Mannkind Corp Q2 FY2024 Earnings Call

Good morning and welcome to the MannKind Corporation Second Quarter 2024 Financial Results Earnings Call. As a reminder, this call is being recorded on August 7, 2024, and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call and will be available for approximately 90 days. 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 those stated expectations. For further information on the Company's risk factors, please see the 10Q report filed with the Securities and Exchange Commission this morning, the earnings release, and the slides prepared for this presentation. Joining us today for MannKind are Chief Executive Officer, Michael Castagna and Chief Financial Officer, Chris Prentiss. I'd like to turn the conference over to Mr. Castagna. Please go ahead, sir.

Thank you, Operator. Good morning everyone. I'm excited to be here, calling in from Danbury, Connecticut today, and joining me is Chris Prentiss, our Chief Financial Officer. Today we'll go over our traditional operational and pipeline highlights, a quick financial review by Chris, with some closing remarks by myself, and then we'll move to Q&A. Let me begin by talking about some of the second quarter 2024 highlights. First, we had record revenue on Tabesa DPI, with manufacturing and royalty revenue coming in. Second, clofazimine inhalation suspension is well on its way with fast track designation by the FDA. Several sites are now activated and ready for patient enrollment. Thirdly, nintedanib DPI is well underway, with results expected here in Q4 along with chronic tox; we're now on our third cohort of single-dose patients, anxiously awaiting to move to the MAD section of the study shortly. In our endocrine business, we had second quarter revenue of $20.8 million driven by Afrezza. I'll talk about that shortly. INHALE-1 top-line results for pediatrics are expected here in Q4, and we're excited for this pivotal moment in our history to unveil these results. The third part of endocrine is INHALE-3. We met its primary endpoint; 17-week data were presented at ADA and were very well received. We're coming up on our 30-week data readout here in the second half, and implementing our ADA post-success plan. For financial results, we achieved record revenue for the company of $72 million, a 49% increase, with a GAAP net loss of $2 million and a non-GAAP loss of $14 million that Chris will talk about shortly. We ended the quarter with a strong balance sheet. We continue to delever the company and reduce dilution to shareholders by paying down demand convertible debt and cash in stock, instead of stock only. Now, let me talk about clofazimine inhalation suspension. We see NTM as an opportunity with two players over the coming years. Our case had great data read out in early stages, and they continue to penetrate the markets in Japan and the U.S. We look at the refractory population being about 10%, 15%, 20% of this market. We see this as a very large opportunity to bring a new entry that can be more convenient with really good lung coverage here in the U.S. and Japan. Let me talk for a second about our Phase 3 design. The key attributes of this product are number 1, 28 days on treatment with 56 days off. This means a patient will have one copay for the 28 days followed by two months off, because the drug has a long half-life. We believe it's really important to get deep lung penetration in this disease, as the macrophages are deep in the lungs, and they'll take the clofazimine in. Because of the half-life, it will take about two months for it to return back to baseline. We see that same thing with month four coming on treatment, and then months five and six off treatment. The primary endpoint of the study will be six months, and we're looking at a dose of 80 milligrams of clofazimine and a 2 to 1 randomization. We will have an interim analysis after the first 100 people are enrolled. That will decide whether the trial should be larger to ensure we hit our endpoints, or if it is sufficiently staffed to reach the primary endpoint. The co-primary endpoint in the U.S. is sputum conversion and patient-reported outcomes, and the primary endpoint for Japan has been aligned, which is sputum conversion only. We also have orphan and QIDP designations, along with other IP, giving us a minimum of 12 years of exclusivity. Japan and the FDA have aligned to a single trial, and we're also considering creating an expanded access program. We'll keep you posted on that. Regarding the 201, as you see, this market, while it is crowded in terms of development, there are very few options on the market for patients. We’re excited about what we see from United Therapeutics and the TETON studies reading out next year for Tyvaso. More importantly, this is on the backbone of OFEV as the market brand leader in IPF. We believe that while OFEV is a phenomenal drug and has helped thousands of people live longer, there's an opportunity to enhance the quality of life that people experience when going on OFEV. This is really our main focus here: how do we bring potentially improved tolerability relative to GI side effects, specifically that occur with OFEV where 50% of people traditionally drop off treatment because of GI side effects alone. We also believe that we can dose hopefully a little bit higher directly into the lungs and get higher lung concentrations. This is really our focus on this product: can we dose appropriately and tolerably? Does that show an improvement in GI tolerability? The Phase 1 data readouts in chronic toxicity are expected here in Q4, and we will then file a meeting with the FDA to move this to a Phase 2/3 design in 2025. Now moving on to our endocrine business. Year-to-date revenue of $39.5 million was predominantly driven by Afrezza. V-Go was deprioritized in Q1, as you may recall, and we restructured the field team so that we've had a different business model coming into the year. You’ll see some of that result here as I discuss our script growth. Afrezza Q2 sales alone over the prior year grew 20% to $16.3 million. Moving into prescriptions, you can see Q1 versus Q2 with 8% NRX growth leading to 5% TRX growth quarter over quarter. The NRXs are the leading indicator of what to expect three to six months later. It's nice to see that the NRX change is paying off in TRX, and we hope to continue to see this type of growth as we go into Q3 and Q4 this year. As you may not have read, our readout on ADA with INHALE-3 presented by seven world thought leaders included several key attributes to this trial. Inhaled insulin achieved a target A1C than seven in 30% of participants versus 17%. Additionally, 24% of Afrezza met a timing range greater than 70% with no increased hypoglycemia, compared to 13% in usual care. Over 50% of the subjects who completed the trial stated they would like to continue using Afrezza, which is significant since 50% of the participants were coming off the best technologies of AID systems, specifically Omnipod. They were generally satisfied with their treatment, and it’s encouraging to see that even when people switch, they can maintain control and continue to enjoy the freedom that Afrezza provides. We've met our 17-week primary endpoint, and our full 30-week data is expected to read out later this year. We'll likely provide that information to shareholders in Q4. When you look at the meal challenges here, the RAA clearly shows the postprandial glucose excursions relative to the initial dose of both groups. You can see a distinct difference in the first two hours; and at the end of the study, when participants were titrated to Afrezza, there was a notable improvement in meal time control as they learned how to use the product. This gives us hope that, when properly dosed, Afrezza can significantly impact postprandial control over the current standard of care. This data was just published in Diabetes Care recently. We see INHALE-3 as pivotal to transforming the adult population, but also laying the groundwork for pediatrics, where insulin pumps are the predominant choice when it comes to selecting inhaled, injected, or an alternative delivery mechanism. We believe the switch study in INHALE-3, showing consistent results of efficacy, will be important as INHALE-1 trial only involved MDI patients by design to showcase and control for the one difference in the trial. The INHALE-1 data will read out shortly, and we will intend to file that next year for approval, aiming for a launch in future years. Ever since I began here, we've continued to experience year-over-year growth in a significant way. Over the next 10 to 15 years, we see no slowdown for Afrezza's growth. Finally, we will have proper data readouts, label updates, and we now have the capital and talent to continue to scale this business. We will wait for the data readouts. We are conducting some independent market research, and we will update you in the coming quarters about our plans and what to do with the data readouts, as well as the additional indication that will mean for shareholders. However, we have grown consistently and will continue to grow this brand for years to come. I would now like to turn it over to Chris.

