Earnings Call Transcript - MNKD Q1 2024

Operator, Operator

Good afternoon, and welcome to the MannKind Corporation 2024 first quarter financial results earnings call. As a reminder, this call is being recorded on May 8, 2024 and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call until May 22, 2024. This call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, which could cause actual risks 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 afternoon, their earnings release, and the slides prepared for this presentation. Joining us today from MannKind are Chief Executive Officer, Michael Castagna; EVP and former Chief Financial Officer, Steven Binder; and Chief Financial Officer, Christ Prentiss. I would now like to turn the conference over to Mr. Castagna. Please go ahead, sir.

Michael Castagna, CEO

Good evening, everyone, and welcome to my 28th earnings call. I'm excited to share that MannKind has experienced another outstanding quarter of growth. Over the past eight quarters, our revenue has increased by more than 250%, reflecting the hard work and creativity of our team. This positions us for a revenue run rate of over $250 million in 2024. We have made significant advancements in inhaled insulin, which we anticipate will continue to drive growth in the future. I'm also pleased to update you on our initiatives to tackle rare orphan lung diseases. Thank you for being part of this journey toward growth and positive societal impact globally. Our mission at MannKind is to empower individuals to manage their health and enjoy greater freedom in life. This mission is evident in how our products positively affect patients every day. In Q1, we achieved record Tyvaso DPI revenue of nearly $48 million, thanks to strong sales by United Therapeutics and record production as we expand our facility. Furthermore, MNKD-101 has seen several key advancements, including Fast Track designation and preparations for discussions with Japanese authorities regarding future registration approval. We are also poised to initiate clinical trial sites in the second half of the year. Development on 201 is also moving forward with approval to advance to Phase I, which we expect to commence shortly. In our diabetes segment, we are seeing positive trends, especially given the previous challenges with Change Healthcare. In April, our volume increased by 7% year-over-year, and we anticipate the difficulties faced in Q1 will be resolved as we move into Q2. I'll provide more updates as our discussion progresses. From a financial perspective, Steve will offer detailed insights, but I want to express my gratitude for the team's efforts as we concluded Q1 with $304 million in cash, exceeding the previous quarter by $2 million, and achieved a GAAP net income of $11 million, thereby reducing our leverage as we entered Q2. With MNKD-101 and clofazimine inhalation suspension, we are venturing into an exciting field. We are preparing to develop our nebulizer version, which we believe will play a vital role in treating NTM globally. The prevalence of NTM is increasing, and there is a significant unmet need worldwide, presenting opportunities that could exceed $1 billion with two main competitors in the coming years. Many patients are in distress, and we are working diligently to provide them with new solutions. The demand is particularly high in the U.S. and Japan, which will host about 80% of our clinical trial sites. In the coming month, we will hold our investigative launch meeting for the ICoN-1 Phase 3 study design to discuss trial expectations, and we are pleased to report that 80% of sites are already in the contracting stage, with hopes to recruit our first patient by the end of Q2. We have reached an agreement with the FDA on our co-primary endpoints, and our Phase 3 study is on track. Additionally, we have the benefit of 12 years of exclusivity due to our orphan and QIDP designations. As we look ahead in our pipeline, we are focused on IPF and fibrotic diseases, including PPF and other pulmonary conditions for 201. The treatment landscape remains challenging, with only two approved products and many failures. Nonetheless, Ofev generated over $3 billion in 2022 and saw growth to about $3.8 billion in 2023, making this an exciting opportunity for us. We are optimistic that our product can compete effectively, and by offering an inhaled version, we may mitigate the side effects associated with oral Ofev and enhance dosing capabilities. Early data from our Rat PD bleomycin study indicates that the doses we are exploring can fulfill patient requirements. The 28-day tox study is completed, and chronic toxicity will align with upcoming Phase 1 data. We are eager to initiate human trials within the next month. Now, let's shift focus to our endocrine division. Our endocrine business grew by 7% year-on-year, driven by the success of Afrezza. However, growth from Afrezza was balanced by a decrease in V-Go sales. We reduced V-Go's sales support last July, and in January, we revamped our sales strategy to allocate more resources to Afrezza. This shift is already showing positive results, with a 7% increase in sales year-over-year in April. As we wrap up Q2, we expect to see continued benefits from these changes. We are enthusiastic about the new data on Afrezza and its potential impact on our growth trajectory. INHALE-3 is our Type-1 diabetes study, where we compared our product against standard care options like MDI and AID pumps. We utilized a new upfront conversion dose, and we've presented some of this data at ATTD. There will also be a meal tolerance test at baseline, followed by another at week 17. Our aim is to demonstrate equal efficacy to existing treatments, as this is critical for physicians considering patient options. We will determine whether to release our Conversion Figure 1 data separately or combined with PEDS data later this year, based on FDA feedback. Additionally, we anticipate another data readout later this year for the 30-week results, which will provide more insights into patient experiences. INHALE-1 is our pediatric study in the U.S., involving almost 40 centers, and we expect to secure pediatric approval in 2025 or later, depending on whether we file with 6 or 12 months of data. Looking at the growth opportunity for Afrezza over the next decade, we recognize that Type-2 diabetes will continue to be primarily influenced by GLPs. We are intensifying our focus on Type-1 diabetes through INHALE-3, which we began last year. With forthcoming data, we expect continued success in this area. The pediatric focus with INHALE-1 is a crucial milestone, as many diabetes innovations have originated from studies involving children. Furthermore, the increasing attention on gestational diabetes will further boost interest in Afrezza as guidelines evolve. These will be long-term strategic initiatives for Afrezza, some of which are within our control and others that are not. With that, I will now turn the call over to Steve Binder to discuss the financial details.

