Mannkind Corp Q4 FY2023 Earnings Call

Good afternoon and welcome to MannKind Corporation 2023 Fourth Quarter and Full Year Financial Results Earnings Call. As a reminder, this call is being recorded on February 27, 2024, and will be available for playback on the MannKind Corporation website shortly after the conclusion of the call until March 12, 2024. This call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainty, which could cause actual results to differ materially from those stated expectations. For further information on the Company's risk factors, please see the 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 will now turn the conference over to Mr. Castagna. Please go ahead, sir.

Thank you, Valerie. We have never seen a better time for MannKind than we do today. As we look at our future, it's extremely exciting and I'm never more motivated to ensure we deliver on all key operational opportunities in front of us. As we think about today, Steve and I will go over the operational pipeline highlights of the financial review, and I'm also here today with Lauren Sabella, our Chief Operating Officer for Q&A. We will drive shareholder value by making a difference in the lives of the patients we serve. We will make over 25 million doses and devices in 2024 and helped roughly 25,000 patients take a MannKind-produced product in 2023, the most in our history. In Q4, we had record revenue for Tyvaso on both royalty and collaboration manufacturing, along with record production on Tyvaso cartridges. We advanced our pipeline in both the orphan business as well as the endocrine business, and our endocrine business hit its second consecutive profitable quarter. We finished a year in the strongest position we have been in, in terms of financial ability, as well as by selling 1% of our Tyvaso royalty for $150 million upfront and $50 million in revenue milestones. Many of you asked, could we have sold more? Why didn't we sell more? The reality is, we didn't need to sell more. We wanted to make sure we were comfortable with carrying the level of debt and cash on the balance sheet to control our future. We're very excited about Tyvaso DPI and what it's going to bring to patients and anticipate hopefully positive milestones for Tyvaso in the future and, therefore, want to preserve 90% of that value for our shareholders. At the same time, we wanted to de-risk on the debt side of our Company. We've also restructured the insulin purchase commitment and reduced our near-term cash outlay by $50 million. The Endocrine Business Unit will be the foundation for our future launches and currently makes up about 37% of our revenue in 2023. As I presented at JPMorgan in January, our ability to grow double-digits for the foreseeable future looks bright when you see, in 2023, our total revenue approached $200 million, almost 100% growth year-over-year. I'm going to spend a few minutes on Afrezza and the Endocrine Business Unit because we are at a pivotal inflection point with our future. Innovation takes time and disruption is even harder. When you think about the weight loss craze today, GLPs were 20 years in the making to what you see today. The pods in Type 1 diabetes were 10 years in the making and pens took a huge time to convert from vials back in the early 2000s. I believe we can make this business a core pillar of our growth story. When you look at the Endocrine business, it grew 32% year-over-year, or $70 million in 2023, and created $20 million in Q4, the second quarter in a row of profit contribution as well as a run rate of $80 million. We've made a lot of changes in 2023 and delivered despite those changes to set us up for a transformation once we see the new data from INHALE-1 and INHALE-3 this year. As I look at the revenue, Afrezza net revenue grew $12 million, or 27% year-over-year. This is our largest jump in seven years and is the most we've seen driven by volume alone as opposed to price, based on historical standards. Several clinical readouts in 2024 may expand our market potential, and I'll talk about those in a minute. One of the questions I get is what is different this year than prior years? Our focus this year is incredibly different. We've been waiting for this moment, where we have people, money, and data; many times we had two out of three, but not all three. Number one, we must maintain our persistence in Medicare and commercial to grow this base business and leverage the $35 insulin copay that currently exists for Medicare and commercial insured. Coverage we know is the number one objection. Number two, we optimized our sales force footprint here in January to build capabilities for future growth. That allowed us to reallocate some headcount to create key account managers, reimbursement specialists, as well as virtual and in-person training across the country. We also have new insights from market research, which I'll share shortly, that suggest by executing effectively we can increase prescriber adoption. Finally, around data and education, we want to focus on KOL development, education at conferences and publications to elevate the support and awareness, especially among academic centers. Here's some new market research as we go forward, called the Emotional Engagement Mindset model, which is done by a Company we've leveraged for market research. This shows a significant shift in perception by the various groups we tested with our new data. By exposing them to our core value proposition as well as some expectation of what INHALE-3 data could read out, we shift almost two-thirds of our key target audiences to being attracted or passionate about our future. This is important because it's the first time we can see this big of a shift from where we started to where we end up with the new data coming. People don't want slow-acting insulin in a world that moves as fast as we do. When I look at the future here on our studies, INHALE-3 and INHALE-1, I'll talk a few minutes about these. We have 60 U.S. sites in KOL sites like the Mayo Clinic and the Joslin Clinic, some of the foundations of diabetes treatment in this country. Irl Hirsch is our top-tier thought leader on INHALE-3 as the Principal Investigator. He has done a great job ensuring this trial is dosing properly and enrolling quickly. We have over 300 patients in both of these trials and both of them are on track to read out this year. On the left side of the slide, Type 1 diabetes, INHALE-3, is the largest switch study away from AID pumps. There will be about 120‑plus patients in this trial. Half of them will be on MDI, half likely on AID pumps. The reason this data set is important is it's utilizing a new dosing conversion upfront to ensure proper efficacy is maintained or improved. We are also doing a meal tolerance test at baseline and at week 17, so we can see how people's dosing may have changed over this time frame. Another thing to remember about this trial: the first time we're enrolling, almost 25% of the patients had an A1C of 7 when they entered. So we're also showing, hopefully, that tight control can remain by switching to Tresiba plus Afrezza (degludec). A lot of people asked me, what is the goal of INHALE-3? Our goal is equal efficacy to what is perceived to be the standard of care, including an AID system. No mealtime insulin or AID system has ever beaten another system head to head. We think this is an important metric that would be successful, and if we see a clinical advantage on highs or lows, that's upside to our expectation. We also plan to use this data to hopefully update conversion figure one in our Afrezza label. We've been in discussions with the FDA since the start of the pediatrics program around how to update that initial dose conversion. We hope that INHALE-3 will be