Thanks, Mike, and good morning everyone. I am pleased to review select second quarter 2024 financial results. Please refer to our press release issued earlier today for a summary of our financial results for the second quarter 2024, as well as our 10Q, which was filed with the SEC this morning. The second quarter, with total revenues of $72 million, marked our 9th consecutive period of quarter-on-quarter revenue growth, a 49% increase compared to the second quarter of 2023. For the six-month period, we recorded total revenues of $139 million, a 55% increase over the prior year period. Let's now discuss the details. Tyvaso DPI royalties contributed $26 million in second quarter revenue, an increase of 34% over the second quarter of 2023, and $48 million or 57% for the six-month period. As we heard on UT's earnings call last week, they continue to experience strong patient demand and are encouraged by the record referrals and new patient starts during the quarter for both PAH and PH-ILD patients. Collaboration and services revenue was $26 million, an increase of 132% versus the second quarter of 2023, while the six-month period totaled $51 million, marking an increase of 125% compared to the same period in 2023. The increase over the prior year periods resulted from a substantially higher level of production activity that was sold through to UT. Afrezza net revenue was $16 million, growing 20% versus the second quarter of 2023, which was primarily driven by volume growth, a lower gross-to-net percentage of 37% versus 39% in the prior year, and a price increase. Similarly, in the six-month period, Afrezza net revenue grew 18% to $31 million, primarily driven by a reduction in gross-to-net percentage and price. The lower gross-to-net percentage was mainly due to a change in estimate for Afrezza product returns. V-Go declined 7% to $4 million in the second quarter of 2024 and 11% to $9 million for the six-month comparable period. This decline reflects lower demand as we have focused our attention on Afrezza. The next slide shows our revenue growth by source and basic EPS on a quarter-by-quarter basis over a rolling eight-quarter period from the third quarter of 2022 through the second quarter of 2024. For the second quarter of 2024, total revenues of $72 million increased 9% sequentially versus the first quarter of 2024. After three quarters of positive earnings per share from Q3 2023 through the first quarter of 2024, we had a net loss in the current quarter of $2 million, or $0.01 per share. This was the result of our early repayment of the Mann Group convertible note and mid-cap senior secured notes, which we completed in April, resulting in an accounting charge of $7 million recorded as a loss on extinguishment of debt. Now, to our GAAP to non-GAAP reconciliation. We had a GAAP net loss for the quarter of $2 million, which, when adjusted for non-GAAP items, results in a non-GAAP net income of $14 million. This compares to a non-GAAP loss of approximately $400,000 in the prior year quarter. For the six-month period, we reported net income of $9 million and non-GAAP net income of $29 million. For the six-month period in 2023, we reported a net loss of $15 million and a non-GAAP net loss of $6 million. The second quarter represents our fourth consecutive quarter of positive non-GAAP earnings, which we expect to continue as we execute on our current business plan. As we reflect on our progress in the first half of the year, total revenue grew by 55% for the six-month period compared to the prior year, driven by growth in both our Tyvaso DPI related revenue and Afrezza growth. At $139 million, this gives us an annual run rate of over $275 million in revenues. Net income for the first half of the year was $9 million, and non-GAAP income was $29 million. This demonstrates the significant progress we have made as our revenues are supporting our pipeline development efforts. Cash and investments were $262 million at the end of the quarter. This is after the repayment of both the Mann Group and mid-cap notes in April, leaving only the $230 million senior convertible notes due in March 2026. This cash position, combined with our deleveraged balance sheet, puts us in a strong position to continue to invest in our commercial products and our exciting pipeline. With that, I will turn it back over to Mike.