Steven B. Binder, CFO

Thanks, Mike, and good afternoon. I'm pleased to review select first quarter 2024 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 afternoon. The first quarter extended our streak of exceptional quarterly revenue growth, with total revenues growing 63% versus the first quarter of 2023. This was our eighth consecutive period of quarter-on-quarter revenue growth. Let's start at the top of the table with Tyvaso DPI royalties, which generated $23 million in first quarter revenue, a growth of 94% over 1Q 2023. If you listened to UT's earnings call last week, strong patient demand for this innovative product is driving growth in our royalty, which is based on UT's Tyvaso DPI net revenues. Collaboration services revenue of $25 million increased 118% versus the first quarter 2023, which mainly resulted from a higher level of production activity, a higher volume of semi-finished Tyvaso DPI units sold to UT with a higher average selling price per unit, and a new source of revenue, hitting certain SKUs of Tyvaso DPI instead of using a third party or sending to UT for kitting. Afrezza net revenue of $14 million grew 16% versus the first quarter 2023, which was primarily driven by a lower gross net percentage of 31% versus 38% in the prior year and a price increase. The lower growth to net percentage was mainly the result of a change in estimate for Afrezza product returns. Included in our first quarter Afrezza results is an unfavorable impact to net revenues due to the interruption of our co-pay card services when Change Healthcare had a cyber intrusion in February, which completely interrupted co-pay support as well as severely impacted the ability of pharmacies to fulfill prescriptions. Our co-pay program was down for approximately two weeks. V-Go dropped 16% to $4 million in the first quarter of 2024, which is mainly driven by lower demand resulting from transitioning our focus on volume growth to focus on profitability for V-Go. The next slide shows our revenue growth by source and basic earnings per share on a quarter-by-quarter basis over a rolling 8-quarter period from the second quarter of 2022 to the first quarter of 2024. For the first quarter 2024, the far right-hand bar, total revenues of $66 million increased 13% sequentially versus the fourth quarter of 2023 and are up 251% versus the second quarter of 2022, which is the first quarter of Tyvaso DPI commercial sales by UT. Our exceptional revenue growth is dropping to the bottom line, as you can see below the graph, where we show our quarterly basic earnings and loss per share. The first quarter of 2024 was the third straight quarter with net income and positive earnings per share, $11 million of net income and $0.04 a share, which was a significant increase over the third and fourth quarters of 2023. Moving on to our GAAP to non-GAAP reconciliation. We had GAAP net income of $11 million, which, when adjusted for select noncash items for the sold portion of royalty revenue, interest expense on liability for the sale of future royalties, stock compensation, and gain or loss on foreign currency transactions, which is related to our insulin purchase commitment, produced a non-GAAP net income of $15 million versus a 2023 first quarter non-GAAP net loss of $5 million. This is a $20 million quarterly year-on-year improvement. On the fourth quarter earnings call, I laid out our plans for deploying the $300 million in cash and investments on our balance sheet at the end of 2023 against our highest priorities. This slide is an update of what we discussed at year-end as the priorities have not changed since that call, but we have begun to execute the plan, as you can see from the comments highlighted in green. Now that we have Fast Track designation and FDA clearance to move forward with the Phase 3 clinical trial for MNKD-101, and FDA clearance to move forward with the Phase 1 clinical trial for MNKD-201, we will invest behind these trials to see them executed as quickly and efficiently as possible. As we look for opportunities to grow Afrezza faster from our new commercial model and upcoming data readouts, we intend to wait to see the results from INHALE-3 and INHALE-1 before making a decision on whether to increase investment behind Afrezza. Moving on to changes in our debt structure that were executed in early April. First, we paid off the mid-cap senior secured debt, which freed us of the encumbrances on our assets and discharged the associated debt covenants while eliminating our higher-cost debt, which had an interest rate of 8.25%. We then extinguished the convertible debt with another trust by converting part of the debt into 1.5 million shares to the contractual conversion rate and paid cash for the remaining outstanding debt. By paying cash, we reduced expected dilution by over 2 million shares that were backing the convertible debt. We also believe that the per-share price paid in cash of $4.31 was a bargain for the company as we see a price on our stock in this range as severely undervalued. We continue to evaluate the senior convertible debt as we get closer to the March 2026 maturity and intend to do what is in the best interest of shareholders. To summarize, we grew total revenue 63% year-over-year, another exceptional quarter for revenue growth, and we achieved our eighth consecutive quarter of revenue growth, which has us on a run rate of over $250 million in annual revenues. We recorded $11 million in net income, our third consecutive quarter of net income. Our growing revenue is being used to fund our capital allocation priorities and has favorably impacted our ability to grow net income and earnings per share. We ended the quarter with $2 million more in cash and investments on our balance sheet than when we started the quarter without needing to sell stock, raise debt, or enter into a BD deal, a first in my seven-year tenure at MannKind. As this is my last earnings call, I would like to thank Mike, the extended MannKind team, the MannKind Board, and those shareholders who supported us through the dark days when our continued existence was in question. And this support allowed the executive team to execute our strategy and build MannKind into a company that has a bright future and one that we can all be proud of. Thank you. And now I'll turn it back over to Mike.