part of that data set. On the bottom of the slide are the different data readouts. The first dose will be presented at ATTD in March, the 17-week data we expect to present at ADA in June, and the 30-week data will be complete in the third quarter and will be presented at a future conference. On the right side of this slide is INHALE-1. This is a pediatric study and we think this is a watershed moment in order to transform the inflection of Afrezza. When we look at diabetes innovation today, whether it's CGM or insulin pumps, it has often started with children and worked its way into adults because the patients are more on social media, the parents are more progressive, and some doctors are more progressive. This will be the largest study done on Afrezza in over ten years. So far we don't have the data, but I can tell you the conversion dose has appeared to cause fewer dropouts relative to our original trial on Afrezza. There's also a meal tolerance test at baseline using CGM and we hope this study will be used to secure pediatric approval in 2025 and beyond. This is how we believe we will accelerate rapid growth of Afrezza and this will ultimately spill over into adults. The one hangover is still the lungs and we think it's time to move forward beyond this. When we look at the data today, we've been on the market 10 years, we've helped tens of thousands of patients. We are building up U.S. KOL support and we have this new data coming out. We would not be going to children if we were worried about the safety of our product. When I look at the future and the growth opportunity, we look at four segments of our future. Number one, we're already approved for Type 1 and Type 2 adults. INHALE-3 will be using a new dosing with CGM in an upfront conversion. We're super excited about this data set as it will also include the head-to-head data I just mentioned. GLPs will continue to be the bolster of the units in Type 2 diabetes. However, those patients will still need a mealtime insulin and we will continue to promote Afrezza and V-Go in that segment as there are millions of people who require mealtime insulin over the coming years. However, in order to be a leader in Type 1, we need the data from INHALE-3 to set us up for INHALE-1, which is the pediatric segment, because when we do finally get that data, we know insulin pumps will be the indirect competition when it comes to a doctor, a patient or a care decision. They will want to know what Afrezza looks like against insulin pumps. So we started that study with INHALE-3. We're excited to hopefully wrap up INHALE-1 in a few months here. Once we see that data, we will have a one-two punch this year as we wrap up 2024. As people are starting to see the first dose data, we're getting questions on gestational diabetes. We think there's an unmet need there that we want to fulfill over time because there are only two drugs that can be used today: metformin, which crosses the placenta, and slow-acting injectable insulin. For anyone who has suffered from gestational diabetes, keeping time in range really tight is critically important. I'm going to bridge over to the pipeline very quickly: NTM (nontuberculous mycobacteria) with our clofazimine suspension. Some of you may not be aware, but one of the competing products in Phase 3 had a pause last week in enrollment. People ask me, why am I excited about our program? Why am I confident? When we purchased the product, there was preclinical data showing an improvement in bacterial recovery in the lung model that they used. Second, there's worldwide data. The product is approved today indirectly through a market access program by Novartis. We see worldwide data being generated from patients taking clofazimine in the U.S. as well as Japan. Third, there's KOL support for this, along with potential guideline inclusion. Finally, there's no near-term competition for trials now for patients. As we look forward, we have 100 sites we're going to target across the world, and we see no other option really for these patients to enroll besides the current drug on the market, Arikayce. Here is the design of our Phase 3 study called the ICON1 study, which was designed after our FDA feedback along with the quality of life group at the FDA. We've taken their feedback and incorporated that into this design. It's 120 patients on the active arm and 60 on the placebo arm. We'll do an interim analysis at 50% and we'll continue to watch enrollment as we saw that a competing program enrolled relatively quickly over the last six months, which gave us even more excitement for the speed of enrollment that could happen with this trial. We're excited to get this trial going and we expect to file the IND in March and kick off the trial in June as we've had a lot of dialogue with the FDA on the trial design and we expect fairly quick approval on the Central IRB. It's exciting to us that this will be over a billion-dollar market with only two players in the next five to ten years. We have the potential to be the second approved NTM product, and the market research indicates we will be a potentially preferred option for patients, whether it's because of our favorable safety profile relative to oral clofazimine or the toxicities and tolerability challenges some people face with Arikayce. We also know that we have convenient dosing: 28 days of treatment followed by two months off, followed by 28 days of treatment. If you're doing well, you'll potentially be treated four cycles a year. That gives patients a large burden back from daily treatment to intermittent cycles. Current treatments are not highly efficacious and patients need more options to keep this disease in control. It may be a disease that goes away and comes back over time, but it's one they'll probably live with chronically for a long time. We have an opportunity to expand a brand within the brand as we think about clofazimine in the future. The next quick pipeline highlight I want to talk about is idiopathic pulmonary fibrosis MNKD-201. This will be known as inhaled nintedanib DPI moving forward. Our 28-day toxicology data was very clean. We know 80% of these patients die in five years. There's a huge unmet need in this disease state. Ofev (nintedanib oral) is the market leader marketed by Boehringer Ingelheim. We have a decreased risk relative to the landscape that has failed in IPF development because we already know this molecule works in IPF. What we also know is there are severe GI toxicities with oral nintedanib, which limits patient acceptance and prescriber adoption. There are roughly 15,000 active patients in treatment in this country, and we believe bringing a more tolerable product that could potentially be dosed higher will be maximized in value for this population relative to what's out there today. Additionally, our rat neomycin study on MNKD-201 appeared to mitigate the inflammation of fibrosis comparable to oral nintedanib at substantially lower doses. As we go forward and file our IND, we'll be studying MNKD-201 in a part one single ascending dose as well as a multiple ascending dose to show whether we can tolerate higher doses over seven days. This will be an important study that gets done in Q2 with data expected to read out in Q3. Our goal is to show lower GI side effects and safety in healthy volunteers. I want to acknowledge the hard work that Steve has done in landing our royalty financing deal as we worked on this for over six months. We're in a great position because of Steve's vision and leadership over the last seven years. Before I turn it over, I just want to acknowledge all the hard work Steve has done for us, our shareholders and our employees. With that said, I'll turn it over to Steve to go over the financials for the quarter.