Thank you, Chris. As we look out over the next 12 months, here are some of the milestones we're going to discuss. I want to say thank you to the hard work the team has achieved in the first half, starting with our IND submissions here in Q1 that led to a kickoff of a bunch of work. We’ll look forward to this as investors, employees, patients, and providers over the coming quarters and years. Tyvaso DPI continues to progress nicely as you think about what we've been doing in Danbury, between making products today to supply the market demands while preparing for hopefully positive readouts on TETON-1 and 2 and global expansion with United Therapeutics. Our high-speed fill/finish line is now operational and certified on most of the strengths of Tyvaso DPI. The spray drying capacity will be completed here in the third quarter. It's been installed, and now we're just running through the PPQ. In the first half, that will require some stability time before filing with the FDA for approval. We expect that to be fully operational in the first half of '25, well in advance of TETON-1 and 2 reading out. As you look at INHALE-1 and INHALE-3, these are two pivotal trials we invested in over the last several years that are critical to the transformation we expect to bring to Afrezza over the coming quarters and years ahead. These data readouts will occur in the second half and will set the stage for continued data publication and releases for years to come at various diabetes conferences worldwide. We are just getting started on what this can mean for us as employees, patients, and shareholders, and we're looking forward to continually providing you more information as it comes in over the coming quarters ahead. When I think about the key value drivers in front of us, the pipeline is not reflected in the value of our company. We continue to believe we're undervalued when we compare the value of our Tyvaso DPI royalties and manufacturing revenue relative to the other assets we have ongoing in the company. Just looking at 101, we now see that we could be the only Phase 3 trial in the near future, bringing this novel innovation to an unmet need population in NTM, where there are over 100,000 patients in the U.S. and roughly 15,000 that are refractory. For every 1,000 patients, this is $100 million in revenue to MannKind. When I think about OFEV, there's potential for this opportunity to help people living with IPF have a more tolerable option. If we can see better efficacy, that would be amazing. This is a $4 billion market and growing, with a lot of novel innovation coming as OFEV continues to be the backbone of treatment. We upgraded our Boston R&D footprint recently, as you may know. We have a site in Marble that will be ending its lease in early '26, and we have now moved into a new facility in Bedford, Massachusetts with brand-new R&D space, expanding our DPI technology platform. We'll be consolidating our employees between the two sites over the next 12 months. We're excited regarding that in terms of recruiting talent and continuing to have more capacity for research programs as we move forward. When it comes to Tyvaso DPI, this has been a great opportunity, not only for us but for patients and United Therapeutics. It has transformed our company and has enabled us to execute our long-term growth strategy of funding our pipeline and continuing to be a self-sustaining company. As you can see, for every 10,000 patients reimbursed, it translates to between $300 million and $350 million in total revenue for MannKind, between royalties and manufacturing revenue. Our excitement continues to grow as we await the TETON-1 and 2 results and will be paying closer attention to the TETON-PPF study as those readouts are expected to begin next in the second half of 2025. In terms of endocrine, we’ve always recognized that innovation in diabetes, especially type 1, begins with kids. Parents fight for their children. Doctors are more cutting edge, and we believe that payers will find a reasonably prudent opportunity to cover Afrezza, allowing patients to better control their sugars. Pediatrics is where we anticipate significant change will occur; many drugs have been on the market for a long time, and the transformation will continue. Insulin pumps that Outman built and Omnipod or CGM and Dexcom are all standard choices among type-1 patients today. All these innovations began with children, while even GLPs have only begun to reach an inflection point over the last several years due to weight loss demand. I understand it's frustrating for all of us to witness the slow progress with diabetes and endocrine issues, but we're just now reaching the pivotal point of new data being released and, at last, the opportunity to transform our future. I'm going to stop here, and we can answer any questions. Just so you know, we have several upcoming scientific and investor conferences where you'll receive a wealth of new information through updated questions and oral presentations in the coming months. Thank you.