Michael Castagna, CEO

Thank you, Steve. As you can see, we are experiencing growth as our revenue continues to rise, with more opportunities to leverage our infrastructure in the coming years. I want to officially welcome Chris and express my gratitude to Steve, as we couldn't have achieved this without him. So, thank you, Steve, for everything you've done. Chris, I'll give you a moment—welcome to MannKind.

Christopher Prentiss, CFO

Thanks, Mike. As you and Steve just highlighted in reviewing our quarterly performance, this is an incredibly exciting time to join MannKind. Some may notice from my background, but I'm actually returning to MannKind where I began my biotech career nearly two decades ago. The company I knew 12 years ago has undergone a remarkable transformation with growing revenue streams and a robust pipeline focused on improving the lives of people living with diabetes and orphan lung diseases. My focus is working with the team to expand upon the positive momentum as we propel the company forward. I look forward to engaging with all of you at an upcoming conference.

Michael Castagna, CEO

Thank you, Chris, and welcome back to MannKind. As we look at 2024, we have successfully met the milestones we set for Q1 and are on track for those in Q2. We are particularly excited about the second half of this year, and I want to mention the potential approval in India. There was a clinical review in India, and we are submitting the requested feedback. We anticipate market authorization with potential approval by the end of the year for a launch possibly in 2025. We will keep you updated on our progress since that information is now publicly available. Regarding our key value drivers, MNKD-101 is currently underway, and MNKD-201 has cleared its hurdles. We expect Ofev revenue to be around $3.9 billion, which represents a significant opportunity to assist many people globally. For Tyvaso DPI, with every 10,000 patients covered, we estimate revenue to be approximately $300 million to $350 million as we continue to project upside in our production. UT term studies may also provide significant upside potential. In our endocrine business, we see pediatrics as crucial, and we will have more information on that later this year, along with updates on our combination with INHALE-3 and the international growth of Afrezza. The diabetes market shows that around two-thirds of insulin sales take place outside the U.S., presenting a significant opportunity to help more individuals worldwide. We have been cautious about pursuing this rapidly, as we wanted to gather the data sets expected this year to prepare us for 2025 and beyond. As for engaging with our shareholders, we have a few upcoming events. Our annual shareholders' meeting will be next week online, so please submit your questions and vote your shares. I did mine last night. We have two upcoming scientific conferences in endocrine: the ADA meeting at the end of June and the CD meeting in mid-August. We will also be present at a lung disease conference, which is one of our first opportunities to attend as an NTM patient event, followed by the American Thoracic Society, both in San Diego in the next two weeks. Additionally, we will be at the RBC conference next week, followed by a Leerink conference in Boston in July, and we have just received another invitation for a conference in August, which we will update you about soon. Thank you again for your support. We look forward to our conversation next week and encourage you to bring your questions, which we will do our best to address. Thank you.

