answering my questions.

Our next question comes from Thomas Smith with SVB Leerink. Your line is open.

Hey guys, good afternoon. Thanks for taking the questions and congrats on the progress. I have a question regarding Tyvaso DPI. Can you provide any further insights on the regulatory update from this morning? I know that UT is in charge of regulatory interactions, but can you share your expectations regarding the label and whether there has been any change in your outlook relative to the communication from October? At that time, UT conveyed that the latest version of the draft labeling indicated no box warnings or contraindications.

Yes, Tom, I appreciate you joining us today and for the question. Regarding the labeling, unfortunately, the straightforward answer is that we don’t know yet. The FDA did not provide an updated label, nor commented on any changes during our discussions in recent weeks. The citizen’s petition primarily focused on concerns surrounding bronchospasm and FDKP. The positive aspect is that we have over 20 years of experience with FDKP in trials of patients with asthma and COPD, and the data are robust. We are prepared to respond effectively to the FDA combining our data with United Therapeutics'. Our confidence in FDKP remains high; we believe it's a safe and effective excipient, while the concerns raised in the citizen’s petition seem misleading. Our extensive patient trials demonstrated that bronchospasm concerns were minimal. We are going through necessary regulatory processes, and we feel confident that, ultimately, we will reach a favorable spot with UT and the FDA. Add to this the opportunity for patients desperately in need; even if the label undergoes changes, we believe there will be no significant impact on the overall value proposition for UT and our capacity to help patients. They are in dire need of improved alternatives to nebulizers, and we anticipate their prospects should ultimately improve regardless. We've amassed considerable data on COPD and have not encountered the bronchospasm issues being highlighted.

Okay. I understand. Thank you for providing that perspective. Regarding the nintedanib program, could you share the strategic rationale behind this choice? What led you to believe that nintedanib is a strong fit for the Technosphere platform? While there are other inhaled nintedanib efforts currently out there, can you explain why you see an advantage in pursuing this?

I appreciate your question. When it comes to this class of molecules, which includes pirfenidone and nintedanib, we were actually developing both; however, we decided not to proceed with pirfenidone last year as we felt the dosing was too high and there was significant competition. In contrast, we see substantial potential in nintedanib due to its low bioavailability. Our platform's ability to deliver a cartridge to the lungs effortlessly and effectively is critical for patients suffering from idiopathic pulmonary fibrosis (IPF). Currently available treatments do not extend life expectancy, as demonstrated by Kaplan–Meier curves, which show only marginal progression delays. Our goal is to enhance the quality of life and potentially increase survival rates for these patients—a difficult demographic with few treatment options. The market has seen many failures thus far, and we believe our technology can outperform existing treatments. Although we are aware of other programs in development, we are confident in our funding position, which will support our forward movement with this product. One distinguishing aspect is our FDA-approved platform and our manufacturing expertise, ensuring we can scale and effectively deliver these products. The challenges inherent in scaling do not impact our strategy. While Tyvaso DPI is a brilliant example, obtaining the necessary approvals is challenging—it can often be more difficult for dry powder products. We feel confident in employing our technology effectively across these molecules.

Understood. Thank you for sharing that, Mike. I appreciate you taking my question.

Thank you. Our next question comes from Steven Lichtman with Oppenheimer. Your line is open.

Hey, guys. This is David on for Steve. Thanks for taking the questions. I have one question regarding the potential impact of COVID. Have you noted any disruptions in your supply chain due to employee absenteeism that might delay the manufacturing process leading up to the Tyvaso DPI launch this year?

No, our team has been proactive in addressing potential supply chain challenges. Back in 2020, we overstocked and ensured we had sufficient supplies. The primary concern revolved around employee safety—especially around PPE—which we successfully managed. Our biggest implementation issue was avoiding disruptions in the workplace and ensuring rigorous training and scaling processes. We have successfully navigated minor COVID impacts concerning employee health and do not foresee significant issues from here onward in the supply chain. The most notable risk at this point involves the BluHale—the device we can manufacture for launch—mainly concerning chip shortages rather than COVID complications. That summarises our current status.

That’s great news! One follow-up question: are there any initial insights or feedback from the primary care pilots that you can share with us at this point?

Not just yet; it’s still early to gather extensive feedback. However, we do have initial script data, revealing strong early participation in our recent speaker programs. We’ve seen oversubscription with 30 to 50 attendees each week, which is promising. The primary care pilot has just surpassed the awareness stage, and we anticipate that as targeted physicians become more engaged, we will hopefully see them transition into trial and prescription stages. We launched this research before kicking off; only one or two doctors had previously even heard of Afrezza, so awareness was notably low. We believe that after two months we will start observing stronger uptake among our top-target physicians. One statistic that stands out is that 90% of the scripts we’ve seen thus far have been reimbursed, which surpasses our expectations since these statistics target earlier lines of insulin treatment, where conventional insurance reimbursement is typically more challenging. We are keen to closely monitor the evolving data, even though it is still early.

That provides great clarity. Thank you!

Thank you. Our next question comes from Bert Hazlett with BTIG. Your line is open.

Thank you. My questions have been answered. Thank you very much.

Come on, Bert, nothing? All right, everyone. Thank you for your time, and for your questions. We're excited to see how everything unfolds in the next couple of months, especially with the May deadline approaching FDA. We're proceeding according to plan without altering any of our strategic directions. Very little impact from this decision will hinder the company this year. We remain committed to driving performance and supporting those living with diabetes, pulmonary hypertension, interstitial lung disease, and advancing our trial for NTM. Once more, thank you everyone, and thanks to our team at MannKind for their diligent work during such demanding times. Here's to a successful 2022!

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.