Our first question comes from Olivia Brayer with Cantor Fitzgerald.

Hey, good morning, guys. Thank you for the questions. How are you thinking about IP and just revenue runway for your two pipeline candidates? And can you just remind us how well protected your Technosphere technology is? And then on the 201 update that we'll get in the fourth quarter, can you give any more color on how many patients' worth of data you expect to have and just how you're thinking about next steps once you have that healthy volunteer data in hand?

Sorry, I heard the IP question. And then there's a second one. Then there's the data in hand with IPF, is that what you said? I missed the second part.

Yeah. Why don't we start with IP, Mike, and then I can follow up with 201.

Sure. So on the IP landscape with, I think it was Technosphere as probably your second question. So Technosphere goes out into the 2030 IP on Tyvaso, with pending potentially till 2040. What we have for clofazimine will have QIDP and orphan designation as well as additional IP filed, looking at about 2039, 2040. The same goes for IPF and TETON, which we look to have into the late 2030s, so we feel pretty good about the overall IP of the company going into the next decade and a half or so. And that's assuming we don't do any further innovation, right. There are definitely things we're going to work on to continue to innovate and make our products easier for patients to take. So we feel pretty good about the next seven to ten years, as far as we can look out in terms of major IP risk.

Okay, understood. And then, yeah, just the second question was around 201, and the data that we get in for Q4. Just any color on how many patients' worth of data that you guys will have and obviously, just thoughts around next steps for that program going into 2025.

Yes. So we have completed the first three dosing cohorts, which focused on single doses and dose escalation up to the maximum dose we are looking for. There were no major findings reported so far. They're still going through the safety assessments, but nothing appears to impede our progress to the multiple dosing phase, which will be initiated over the next month. Analysis of those results will take some time. So we expect that by Q4, we're looking for results that will include cough tolerability, bronchospasm, and any issues around lung administration or GI toxicity/tolerability, especially regarding the multiple dosing phase. For those results, we plan to approach the FDA with a Phase 2/3 design, which we're still finalizing. That’s why I haven't shared any details yet, but that's our intent, and we hope to have the FDA agree with that study design we've seen in some of the other competing programs in IPF. But that's the timeline we are working backwards to ensure we're on time so we can get the trials moving forward.

