Earnings Call Transcript - MNKD Q3 2022

Operator, Operator

Good morning, and welcome to the MannKind Corporation Third Quarter 2022 Earnings Call. As a reminder, this call is being recorded on November 8, 2022, and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call until November 22, 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-Q report filed with the Securities and Exchange Commission this morning, 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 call over to Mr. Castagna. Please go ahead.

Michael Castagna, CEO

Good morning. This is Mike Castagna, and I hope you can hear me okay? Sorry if you are not hearing us. I just want to make sure everybody could hear me before I get started. Good morning, and thank you for joining us for our earnings call today. Today marks the beginning of the new MannKind. You can start to see our execution from a single product to a sustainable growth company. We've never been more excited about our future than now. When you look down, you see four sources of revenue growth and 74% growth quarter-over-quarter. Order of the lung business is really starting to shape up as you look at the collaboration and service revenue with Tyvaso, as I'll talk about clofazimine moving forward. The Endocrine business also did well with double-digit growth, 28% quarter-over-quarter with Afrezza and V-Go revenues. When you look at the orphan lung, we're well-positioned with Tyvaso DPI growing significantly as we go forward and clofazimine starting to help patients hopefully in 2023. Our EBU has grown year-over-year, but in Q3, we made some changes in integrated V-Go and as you'll see in a minute, as those changes took place we started to grow our market share month-over-month and quarter-over-quarter. In Tyvaso, you'll see our first quarter of commercial manufacturing. One of the first questions I get is, is this full manufacturing? The answer is no. This is just the beginning. The first full quarter commercialized by U.K., our royalties earned were about $6 million, which is significantly higher than what we had expected. Our capacity expansion is ongoing and quickly progressing here in Danbury. On our pipeline, we have reported September our Phase I results that were generally well covered up to 90 milligrams, with no single adverse events or QT prolongation. We’re planning to meet with the FDA here in late Q4. We're very excited about this program and plan to get this product to patients. On Afrezza, we are really focused on paid TRx, which grew 10% year-over-year and 4% in Q3 compared to Q2. On the INHALE-1, we're currently on track to hit our goals for enrollment this year with an expectation to complete enrollment by mid-next year and results six months later. We also will be presenting our ABC results very shortly, which is the Afrezza basal combination trial, where we switch some patients off a pump, we added Afrezza and maintained others on the pump. On the V-Go side, we feel good that we stabilized the revenue, and we're ready for growth. Overall, we have $170 million of cash to fund our growth in our 5-year plan. It's quite precious to see the team in Danbury working through making our devices 24/7, not just devices, but also product and dry powder cartridges. It's a very exciting time for people at MannKind and for our future. With the purchase of V-Go, we really do become the mealtime solutions company. Let me start off by talking about Afrezza and what we're doing to continue to grow market share there. We pivoted this year to focus on a subset of doctors, as well as ultra-acting analog insulin, URAA. And so that market share, as you look amongst our key targets has continued to grow after years of decline and as competition took attractive market share away from us, we believe they are reaching for a faster insulin, and Afrezza should be their fastest insulin of choice. And with that refocus this year, we've continued to grow market share quarter-over-quarter, month-over-month. If you look year-over-year, I'm very excited that the NRxs are a leading indicator of our TRx's, and you can really see the NRx growth from Q1 to Q2 to Q3, where we had an 18% NRx growth year-over-year, and how that translates into TRx growth quarter-over-quarter and year-over-year. On the V-Go, we gave guidance of $18 million to $22 million that we expected when we purchased this asset. We're on the higher end of that expectation with revenue of $5.4 million here in Q3, and we continue to see positive momentum in V-Go here in Q4. We plan to implement this into 60 additional sales reps in January 2023. We stabilized the TRx decline that had been happening for over 18 months and exited Q3 around 1,200 TRxs a week, with additional business that does not show up in Symphony and distributors as well as some of the TRICARE accounts. V-Go will be in a P2 position in the Afrezza sales force as we exit this year going into next year. So people ask me, what does that mean for product segmentation? We discussed the ABC results and market research telling us where we need to focus on Afrezza to continue to accelerate the growth. We expect to focus in 2023 on a narrow group of providers that write both V-Go and Afrezza, which is around 3,000 providers. Additionally, we want to make this business cash flow break-even and really choose to win where we choose to play. On the Afrezza side, you'll continue to see us focus more on type 1, the younger population, commercially insured, and the chronology focus. On the V-Go side, we will continue to focus on type 2 for patients looking for a simple way to deliver their insulin to basal control. The older population typically includes Medicare and Endo, NP, PA, PCP. This bottom right corner shows you Afrezza being a P1 target for our core sales force, and type 2 will be a P3 target and V-Go will be a position 2 target in that sales force. As we go forward, we're very excited about the Endocrine Business Unit, our pipeline, and I will talk about that at the end of today, as well as the impact Tyvaso is going to have on the future of MannKind. I'm going to turn it over to Steve. Thank you.