Thank you, Mike, and good afternoon. I'm pleased to review select fourth quarter and full year 2023 financial results. Please supplement this call by reading the consolidated financial statements and MD&A contained in our 10-K. 2023 was a year of substantial revenue growth for the Company in terms of both percentage and dollar growth. Total revenues doubled versus 2022 and reached nearly $200 million. Let's break this down by starting with the fourth quarter total revenues at the bottom of the table. Our total revenues grew a robust 62% versus fourth quarter 2022, and 99% for the 2023 full-year period, primarily due to the growth in our Tyvaso DPI-related revenues. Going back to the top of the table, you will see that Tyvaso DPI royalty revenue for the fourth quarter was $21 million, which is a 132% increase versus 2022, the result of continued growth in use of Tyvaso DPI for patients suffering from PAH and PH-ILD. Please note that $2.1 million of the fourth quarter royalty revenue was sold to a third party and I will review the accounting for the royalty sale in a few slides. Collaborations and services fourth quarter revenue was $17 million, which was an 81% increase over 2022, and primarily representative of strong Tyvaso DPI production volumes in the fourth quarter. For the full year 2023, Tyvaso DPI royalty revenue was $72 million, an increase of 361% versus 2022, primarily due to the increase in patient demand for the product and the start of commercial sales by United Therapeutics late in the second quarter of 2022. Royalty revenue has now become our largest single source of revenue, which allows us to fund and progress our clinical development and product pipeline. Collaborations and services revenue for the 2023 full-year period was $53 million, an increase of 90% versus 2022, primarily due to the start of commercial manufacturing in the second quarter of 2022, and the increase in production and sales of Tyvaso DPI semi-finished product to United Therapeutics in 2023. Moving down the table to our endocrine business: total endocrine revenues were $20 million for the fourth quarter and $74 million for the full year. For the fourth quarter, Afrezza's net revenue of $15 million compared to $12 million in 2022, a growth rate of 29% which was mainly driven by higher patient demand with underlying paid TRx growth of 29% year-over-year, a lower gross-to-net deduction as a percentage of gross revenue and price. Compared to the third quarter of 2023, there was a $2 million increase, which represents half patient demand and half increased channel inventory due to wholesalers purchasing an extra week of product in late December. This additional wholesaler purchase in late December would likely impact our net revenues for the first quarter of 2024. For the full year 2023 period, the 27% increase in Afrezza's net revenue was mainly related to increased volume from higher patient demand with underlying paid TRx growth of 25%, pricing, and a more favorable gross-to-net adjustment as a percentage of gross revenues. Net revenue for V-Go was $5 million for the fourth quarter of 2023. Revenues were 13% lower versus 2022, primarily due to lower patient demand and higher gross-to-net as a percentage of gross revenues, partially offset by price. V-Go net revenue improved versus the third quarter of 2023 by $0.2 million, mainly due to improved gross-to-net. For the full year period, the 48% increase is primarily related to the purchase of V-Go on May 31, 2022, reflecting a seven-month versus twelve-month comparative. The next slide shows our revenue growth by source and basic earnings per share on a quarter-by-quarter basis from the first quarter of 2022 through the fourth quarter of 2023. I'd like to show this graph because it highlights how dramatically our business has changed in two years, and how we're executing against expectations. For the fourth quarter 2023, total revenues increased 14% sequentially versus the third quarter of 2023, and are up 62% versus the fourth quarter of 2022. Fourth quarter 2023 total revenue of $58 million was almost five times the total revenues recorded in the first quarter of 2022. Below the graph are our quarterly basic earnings and loss per share. The fourth quarter was the second straight quarter with net income and positive earnings per share. As I stated during the third quarter earnings call, we are in a period where we expect to bounce back and forth between earnings and loss per share as our revenues increase, but we will also be increasing our spending on our pipeline as we move MNKD-101 into a Phase 3 Global Clinical Trial and MNKD-201 into a Phase 1 clinical trial. In addition, we will wait to see the results from the INHALE-3 and INHALE-1 clinical trials for Afrezza before deciding whether to increase promotional spend behind that product. For now, we will continue to focus on growing the profitability of the Endocrine Business Unit, which has had a positive contribution for two straight quarters. Moving on to our GAAP to non-GAAP reconciliation, I will first focus on the fourth quarter, which is on the left-hand side of the table. We had GAAP net income of $1 million, which when adjusted for select non-cash items for stock compensation, gain or loss on foreign currency transactions related to our insulin purchase commitment, loss on unavailable-for-sale securities, a portion of the royalty revenue sold, and the interest expense on the liability for sale of future revenues, provides for a non-GAAP net income of $7 million versus a 2022 fourth quarter non-GAAP net loss of $11 million. For the full year 2023 period, we ended with a net loss of $12 million, but when adjusted for the select non-cash items becomes a non-GAAP net income of $6 million, compared to a non-GAAP net loss of $78 million in 2022, an $84 million year-on-year positive change. Now I'd like to take some time to explain the accounting that resulted from the sale of 1% of our Tyvaso DPI royalty. To set the stage, we sold 1% of our 10% royalty for $150 million plus up to $50 million more if certain net revenue numbers are attained within a period ending September 2027. This puts a third-party valuation on the 10% royalty of approximately $1.5 billion to $2 billion. After we announced the royalty sale in early January, we heard back from investors that we could have done a better job explaining how we recognized these transactions in our financial statements and how we arrived at our accounting conclusions. So let me try again. First, we looked at all relevant GAAP guidance, reviewed similar transactions in the last five years, and then consulted with our auditors. The conclusion we arrived at, among other things, is that MannKind has a continuing involvement in the generation of Tyvaso DPI revenue through activities to protect the intellectual property of Tyvaso DPI, such as defending the patent estate, protecting the product, and the continuing involvement in the manufacturing of the product for United Therapeutics. Thus, the upfront proceeds were recorded as a liability for future sales of royalties, not as revenue. The table on the slide reflects how the accounting works. We record the cash consideration received net of issuance costs and a related liability for the sale of future royalties on our balance sheet. To recognize interest expense related to the liabilities, we forecast the future royalties to be received through 2042 and calculate the return that would be needed when receiving a $150 million upfront payment for 1% of the royalty over this time period. This rate came to just over 11%. In future periods, we'll continue to estimate the future royalty stream based on royalty trends, commercial success of Tyvaso DPI, competition for the brand and other meaningful inputs. The outcome of these future estimates may adjust the prospective interest rate used to determine interest expense and amortization of the liability. Each quarter, we will charge our P&L for non-cash interest expense based on the interest rate and credit the liability. We've also recognized 1% royalty as non-cash revenue and reduced the liability by this amount. In addition to the non-cash attribute of this transaction, we also earn cash interest income of approximately $7.5 million annually. The slide shows how the accounting should work for 2024 if nothing changes in our forecast of expected royalty. The balance sheet would end 2024 with $153 million in cash and $153 million of a liability for the sale of future royalties. The liability balance will increase as long as the non-cash interest expense is greater than the non-cash royalty revenue, which is likely to occur over the next few years. Once the non-cash royalty revenue becomes greater than the non-cash interest expense, assuming that sales of Tyvaso DPI continue to grow, then the liability balance will begin to decrease. Focusing on the 2024 income statement on the right side of the table, we will record non-cash revenue of $10 million and cash interest income of $7 million, offset by non-cash interest expense of $17 million. As discussed, we expect to isolate the non-cash aspect of this transaction in our quarterly GAAP to non-GAAP reconciliation of net income and loss. With over $300 million in cash and investments on our balance sheet as of December 31, 2023, we want to share our near-term priorities for using the cash to increase shareholder value. First, focusing on our development pipeline, we expect to fund much of MNKD-101 and MNKD-201 clinical trial expenses over the next few years through operating cash flow. As these assets advance through clinical trials, we will prioritize their funding. In addition to MNKD-101 and 201, we have two clinical trials for Afrezza nearing data readouts. We will wait to see the results of these trials before deciding whether to invest more behind that asset to grow revenues. In addition, we plan to do the following with our debt. Our MidCap senior secured debt has a balance of approximately $33 million as of December 31, 2023, and currently carries an interest rate of 8.25%. We expect to pay off this debt in the first half of 2024 to take advantage of the interest rate arbitrage between debt interest expense and cash investment return and release our assets from MidCap's security interest. MannKind convertible debt with a balance of approximately $9 million as of December 31, 2023, is expected to be paid off in cash or in a mix of cash and stock. By doing this, we would reduce future shareholder dilution. Our senior convertible debt with a balance of $230 million as of December 31, 2023, carries a low fixed interest rate of 2.5% and we do not expect to buy back bonds prior to maturity in March 2026. When maturity arrives, we expect to reduce future dilution by paying off the debt with cash if our stock price is below the conversion price of $5.21. Additionally, we do not expect to access the ATM. To summarize, a very successful 2023: we doubled our total revenues to almost $200 million versus the prior year. Fourth quarter was the second successive quarter of positive contribution from our Endocrine Business Unit. The fourth quarter was the second successive quarter of net income for the Company. We sold a 1% interest in our 10% Tyvaso DPI royalty, which values the royalty stream alone at between $1.5 billion and $2 billion, and we ended 2023 with $302 million in cash and investments. 2024 should be another strong year for MannKind, as we are financially primed to drive our commercial and clinical priorities and deliver increased shareholder value. Thank you. And now I'll turn it back over to Mike.