Our next question comes from the line of Thomas Smith with Leerink Partners.

Just with respect to the ICoN-1 Phase 3 design, just wondering if you could comment on the powering assumptions for the six-month primary endpoint and then for the interim analysis. It sounds like this is mostly a sample size re-estimation, but can you comment on whether there's any early stopping criteria built into this interim either for futility or superiority?

Sure, I missed your question on the assumption of the six-month endpoint. Sorry.

Yes. Just asking about the power and assumptions on the six-month endpoint, what you've assumed in terms of placebo response and treatment effect?

Yes. In the design of ICoN-1, we benchmarked as best we could in the refractory population for a delta of what we observed in our case for the refractory population. If the results turn out better than expected or if the placebo response is not as good as anticipated, that will benefit us. It is a dual primary endpoint in the U.S., meaning, or co-primary endpoint, in terms of quality of life plus sputum. The rest of the world will be sputum only. The interim analysis is based on 100 patients. There will be a futility assessment, but not a superiority assessment in terms of shutting down the trial from my knowledge. We have different numbers we need to treat, and if we find that we are not powered appropriately, we can increase the powering of the study by increasing the patient numbers. Those are the key attributes defined in the statistical plan. I think it's 90% power, but I need to double-check that and confirm with you. I'll get back to you on that.

Got it, that makes sense. And then just one on Afrezza; I was wondering if you could just comment on the feedback you've been receiving coming out of ADA with the INHALE-3 results, the reception to the data set, and how you're thinking about translating these data and the INHALE-1 data to sales growth. Are these data sets you believe could potentially impact 2025 prescribing, or is it more of a long-term dynamic?

Yes, I think thus far, feedback has been very positive from those who attended the ADA and listened to our presentation regarding the results. The data is being prepared for publication, and the first dose just got published in Diabetes Care. So overall receptivity has been very positive. The team had a small advisory board at ADA to gauge initial reactions, continuing to show increased confidence. We returned from the research committee meeting last week, which I unfortunately did not have time to include in the earnings call, but that also signals positive feedback amongst our highest target prescribers. Everything looks very promising regarding the potential for future growth of Afrezza. Will this have a dramatic effect this year? Probably a little in Q4 as things roll out in Q3, and the data gets published. But realistically, we expect it to be in 2025. My observation about Afrezza is that it’s a direct reflection of our investment. We managed the brand for profitability last year, which enabled us to grow it while waiting for these data readouts. We will decide to scale up and invest more based on how much additional growth we believe we can achieve through that investment. Currently, the data appears good enough to sustain increased growth in quarters ahead. In pediatrics, we're expecting significant developments in Q4, which will be critical regarding a potential inflection trend. It is important to target high double-digit growth through pediatric launch versus just creeping along with a marginal increase. Having the data ready for Q4 with a potential filing early next year will set us up for early 2025 or early 2026 pediatric inflection. I believe that captures what we’re anticipating, but we’re conducting additional research and insights to bolster our confidence before making any substantial decisions.

Our next question will come from the line of Gregory Renza with RBC Capital Markets.

Mike, maybe just keeping with 101, clofazimine inhalation, just curious as you and the team activate sites and stand up the trial if you had any feedback, and maybe touch on how the activation and the entrenchment of sites is shaping your confidence in the program and the value proposition that you see with 101.

Yeah, it's true, Greg. The team has been to about 10 sites. August will slow down a little for site activation due to vacations and holidays, but they expect that to pick up significantly here in September. We already know they're pre-screening patients, and a couple are already scheduled for August. So I think it's only one month in, and I wouldn’t overinterpret it positively or negatively. So far, the feedback has been generally positive. We're all curious about how big this refractory population is, how quickly we can get to naive patients, and how we can move the dry powder along. These are essential factors we’re working on; we know that's a much larger population to pursue. But I think in terms of trial enrollment in the U.S. and Asia Pacific areas, there are enough patients to get things moving, and hopefully, sufficient patients will be ready for a positive launch. The real opportunity remains with the larger NTM population, but initiating this trial is the first step in that direction. We continue to see our case do well, which makes us feel very positive about our commitment. Patients have few options, which is genuinely exciting for all the stakeholders involved, including the FDA. We’ve worked very hard to reach this point, and we’re prepared from the manufacturing standpoint. The trial is garnering significant interest from top investigators, and we feel confident about the sites we are establishing to recruit patients very soon.