Steven Binder, CFO

Thanks, Mike, and good morning. I'm pleased to review select third quarter and September year-to-date financial results. Please supplement this call by reading the condensed consolidated financial statements and MD&A contained in our 10-Q, which is filed with the SEC this morning. This is the first full quarter of revenue activity across all four sources of commercial revenue, including V-Go for our endocrine business and Tyvaso DPI manufacturing and sales royalties for our orphan lung business. Looking at how our business is growing year-on-year, please focus on the bottom of the table, where it shows we had a 48% increase in total revenues, amounting to $32.8 million for the third quarter of 2022. Breaking down the third quarter by source of revenue: Afrezza net revenue was $10.8 million versus $9.8 million in 2021, representing an 11% growth rate. The increase was mainly driven by price, including a more favorable gross-to-net percentage and higher patient demand, with paid TRx growth of 10%, partially offset by wholesale inventory ordering patterns that resulted in lower channel inventory levels for the third quarter of 2022. The lower channel inventory levels have been a recurring theme this year as we have seen channel inventories lowered by approximately $1.1 million in the 6-month period ended September 30th, and almost $2 million since a year ago at September 30, 2021, which has adversely impacted our net revenue growth this year. We believe that the Afrezza channel inventory levels have likely hit their minimum maintenance balances and shouldn't lower much more. Year-to-date Afrezza growth came in at plus 13%, which was mainly due to favorable price, including a more favorable gross-to-net percentage, higher product demand, and a more favorable cartridge mix. Next is our net revenue for V-Go, the recently acquired wearable insulin delivery device, where we had $5.4 million in net revenue for the third quarter and $7.5 million for year-to-date, which represents the four months from June through September. We expect V-Go net revenue for the 12 months post-acquisition to be in the range of $18 million to $22 million, and we are tracking towards the mid to high end of that range. Moving to collaboration services, our revenue for the third quarter was $10.3 million versus $12.5 million for 2021. The main driver of collaboration revenue has shifted from the amortization of United Therapeutics milestones in 2021 to Tyvaso DPI manufacturing revenues in 2022. Included in the third quarter 2022 collaboration and services revenue number of $10.3 million is $9.9 million of Tyvaso DPI manufacturing revenue. The September year-to-date revenue of $18.4 million is lower in 2022 compared to '21 because of the prior year UT milestone amortization and the first half of '22 deferral of revenue associated with the delay in the start of commercial manufacturing. In addition to UT-related revenue recognized in 2022, we had $32.2 million of deferred revenue on the September 30th, '22 balance sheet associated with United Therapeutics, which will be recognized to income through 2031, which is the remaining term of the commercial supply agreement with United Therapeutics. Lastly, we recorded royalties on sales of Tyvaso DPI by United Therapeutics to their customers. The third quarter was the first full quarter of sales of Tyvaso DPI by UT, and we earned $6.2 million of royalties for those sales based on a low double-digit royalty. United Therapeutics released their third quarter earnings last week. On their earnings call, they said that the physician engagement and enthusiasm around Tyvaso DPI is extremely high, and we continue to manufacture on a 24/7 basis to supply UT. I consider MannKind to be a new commercial growth story. The next slide shows our revenue growth quarter-to-quarter for 2022. Moving from the left to the right, we grew total revenues from $12 million in the first quarter to $18.9 million in the second quarter, representing a 58% increase, and then grew total revenues from $18.9 million in the second quarter to $32.8 million in the third quarter, representing a 74% increase. Our quarterly revenues have grown almost 3x from the first quarter to the third quarter. Driving the revenue growth are our three new sources of revenue: Tyvaso DPI manufacturing revenue, royalties associated with the sales of Tyvaso DPI, and sales of V-Go. We're pretty focused on the future revenue growth potential across all four revenue streams. Now let's look at the profitability of our endocrine products, Afrezza and V-Go. Afrezza's gross margin increased from 61% in the third quarter of 2021 to 81% in the third quarter of '22, and the gross profit associated with Afrezza increased to $8.7 million in the quarter. The increase in the third quarter gross margin versus '21 was due to an increase in Afrezza sales, coupled with a decrease in the cost of goods sold, mainly due to a decrease in excess manufacturing capacity costs. When looking at the profitability for September '22 year-to-date, Afrezza has a gross margin of 75% and gross profit of $23.6 million, driven by higher sales and lower cost of goods sold, mainly due to a decrease in excess manufacturing capacity costs and a $2 million fee incurred for an amendment of our insulin supply agreement in the second quarter of 2021. Please note that there will always be some variability in Afrezza gross margin between quarters due to the timing of manufacturing spend and activity, given that we are not at maximum production capacity. The far-right table shows V-Go's September year-to-date gross margin of 44%, which is about where we expected the margin to date. Let me conclude with some final comments around liquidity and performance. We ended the third quarter with $178 million in cash, cash equivalents, and investments. And with our growth across all four commercial revenue streams, we're able to invest behind our pipeline and strategically behind Afrezza and V-Go. Our collaboration with UT is tight, and the Tyvaso DPI launch is off to a strong start. I feel like the company has turned a corner. We are focused on maximizing the potential of our collaboration with UT. We are focused on profitably growing our endocrine business, and we are focused on developing and bringing innovative products to patients from our emerging pipeline. Thank you. And now I'll turn it back over to Mike to review key milestones and provide a pipeline update.