Thank you, Steve. I appreciate the explanation of all the accounting. I never wanted to know. Now they know why I appreciate you. Next slide. MannKind has been around 33 years, and I want to give a special thank you to our Founder, who passed away eight years ago on February 25. The reason that's important: the day I decided to join MannKind, and I'll forever be grateful for Al Mann. He was a special human being, who cared about society, our patients, and making a difference. The foundation he left us in 2016 helped build this into a major self-sustaining growth Company against all odds. When you look at the history from 2016 forward, we announced our United Therapeutics collaboration. We acquired Qrum, which is now our Phase 3 asset with clofazimine (MNKD-101). We purchased V-Go, which made our Endocrine division more sustainable and brought us a couple thousand new prescribers, and Tyvaso DPI has been ahead of all expectations since its approval. As I look forward, we are just getting started. Expected 2024 milestones alone between Afrezza and the near-term readouts for MNKD-101 and MNKD-201 are meaningful. Not to mention that Tyvaso-DPI has two major trials going on in TETON 1 and TETON 2; last week I heard they were 70% enrolled. Once they finish enrollment, they'll have 12 months of follow-up and we should expect to see data from United Therapeutics. Additionally, our team completed the high-speed fill-finish line qualification today. We will now begin PPQ, hopefully producing much higher volumes of Tyvaso as we exit Q1 going into Q2. As I look at our future, we have several key value drivers. Our insiders purchased some stock in the next few weeks and hosted our Board Meeting because we believe we're undervalued and we're very confident in our future. Analysts have expenses in their models for our pipeline, but no revenue in the next five years. We think this is an unfair valuation of our Company given that we do expect to launch clofazimine in the next five years and move the IPF asset MNKD-201 into patients and then, hopefully, Phase 3 by then. Looking back at another successful company, InterMune was similarly valued at $800 million at one point and 18 months later was $8 billion after a positive data readout. Our job is not to react or overreact day to day to swings in the stock market but to lay out a firm foundation for future growth. As we look out there, whether it's the pipeline with MNKD-101—every 1,000 patients is approximately $100 million in revenue—MNKD-201 in IPF, every 1,000 patients is roughly $150 million in annual revenue. Tyvaso DPI: as you can see this past year, when you add up collaboration services revenue and royalties, we know there's roughly 5,000 patients on Tyvaso DPI, and that's about half of the ~$250 million revenue we experienced this past year. On the endocrine side, we have several upcoming opportunities with INHALE-1 and INHALE-3, as well as Afrezza International. V-Go is being managed for improved profitability as we continue to focus on improving our margins by producing COGS as well as improving gross-to-net. Stepping back, we have multiple shots on goal to create significant shareholder value across three commercial products—Afrezza, Tyvaso DPI and V-Go—that are already FDA-approved, as well as two assets coming up quickly in the pipeline between MNKD-101 and MNKD-201. We are completely focused on delivering shareholder value sustainably for years to come. We have several upcoming presentations and engagements at conferences. I'll be doing non-deal road shows with Steve over the coming months to get the word out as we feel MannKind is at the best inflection point with the best team in the industry, cash on the balance sheet and multiple shots on goal in terms of data readouts to drive future growth. We're super excited about the future. I will stop there, Valerie, to take questions. Thank you again.