Got it. I think at the start of the call Mike, you mentioned expanded access and maybe more to come. Just touch a little bit about that, maybe some timing and inputs involved. Thanks and congrats again on the quarter.

Thank you, Greg. Yes, I asked the team to explore the potential for expedited expanded access with the FDA, especially for patients who do not qualify for the trial. Would the FDA allow us to provide access, given there’s only one treatment option available? We don’t have clarity on that yet as we have not yet approached the FDA. However, that’s essentially part of the objective. If we find a way to assist more patients sooner who do not qualify for the trial, we are interested in that avenue. Of course, we don’t want to use our expanded access program to hamper enrollment for the trial, as that would delay our capacity to help get that trial recruited. So, some of the focus will be on whether we can find a way to support those patients, which will involve collaboration. The FDA may want a certain number of patients before we can implement that; we’ll have to see where they stand on that.

Our next question comes from the line of Brandon Folkes with Rodman & Renshaw.

Maybe just two for me, Mike. I know you said you can't talk too much about the potential Phase 2/3 trial in 201, but would you be able to just discuss if you're considering multiple dose levels there, and just elaborate on what is first prize for you in this program? Is it something that's comparable in efficacy with better GI side effects? Or would you prioritize perhaps a potentially more efficacious drug here? And then secondly, just on Tyvaso DPI, can you just talk about the manufacturing capacity where you're at today, what needs to be done if TETON is successful? And just sort of how much investment does that take?

Sure. I'll address the second question first because it's clear-cut. Regarding DPI manufacturing capacity, we have built significant inventory for United Therapeutics this year, and we are on track ahead of the TETON results in terms of scale and capacity. We don't expect any hindrances concerning approval, and United Therapeutics has already made the necessary investments in the plant. Most of the equipment has been installed and purchased, with only minor issues to address, which are not significant for shareholders or United Therapeutics at this point. We believe we will be able to supply a substantial quantity of DPIs moving forward. As for what would constitute a win, this is an excellent question that we've debated internally. Should we focus on demonstrating safety regarding the severe GI tolerability issues reported? Is it essential to pursue enhanced efficacy? Or is it about balancing both while speeding up the time to market? The dynamics of efficacy, speed, and tolerability remain under discussion, and there are various ways to design a Phase 2/3 trial to achieve these goals. Our aim is to assist patients as swiftly as possible. If we manage to show equal efficacy but find that existing patients on TETON won't benefit from the GI tolerability advantage, we can evaluate the impact on naive patients and see significant tolerability benefits, which could greatly enhance efficacy. We could also explore higher dosing, which may yield better efficacy but comes with questions we still need to investigate. We are diligently working to finalize the trial design and plan to consult thought leaders in the upcoming weeks and months to validate our approach before making it public. We have some initial ideas that we want to confirm with investigators. You asked about considering multiple doses; there's a strategy that could include two different dosing regimens in two studies or a titrate-up dosing effect pattern similar to designs that aim for the highest level dose. Each option has its pros and cons. Sadly, there isn't a one-size-fits-all answer, aside from our goal to help patients as quickly as possible with valid results from the first readout to confirm our target doses; then we will finalize our public strategy with the FDA.

That concludes today's question and answer session. I'd like to turn the call back to Michael Castagna for closing remarks.

I just want to express my gratitude to everyone. It's been a fantastic and volatile year for all of us, but the Company is in a great spot. We look forward to closing out the year strong as we prepare for 2025 and 2026, with multiple data readouts on the clinical side across our entire platform and programs, along with insights into inline revenue growth in our diabetes business. We feel very optimistic about the future and anticipate exciting news regarding international expansion as we progress with Afrezza and continue to drive growth and help more patients. I want to extend my appreciation to all our employees for their hard work and all our shareholders for their support. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.