Michael Castagna, CEO

Thank you, Steve. Great summary. Great future. Looking over the next 18 months, I'm just going to share a couple of things. We have a good perspective on the endocrine business unit and where we are with Afrezza. First, we wanted a QuickStart program to get patients started quickly here in Q4 to pilot that as we get ready for next year to scale our business. In 2023, we fully expect that Afrezza will be covered in Medicare at a $35 under the Inflation Protection Act bill that was passed. That changes the game as one of the major objectives for Afrezza is around access, and we really want to continue to see that patients can only have to pay $35 for Afrezza. We expect to finally launch BluHale VIS, which is our patient edition integrated with CGM in Q1, with a full-scale launch in Q2 next year, assuming that goes well. CIPLA has fully enrolled in a type 2 study, and we expect that readout to happen by Q3 next year, followed by the INHALE-1 readout likely happening late Q4 or early Q1 at the latest. I'm going to bridge over to our MannKind pipeline. This is a position that we started three years ago when we looked at the orphan lung business. In 2019, we decided to pivot and focus on orphan lung as we hoped that was the best opportunity to help patients. Hearing the patient stories on nontuberculous mycobacteria, as well as Tyvaso DPI, are heartbreaking, but we are fundamentally going to extend and enhance people's lives as it comes to using our product and our technology to give them the freedom to live their life. With clofazimine, we are fully engaged in getting this ready for FDA submission in terms of a Phase II HOPE-3 study, and that's one study. On nintedanib, we're progressing that rapidly into Phase I. On 301, the team is working hard on the formulation, and we're almost ready to go to the next stage there. The TGF-beta study will provide its final report very shortly in the next couple of weeks. On the cannabinoid program, RLS just released recent data, and they're going forward with their second trial. On Fosun, we continue to watch that progress in the oncology space. One of the things I was discussing with some investors yesterday was how we start to help people understand our pipeline and the opportunity that we're going after. I think this slide is a good summary. When you look at NTM, there is a significant unmet need, with most of the drugs being generic and having severe toxicities. Competition is narrow, and our market value for this is in the $3 billion to $4 billion range. We look at this as about 58,000 patients affected by orphan lung diseases here in the U.S., with 15,000 in treatment. Japan is another large market for this opportunity. In the IPF space, the market is littered with failure. It's a very tough disease, called idiopathic pulmonary fibrosis because it's very hard to treat, and it's very hard to diagnose, along with difficulties in obtaining a consistent patient population. However, we believe the only two products approved are nintedanib and pirfenidone, which gives us an opportunity to reformulate nintedanib into an orphan lung-delivered product. We know that one of the significant looming side effects of nintedanib is dose-related adverse events, as they cannot increase the dose much higher. We're excited about this as there are 100,000 patients with IPF who need more options. On the cystic fibrosis side, I had the privilege to attend the CF conference this past weekend, where I heard about the great progress and life expectancy that has been extended in this patient population. Despite the life expectancy extension, there's a subset of patients that will continue to struggle with illness, as exacerbations and infections will persist. In fact, one of the conversations there was the fact that people getting better are masking infections because these patients are no longer producing sputum, raising challenges for continuing treatment. These are significant opportunities and challenges to develop drugs in this space, but I think it highlights the unmet need in the CF community and the interest the CF Foundation has in our product pipeline as we move forward. As every year, we lay out all of our milestones, we feel confident that we're on track to hit all of them. Nothing here is a surprise. In Q2, we released the 101 presold ABC results, and the MannKind 501 results will be available shortly. In Q4, we're lined up to have a great quarter, closing out the year strong and getting ready for 2023. I'll stop there and get ready for questions.