Thank you. One moment for our first question. Our first question comes from the line of Andreas Argyrides of Wedbush. Your line is open.

Great. Thanks for taking our question. Congrats on all the progress. Just maybe two for us here, quickly. Despite an evolving competitive landscape in PH-ILD, the Sagard royalty puts a $15 billion valuation on Tyvaso DPI. A key component to DPI's advantage is the ease and convenience of the low-resistance device compared with other high-resistance devices. Could you elaborate on the differences with the DPI device compared with competitors? How does that play into DPI safety and efficacy profile? Also, how do you see the DPI device playing a key role in the delivery of nintedanib for IPF? Thanks.

Andreas, let me take that second question. When you think about our platform, it's the same device being used in the same audience that we're currently moving forward in orphan lung disease that United Therapeutics is also using. The familiarity, the training and the comfort of bringing inhalation into this patient population with our current technology gives us more confidence because most of the powder is our novel excipient FDKP. If they can tolerate that in the PAH market, we know some of those patients overlap with ILD as well as IPF. Being able to show that our powder—at 99% FDKP—should be able to tolerate it in the nintedanib formulation as we go forward. So far, the animals, the dissolution and all that looks positive. We're doing chronic toxicology and we'll have that done by the end of this year, at the same time we get Phase 1. This year, the nintedanib program should feel even more compelling given it's a known asset and a known technology. On differentiation of our platform: our powders are built to work with our devices. They're designed together. We're not taking a novel powder and throwing it into an off-the-shelf device. It's about deep lung penetration, the velocity of the powders as they exit, and how consistent and deep lung penetration you're getting across the lung. We also need relatively low powder amounts because we can fill from the smallest volume for the 16 microgram up to 64 microgram or higher. Patients don't need to inhale that much more powder to get additional effect size, which should help on cough, absorption and safety. The FDA has asked questions about hormones and devices in asthma and steroid use—that's the type of detail that matters: you don't want excess powder outside the cartridge. Patient satisfaction was very high in the pivotal trial that United Therapeutics ran, and we also know from thousands of patients we've studied with Afrezza that the device is relatively easy to use from four years old to roughly 80 years old. The known comfort, dosing and consistency of dose will be important factors as we go forward.

All right. I appreciate that. I'll jump back into queue. Congrats also on all the progress.

One moment, please. Our next question comes from the line of Olivia Brayer of Cantor Fitzgerald. Your line is open.

Hey, good afternoon, guys. Thank you. Can you talk about how NTM fits into your strategic priorities as you grow into a more mature Company? There is some competition in the space, although perhaps less these days, as you pointed out. How should we think about where MNKD-101 could fit into the treatment paradigm? And can you remind us on timelines for expected enrollment and data readouts there? Thank you.

Sure. There are a couple of things regarding how it fits in the Company. First, we'll decide on licensing outside the U.S. We'll run the trial in key countries where NTM exists, but we may choose to partner out in markets like Japan. We are talking to partners but haven't made those decisions. We have core capabilities today around reimbursement support, patient training and specialty distribution that will be applicable to the NTM space. In terms of treatment regimen, we're going after refractory patients first; in that population the only drug approved is Arikayce. We believe we have a significant clinical and convenience advantage that should allow us to displace or grow the market quickly when we enter. We are also actively working on a dry powder version of clofazimine, which we expect could be used for a treatment-naïve population so it can be used earlier in lines of treatment. So we intend to cover early and late stage. Regarding timelines, if you look at the Indomed example, they enrolled about 180 patients in 15 months. That's roughly what we need. If everything goes as planned, 15 months from trial start we could be fully enrolled, but we only need half the population for our interim analysis. We hope to have that interim analysis sometime in the second half of next year. The primary endpoint is at six months, and that is the regulatory timing we would use for filing. Our goal is to kick off the trial in the second quarter and, if all goes well, be halfway enrolled by this time next year.

Thank you. One moment, please. Our next question comes from the line of Steve Lichtman of Oppenheimer and Company. Your line is open.

Thank you. Evening, guys, and congrats on the progress. Just level setting into ATTD: what is the data exactly that we're going to see there? I know we'll see the 17-week at ADA, but what's the anticipation at ATTD?

We have a presentation there by Irl Hirsch, which will be the first-dose and meal tolerance data. That will allow Afrezza to be on the podium in front of the Type 1 community. Irl will present first-dose data and the rationale for why Afrezza deserves a fair chance in treatment. ATTD is a technology conference with lots of innovation, and it's a Type 1 community, so it's a logical venue to present early data and meet global thought leaders. It also starts conversations about potential opportunities in Europe and other markets as we see the full dataset.

Got it. Okay. And then just on the endocrine business in general, I know you've been balancing growth and profitability and you noted optimizing the sales force footprint. Are you reducing the footprint or being more strategic there? What have you been doing? And what are the range of commercial investments you would consider assuming positive outcomes in INHALE-3 and INHALE-1? Would you add more to the salesforce or something else?

On the sales force footprint, when we bought V-Go in May 2022 we dedicated roughly 20–25 FTEs to that brand alone. We wanted to stabilize it and not disrupt the Afrezza field team, so we had overlapping expenses for a while. In July and January we integrated V-Go into our commercial footprint for Afrezza and consolidated the sales force into one voice and one team. That freed up some headcount and we reinvested some into reimbursement support, training and key account managers. Key account managers are critical as we go into pediatrics and academic centers—areas where Afrezza has been less adopted. The first step is stabilizing big accounts; the second step is filtering in reps underneath them to maintain and grow accounts day-to-day. We have a multi-step process; first was integrating the field footprint and rolling out a new marketing campaign this week. We've invested a lot in training and field trainers. The main focus this year is whether we can grow faster than before with the current footprint and infrastructure. If that model works, we'll have the conviction to expand. We can easily add 50 to 100 more people, but we wouldn't do that until we saw compelling data and KOL support. The data needs to be very compelling for us to spend significantly. We've been through Afrezza a long time; we love the product but must be objective about investments and their ability to drive success. The data will help support those decisions.