Operator, Operator

Our first question comes from Gregory Renza of RBC Capital Markets.

Gregory Renza, Analyst

Hi, Mike and team. It's Anish for Greg. Congrats on the quarter, and thanks for taking my questions. Just wanted to ask on INHALE-3. Maybe if you could just remind us and help us set expectations for the INHALE-3 readout at ADA in June, bars of success, and potentially any key takeaways or readthroughs from the previously disclosed initial meal challenge results? Then also, just a real quick thematic question. What's next in the collaboration with UTHR, the TETON studies and opportunities in IPF and PPF? Thanks so much.

Michael Castagna, CEO

Thank you, Anish. To clarify expectations for INHALE-3, most consider AID to be the best standard of care. We want to demonstrate that in a Type 1 diabetes context, Afrezza can perform comparably, whether looking at A1C, time in range, or other metrics. We have half of the patients on AID and half on MDI. We switched everyone to degludec, allowing us to have about 130 participants, divided between standard care and Afrezza. After 30 weeks, those on standard care will switch to Afrezza, enabling us to analyze the outcome of continuous Afrezza use for 30 weeks compared to the 12 weeks in the second switch or the initial 17 weeks. We expect to gather substantial data. The meal challenge test demonstrates that using our recommended dosing algorithm is both safe and effective compared to the standard care. This test illustrates that better mealtime control can be achieved in the first two hours after eating, which is critical. We know how to dose both products, but we cannot control patient and doctor behaviors in real-world settings. This will be interesting as we review trial results and overall data. A successful outcome means performing comparably to the standard of care when looking at results from both AID and MDI comprehensively. Regarding our collaboration with UT, we had an agreement years ago for potential partnerships and licenses. Our focus has been primarily on Tyvaso, and we considered other options like Imatinib. Those would have needed in-licensing by UT, but they chose not to pursue them. At the time of our discussions, we believed Tyvaso's potential would overshadow those other options, which turned out to be correct. We're now actively looking for meaningful clinical opportunities outside of PH while also moving forward independently. We have the capability to fund and expand, benefiting our shareholders and patients alike.

Operator, Operator

Our next question comes from Olivia Brayer of Cantor Fitzgerald.

Olivia Brayer, Analyst

Congrats on a great earnings. I just wanted to ask about your IPF program. As that moves into the clinic, how are you guys thinking about the path forward for MNKD-201? And have you considered potentially working with a partner there just considering how much interest there is in that market?

Michael Castagna, CEO

Yes. I think I'd say the same thing, Olivia, is that IPF obviously is a challenging disease for lots of reasons and lots of failures. We've been working on the INHALE intended program for many years, and it's at that stage now where it's just about execution, meaning we feel pretty good about the dose. We'll confirm that in our Phase 1 around tolerability, but now it's just moving these patients in and getting the results. And we feel that means if all works out, we should have a clear winner that can help a lot of people and deal with the No. 1 Achilles' heel of the market leader out there. And so, if you think about a $3.9 billion drug that's almost $100 million a week out the door in revenue, would I much rather have that for our shareholders versus a partner? I don't think in these diseases, you need a ton of infrastructure that we haven't already built. Meaning specialty support services, pharmacy distribution, wholesalers, patient training, and things like that. We have all that. And so it's really about scaling that up and providing the best quality service as possible for patients and providers. And so that's directionally where we're planning ahead. We think, financially, we can afford to make these trials go forward, and I think the data is going to drive those decisions as we get there. If we come to the ex-U.S. market, I think we'll continue to reassess those in terms of the go-through distributors or as their partners. But I think from our perspective in the U.S., we continue to progress independently.