Operator, Operator

Our first question comes from Brandon Folkes with Cantor Fitzgerald.

Brandon Folkes, Analyst

Congratulations on another very good quarter. Maybe just two from me. You talked about the manufacturing of Tyvaso running 24/7. Can you just give us an update in terms of staffing? You obviously had staffing challenges across the board in 2022, but do you have the staff there? Do you have the ability to ramp up should this strong ramp of Tyvaso DPI continue? And then maybe just a point of clarification. I think you mentioned 60 additional sales reps that are going to target V-Go. Are these current reps that you have detailing Afrezza, or are these new hires to the company?

Michael Castagna, CEO

Great, Brandon. Thank you for dialing in this morning. Just to answer that one easily: it's our existing infrastructure. Why we bought V-Go is not to add a ton of more infrastructure to the diabetes business, but to leverage the existing infrastructure we have. So we have 60 current Afrezza salespeople across the country, and we'll be dropping V-Go in that bag around late January. So, hopefully, that clarifies that question. Regarding the Tyvaso 24/7 manufacturing, fortunately, we've had a really good year of staffing, with very low turnover relative to the market. The real issue with the ramp is continued production. That's where we have headaches. When equipment starts and stops, that creates problems. When equipment is running 24/7, it actually becomes more efficient over time. So our team is focused on ensuring that as we ramp up production, the equipment continues to manufacture and fill cartridges properly. We don’t anticipate needing to hire more people in the near term for production, outside of the scale-up facility. Remember, we're building a major expansion in Danbury, which will require some extra employees next year, and that will be reimbursed by United Therapeutics. We have already coordinated with UT to anticipate upside demand, and we will ensure we can supply that demand in 2023.

Brandon Folkes, Analyst

Mind if I just sneak one more in? Given your strong cash balance, I know you talked about getting investors to understand your pipeline. But how do you think about capital allocation going forward, given the strong position you've built in the company on your balance sheet now?

Michael Castagna, CEO

Yes. We had a discussion with our board last week regarding the future of the company and our 5-year plan priorities for investment. We view the company as needing to continue to run the diabetes business tightly concerning budgets and investment returns. We believe our pipeline has a tremendous amount of opportunity, and we will also seek external innovation. We haven't yet decided which of those focuses will be prioritized for 2023, but we do see Afrezza and V-Go off to a great start. We also believe there are some milestones in that business unit that will inform whether we should invest more heavily in 2024, particularly in pediatrics. Let’s utilize our data to drive some of the uptake of Afrezza moving forward into '24. We also believe you might see V-Go as a platform. That's something I don't want to elaborate too much on now, but it is an area we are considering as we prepare for next year as a way to potentially repurpose V-Go outside of diabetes. Additionally, we think about investments in automation to bring down our cost structure across the company, given inflation and employee impacts. We must find ways to obtain more efficiency throughout the company. An example of this is our decision-making around lab automation and how we can transition from a manual process to a more digital process. These are the types of investments that promote efficiencies as we continue to scale the company moving forward. Steve, I don't know if you have any additional comments on that?