Understood. Thanks, Mike.

Thank you. One moment, please. Our next question comes from the line of Gregory Renza of RBC Capital Markets. Your line is open.

Hi, Mike and team, it's Nishant for Greg. Congrats on the quarter and thanks for taking my questions. I wanted to follow up on INHALE-3. How should we be thinking about clinical bars for HbA1c over the 17-week period in June? Also, considering real-world translatability of the trial design, can you remind us of the anticipated frictions for getting patients to switch between injectable insulin or pumps to Afrezza?

I believe the non-inferiority margin is 0.4%, which is consistent with our pivotal trials in Type 1. Those trials used a different conversion and it took 12 weeks to get to the right dose. We're hoping that by starting at a better dose up front we'll see more benefit earlier. Last year we did a small pilot called the ABC trial on 25 patients to test switching off pumps and to get insights on basal titration across sites. That pilot helped us set guardrails for this larger trial regarding titration and conversion. Doctors who manage pumps know how to manipulate them very well; Afrezza is new to many of them, and we built training and controls into the trial to address that. The trial wasn't designed for superiority; superiority will be a secondary endpoint. Regarding real-world translatability, it comes down to patient motivation. Some patients use Afrezza intermittently, which affects refill rates, while others use it consistently. To cause a significant inflection, we need compelling data. If INHALE-3 and INHALE-1 produce strong results, we will explore opportunities in pump users, pediatrics, gestational diabetes, and use of Afrezza with GLPs. There are many niche areas that could drive larger adoption if the data is convincing.

Great. Thank you so much.

Thank you. One moment, please. Our next question comes from the line of Oren Livnat of H.C. Wainwright. Your line is open.

Thanks. I have a couple of 101 questions. Can you help us better understand how you arrived at the pivotal study sample size and powering? What was that based on? Regarding the PRO endpoint, since that's a newer subjective endpoint in the space, what is the bar there? What does that need to look like to be an effective competitor? I have a follow-up after that. Thanks.

Those are great questions. NTM is challenging to develop for, which is why there's limited investment. Indomed spent many years building out the space and working with the FDA and patients. Physicians and patients want clofazimine and there is significant KOL support. Regarding powering: because we're targeting refractory patients, we estimated about a 20–30% effect size delta versus placebo. That informed our sample size and the plan for an interim analysis. If the interim shows we're off track, we may increase sample size. Regarding the PRO endpoint, we debated this with the FDA for years. We were initially uncomfortable with a placebo-controlled trial because the active arm is identifiable, which complicates PROs. The FDA was insistent that PROs be a primary or co-primary endpoint. After extensive discussion, we landed on a co-primary design incorporating PROs with the understanding it's a somewhat risky endpoint, but we've done the best job to create a baseline measurement and improvement metrics aligned with the FDA. The sputum conversion efficacy remains central; PROs supplement that. We've incorporated FDA feedback into our trial design and will work closely with them as we analyze the data.

Just to be clear, are you basing assumptions on some clofazimine experience efficacy-wise and are you assuming improvement on that in your powering assumptions or being conservative?

When looking at naïve patients we'd expect higher efficacy rates, but since we're focusing on refractory patients, we expect a smaller—even so, meaningful—effect. Indomed and Arikayce data informed some assumptions for placebo and delta. There's some back-and-forth with the FDA on how to power given potential placebo effects, which is why we have an interim. Assuming the interim analysis goes as planned, we feel good about completing the trial and moving toward regulatory submission.

Okay. And then regarding Tyvaso DPI, there are headlines about potential competition and lawsuits. I know you can't comment on litigation, but can you comment on orders coming into this year and manufacturing capacity expansion—are you factoring any assumptions or risks around competition? Are you slowing or going full speed on expansion?

On Tyvaso DPI, we are producing as much as we can around the clock. We want to build up inventory and between demand and our manufacturing capacity there's no slowdown. We know competition rumors have circulated for years; we have consistently met or exceeded expectations regarding approval, indications and manufacturing. Tyvaso DPI has performed well in both PAH and ILD. In terms of tolerability, if a patient can't tolerate a dry powder with our product, it's unclear how they'd tolerate competitors with higher powder loads. Tolerability, titration, powder load and training are all important. United Therapeutics' progress has been positive from what we've heard, and our conversations with UT continue to be constructive. Also, Japan has shown interest in sputum conversion endpoints. We'll run a global study for MNKD-101 and analyze the data two ways: for Japan focusing on sputum and for the U.S. the co-primary endpoints. Sputum conversion will be key—it kills the bug and is likely to be the primary efficacy driver.

Okay. I look forward to discussing the accounting with Steve.

I'll stay out of that conversation.

Thank you. One moment, please. Our next question comes from the line of Thomas Smith of Leerink Partners. Your line is open.

Hey, guys. Good afternoon. Thanks for taking the questions and congrats on all the progress. First, on MNKD-201, the inhaled nintedanib program: walk us through your expectations for the Phase 1 data in Q3 and how quickly you could advance into a Phase 2 trial in IPF patients. Also remind us how you're planning for clinical supply and scale for MNKD-201.

For Phase 1, it's a quick study and we will be in healthy volunteers. The FDA pushed us to consider healthy volunteers, which saved us time and money compared to starting directly in IPF patients. We expect a quick turnaround with Phase 1 data in Q3 and to file for an end-of-Phase 1 meeting with the FDA by year-end. We recently hired Dr. Wasim to lead development beyond Phase 1 for MNKD-201. We're discussing whether to do a 1b study to obtain patient data sooner in parallel while preparing the next phase. That decision is under internal discussion. For MNKD-201, we want to dose higher and test tolerance; chronic toxicology data in Q4 will support higher dosing if tolerable. That higher tolerated dose could be a clinical differentiator for safety and reduced GI side effects. Regarding supply and scale, we'll plan clinical supply in line with typical Phase 1 timelines and scale as required for subsequent phases; we have manufacturing capability and will plan capacity to support rapid development if data is favorable.

That's helpful. On pipeline strategy and priorities, you have a lot on your plate across INHALE studies, clofazimine, and MNKD-201. Now that you have financial flexibility, how are you balancing external business development opportunities versus advancing internal candidates from your platform?

The team is busy and focused on current priorities—getting INDs in and wrapping INHALE-1 and INHALE-3. We've also been funding tox trials and other R&D for 101 and 201 over the last couple of years. Some of those investments are wrapping up and will be used to fund the Phase 3 trial. We have the financial flexibility to fund internally and, if required, to use cash on the balance sheet. Our goal is to continue running the Company lean and not get ahead of ourselves until we show consistent delivery. We're open to business development opportunities, but the focus will be internal priorities first.

I agree with Mike. We'll focus on internal priorities and assess external opportunities as they arise, but internal execution is the priority.

Got it. Thanks for taking the questions.

Thank you. One moment, please. Our next question comes from the line of Anthony Petrone of Mizuho Group. Your line is open.

Thanks for squeezing me in here, and congrats on strong results. Also, condolences on Alfred Mann's passing to the team. Steve, a couple on Tyvaso and the royalty agreement: why was 1% the right number? Given potential competition, what was the calculus on choosing 1%? Is there an option to further monetize the Tyvaso royalty if you wanted to fast-track MNKD-101 and MNKD-201 or add to the portfolio? Would you consider monetizing further as a source of funds?

Anthony, we looked at the value of the Tyvaso royalty in a competitive environment and had over 25 different purchasers come to the table. We wanted to keep the vast majority of the royalty to MannKind. We thought 1% was right to get about $300 million on our balance sheet, which would fund our pipeline and put us in a good position to fund convertible debt when it matures in 2026. Yes, we could further monetize the royalty if needed, but we don't expect that need right now.

I'll add two points. Royalty valuation is driven by interest rates and the discounting of future cash flows. Over time, if interest rates fall, the overall value of the royalty may increase even if sales taper slightly. When we started the process the royalty rate was not transparent publicly; we wanted to demonstrate what 10% of that royalty is worth because we believed it was important to show the valuation. United Therapeutics also disclosed the royalty midway through our process. Interest rates being high affected the discount factor, which influenced valuation and made the upfront proceeds attractive. Regarding competition, more adoption of DPI generally helps patients and the market. If there are competing products, that can drive earlier adoption of DPI and indirectly benefit MannKind. We are bullish on DPI and believe more competition could also expand the market.

Appreciate that. On INHALE-3 and INHALE-1 combined outlook for Afrezza: how are you looking at those two opportunities from a market expansion standpoint? Which indication are you most excited about—pediatrics or combination use with pumps? Which would get faster traction?

The challenge with adding Afrezza on top of pumps—beyond regulatory considerations—is patient behavior and whether patients will carry extra supplies or use Afrezza intermittently. That intermittent use has affected refill rates historically. To achieve a major commercial inflection we need new markets. I believe INHALE-1 (pediatrics) is likely the study that can cause Afrezza to become a more standard option. Pediatric adoption can drive broader acceptance: there are roughly 500 clinicians in pediatrics who are influential, mostly in academic centers, and our trial covers the majority of key centers in the U.S. We designed INHALE-1 to focus on the U.S. academic experience to create that educational and adoption pathway. INHALE-3 addresses pump users and includes a head-to-head switch component. We could have included pumps in INHALE-1 but felt it would distract from the trial and slow things down. We feel good about the one-two punch of INHALE-3 and INHALE-1 if both read out positively this year.

Appreciate that.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Michael Castagna, CEO, for any closing remarks.

Thank you, Valerie. Thank you all for participating. We look forward to seeing a couple of you at ATTD and I will be on non-deal roadshows with Steve in key cities meeting with investors. It's been a great year so far, everything's off to a great start, and we're looking forward to making 2024 another record-setting year. Thank you again to the team and everyone. Have a great day.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.