Steven Binder, CFO

You answered that, Mike.

Michael Castagna, CEO

I am hopeful that I answered your question, Brandon.

Operator, Operator

And our next question comes from Gregory Renza with RBC Capital Markets. Your line is now open.

Gregory Renza, Analyst

Great, Mike and Steve. Congrats on the progress in the quarter. Mike, just to piggyback on the previous question regarding capacity. I'm just curious if you could provide additional color or highlights on that process through which you intend to meet the advancing demand. Any information on how you can lock down product currently, how that engagement works? And if you could redirect, you mentioned that the collaboration with others is healthy and engaging and strong. Do those engagement points change? Are there ongoing touchpoints that provide that closeness or that anticipation of demand and supply now that the product is launched and underway, as opposed to during the previous development process?

Michael Castagna, CEO

Yes. There are really two things concerning production: first is how much product we can spray dry and what the yield is; and second is how quickly we can fill those cartridges per minute. Currently, there are two different rate-limiting steps in that process. We're continuing to build efficiencies on cartridges per minute, and one of the production lines next year will be the fill-finish part of the cartridges. That will help determine how much we can produce to fill those cartridges. The other part that has shifted slightly is the dosing. We're seeing probably more diabetes patients than we anticipated, but on the flip side, higher dose patients also as they titrate off an ILD. So those dynamics drive production volume and time, as well as capacity. The good news is that every week we can adjust that production volume with the packager. We don’t foresee any limitations in the short term as we continue to monitor the launch phase on a weekly basis. We communicate with UT weekly to keep track of the demand, and feel good about our collaboration, ensuring prioritization of packaging to get this to patients and avoid stock-outs. For now, we are on top of it. With regard to capacity, we have ordered new equipment, and the manufacturing build-out is in progress. The construction is the rate-limiting factor, unlike the equipment itself, which you hear from many other companies buying more equipment these days. We feel confident about completing the expansion next year, preparing for 2024. We built the factory with the anticipated high end of demand. We expect that we have sufficient production capacity to meet the market's needs from where we stand today, but we can still see adjustments. I think that answers your question.

Operator, Operator

And our next question comes from Steven Lichtman with Oppenheimer.

Unidentified Analyst, Analyst

This is Ron for Steve Richman. I just wanted to ask if you can provide a bit more of an update on the BluHale launch. Are you experiencing any easing on the chip shortages that you spoke about in the past? You gave a new timing for Q2 '23. If you could remind us about the opportunity you see for BluHale?

Michael Castagna, CEO

I want to make sure I heard your question properly, sorry. You asked for any shortages on the Tyvaso launch and...?

Unidentified Analyst, Analyst

An update on BluHale. You mentioned that some of the issues with the launch were due to chip shortages, and are you seeing any easing with that? We have heard from other companies that shortages have been easing up a little bit, so I wondered if that affects you as well. If you could remind us of those opportunities you see for BluHale?

Michael Castagna, CEO

Sure. Yes, BluHale was limited in large-scale production due to chips. The main chip we were using has become obsolete, so we had to reprogram the motherboard and adjust the Bluetooth technology. We're on our next iteration that's nearly complete and should be ready shortly. We believe that by the time we aim for a Q2 launch, the chip shortage and parts issue should be resolved at least in the short term. What we're more concerned about is the reliability and consistency of the device, alongside patient feedback and experience. So far, the portal and the app look great, and the team has done an excellent job. I think this will be a valuable resource for patients. We're just working through the final technicalities of device licensing and other aspects, but we feel confident about the 2022 launch.

Unidentified Analyst, Analyst

Just a follow-up, could you remind us about the opportunity you see for BluHale?

Michael Castagna, CEO

The real opportunity, as we continue to go deeper into type 1s, is that technology, dosing, and feedback loops are critical. That's where we see a strong positioning for Afrezza. For some time, we have been striving to assist type 2s, but the type 2 market has become crowded with recent launches. We believe that Afrezza's best chance is within the type 1 market. Yes, we will obtain a foothold with Thompson's Omnipod, and we view Omnipod's success with the pay-as-you-go model as paralleling our offering. Based on the data sets we are observing, people are actively seeking faster insulin for faster control, which is evident on their CGM. We believe Afrezza is positioned uniquely well. And with the PET study readout, we expect to reinforce a new data set focused on type 1. Market research shows that as more doctors become familiar with type 1, they tend to utilize it for type 2 as well. With V-Go, we think it provides a natural segue for them to recognize the simplicity of our device for type 2s, representing a solid growth opportunity. We're confident about the co-positioning of these assets and how they deliver customer solutions.

Operator, Operator

And our next question comes from Robert Hazlett with BTIG.

Robert Hazlett, Analyst

Congrats on all the progress. It's terrific to see. So one or two from me. First, regarding gross margins for V-Go, I think you previously said they were at 40% to 45%, which aligns with expectations. Is there an opportunity for expansion of gross margin with that product? I’d love to hear what potential you see there.

Michael Castagna, CEO

Yes, I think there is. We just had Jeffrey, the head of manufacturing, in yesterday. It's going to require some investment in automation, but as I mentioned earlier, these are the types of decisions we can now make given the 2 to 5-year view on capital allocation. In the short term, it is always challenging to make investments in the company as we tend to focus on survival. Now our focus is on gross margin, profitability, and advancing our pipeline. We will strategize around those investments as they come to fruition. Looking back over the last five years, we took the risk-based decision to promote Tyvaso DPI and continued with our focus on pediatrics and Afrezza, and those decisions are now paying off. We believe the same is true over the next three to four years: how do we ensure V-Go will be here. We expect to invest in that product. You're right that the gross margin can improve through automation and manufacturing. We will also closely analyze our gross to net in '23 and ensure that we receive the value from payers we expect regarding formulary access, restrictions, and patient accessibility. These are critical elements to improve the profitability of those two products.

Robert Hazlett, Analyst

That's terrific. And then just one on the pipeline with regards to clofazimine. If you could elaborate on the goals for that program? Is it to reduce the adverse events, or perhaps the skin adverse events you see with the product in different routes of administration? What are the next steps, and when could we see any data in terms of publications of the results you have?

Michael Castagna, CEO

Yes. Well, first, I just reviewed a publication last night that's being submitted to one of the journals. That's exciting as it features our first animal data. The feedback on those comments has been very positive, particularly regarding the unmet need that clofazimine nebulization could provide. The Phase I data is also wrapping up, and we will publish that data shortly, displaying the dose range of effects and our observations regarding dosing. The FDA feedback will be essential here in Q4, and we have meetings scheduled for late December. This will help us gauge the green light to move forward with the Phase II/III design we've outlined. This doesn't guarantee the updating will agree with it or that all the endpoints will align. However, we hope to find some commonality with the FDA. There is a significant divergence between Japan's regulatory expectations concerning sputum conversion and those of the FDA around full form and function. We believe that clofazimine can meet both requirements. As you know, this disease is very challenging to treat, and achieving results takes time. Overall, we are confident that clofazimine will be a better, safer product for patients, effectively treating lung infections at the site without systemic side effects. Additionally, we haven't observed QT prolongation on our highest dosing patients yet after seven days, which bolsters our confidence regarding the safety profile. We believe clofazimine overall offers immense potential for patients with hard-to-treat infections.

Operator, Operator

And our next question comes from Thomas Smith with SVB Securities.

Unidentified Analyst, Analyst

This is Mike on for Tom. Congrats on a really strong quarter. On Tyvaso DPI, can you provide any color on the preliminary commercial and manufacturing trends that you're seeing? Additionally, do you expect any seasonality in the first quarter of 2023, and what other dynamics should investors consider when assessing the potential ramp there?

Michael Castagna, CEO

Yes. One thing I've mentioned to our investors is that they are attentive to Symphony data, and while that can provide some direction, I think UT will have a fairly closed distribution network. Therefore, not all those scripts will show up in the reported framework. We can only say so much, given that this is UT's launch, their product, and revenue. Our role is to manufacture and keep up with their demand. I do not foresee any issues. The team is managing inventory, demand, and product shipments very well. We maintain constant communication, so we're on top of it. Unexpected events can arise, but at the moment, we're optimistic. Each week, we receive orders, monitor demand, and adjust our supply chain quickly. It takes around 30 days to move through a batch from the time it's released to when it's packaged, so we can adapt quickly to demand forecasts. I found UT's report encouraging, revealing that referrals included 50% for a nebulizer and 50% for DPI. This is excellent as we anticipate growth in both areas. We are expecting Tyvaso DPI to grow and exceed $1 billion. Furthermore, the trends surrounding Medicare Part D are relevant for this process. The current cap on out-of-pocket costs for patients is anticipated to close in 2025. Consequently, those patients who have not transitioned will have that opportunity in the next 24 months. Treating this disease is complex; patients are trapped in challenging conditions and wish to extend their lives. Tyvaso DPI provides a lifeline, significantly improving their quality of life. I wish we could share more patient stories to reflect the positive relationships developing between patients and doctors. This motivation has energized our team and reinforced our commitment to advancing our pipeline, as we truly change lives.

Unidentified Analyst, Analyst

Got it. Yes, I really appreciate the helpful commentary there. As a separate question for me, with respect to Afrezza, you outlined some important milestones ahead. Is there a specific clinical or regulatory milestone you believe will be pivotal in driving the next growth phase for product sales?

Michael Castagna, CEO

I think next year is fundamentally about execution. Each year we aim for something new to spike growth for Afrezza, but COVID impacted our momentum over the past couple of years. It's not fair to investors to keep speculating on Afrezza's future directions. What we have resolved for the business is the purchase of V-Go and the consolidation of both business models for 2023. We’re focused on execution and harmony. If we consider an asset that might yield $80 million to $100 million, growing 10% to 20% annually, that's a healthy business for MannKind. We will continue to watch data readouts that suggest upside, but we want to bring clarity to where we currently stand. We aim to make Afrezza a profitable division, serving as many patients as possible with strategic financing for pediatrics being an important focus area. We believe children represent a significant change in type 1 care. Demonstrating as good as an Automated Insulin Delivery (AID) system will certainly be compelling. Achieving results in the pediatric segment presents a major opportunity, and these milestones will emergently influence our plans moving forward. This data's output will be pivotal. However, less so for the Indian studies focusing on type 2s, although these would still support our claim for Afrezza's success in that segment. Essentially, 1.5 million Americans live with type 1 diabetes, controlling about half the insulin market. We must provide children with the opportunity and visibility on Afrezza. Year by year, we'll improve, and we do have a roadmap, a plan, and a competent team to ensure progress is achieved. I am optimistic about 2023 and feel tailored to make real strides this year.

Operator, Operator

I would now like to turn the conference back over to Michael Castagna, CEO, for closing remarks.

Michael Castagna, CEO

Thank you, Daniel. Overall, a monumental quarter for the company. I am super excited about where we are with Tyvaso. The company is in the best shape it's ever been. We have the best talent we can possibly have. We feel great about our future. We continue to make changes and pivot toward the next five years. Afrezza and V-Go will excel in 2023, as we shift to an endocrine focus, ensuring that by year-end, this business unit is cash flow positive. Regarding our pipeline, you’ll witness substantial progress over the next 12 months as we bring assets from preclinical stages to Phase I, Phase II, and Phase III trials. This could mark a major opportunity for investors to recognize that value. Just like with Tyvaso, over the years, we signed a deal with UT back in 2018; few appreciated it until about 2021. I believe as progress continues on our pipeline, it will enhance understanding of our company’s worth. We're on the edge of something massive, and Tyvaso DPI is going to continue to astound as an impactful product. It has helped countless patients. Our goal is to maintain ahead of the demand curve and build inventory to ensure we can supply patients effectively. Overall, we are poised for a fantastic year in 2023. The current economic climate presents challenges, especially for biotech investors, but we believe MannKind is well-positioned for sustainable double-digit growth in the foreseeable future. We are truly excited about where we stand. Thank you.

Operator, Operator

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