Operator, Operator

Our next question comes from the line of Steven Lichtman of Oppenheimer & Co.

Steven Lichtman, Analyst

Thank you. Evening, guys. Chris, congratulations. And Steve, it's been great working with you. I guess I wanted to ask on the pediatric trial for Afrezza. What are the next milestones there? And, Mike, you mentioned potential filing at 6 months versus 12 months. When will we know which direction that goes?

Michael Castagna, CEO

When I review the competitive benchmarks, other insulins have received approval based on six months of data. However, the FDA has indicated a preference for 12 months of safety data. The critical question is whether we observe anything at the six-month mark that contradicts the thousands of patients we have analyzed in relation to Afrezza. If we find no discrepancies, we intend to submit our application indicating that most, if not all, of the patients will be completed by the time the FDA needs to approve the product. Therefore, we see no reason to wait another six months for filing. The FDA may have a differing opinion, but we believe that if the data is safe and tolerable, any positive findings could strengthen our argument, while negative findings would not be beneficial. We prefer not to engage in a timing debate with the FDA; rather, we prefer to await the clinical trial results before discussing it with them. So far, the FDA has been cooperative on all matters. Our objective is to aim for six months, and the data will determine our path, although we might have to wait for the entire 12-month period. Ultimately, only a few patients will be enrolled beyond the 12-month mark in 2025.

Steven B. Binder, CFO

Thanks, Mike. If you think back to last year, we talked about increasing our Tyvaso DPI bulk production by about 2.5x mid last year. So, as you can look at our quarterly revenues, third quarter, fourth quarter, first quarter this year, they've been growing. So expect higher activity in sales to United Therapeutics, which allows us to recognize the revenue. We also had a couple of things in Q1 that may not repeat. One is that we had a higher level of inventory for Tyvaso DPI at year-end and a lower level at the end of Q1. So that inventory sold through in Q1, so we got to recognize that revenue. We also had some PPQ testing on our fill-finish line that we could recognize revenue on. And then we also have deferred revenue. If you call back, we had deferred up over $70 million worth of deferred revenue in the first couple of years of this contract. We're starting to actually see that come through and get recognized because that needs to get recognized by 2031, which is the end of the manufacturing contract. So, it was about a $1.5 million deferred revenue that got recognized in Q1, and you'll start to see that every quarter going out to 2031.

Michael Castagna, CEO

Steve, just to add to that, the PPQ, we will see additional PPQ billing this year. Steve, that will be important because we're validating the spray dryers, and we're validating additional strengths. So that will be recurring to answer that question. And then there's kitting that we're doing that should also be recurring that was new for us this year. So those are two things that should be recurring as we go forward for the next couple of quarters.

Operator, Operator

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

Thomas Smith, Analyst

Thanks for taking the questions, and congrats on the strong quarter. A couple of questions, I guess. First, on 201, the inhaled intended program, you mentioned plans to fund a Phase 2/3 study in 2025, pending the Phase 1 results. Can you just comment on how you think about the potential regulatory path here in IPF and whether there's potential for registration on the basis of a single pivotal study or whether your base case is that you would need a second study to enable registration there?

Michael Castagna, CEO

I would say it's too early to comment publicly on those things. You can see an example where a single trial could be required with a sense of endpoint, like IPF specifically. And then the question is can we get extrapolation to PPF, for example, or would the FDA say, do one indication, and that could be enough for approval? And if you want the other ones, you have to do another small study. I think the precedent, personally, is there. When you look at biosimilars, as well as Tyvaso DPI, where we got ILD and PAH, their biosimilars, you're getting the full label, not just a specific indication, even though you study in one. So I think a lot of that's TBD. We're going to have an end of Phase 1 meeting with the FDA that's ultimately going to drive that next phase of discussions, and I think that's going to be important. Yes, some of the researchers involved in the INHALE-3 study observed the post-meal challenge results at ATTD, which led to discussions about effectively managing postprandial sugars within the first two hours. Since injectable insulin takes about 90 minutes to begin working, it's challenging for a gestational woman to lower her sugars in that timeframe. The researchers felt that the results from the meal challenge could influence their goals and guidelines moving forward. Additionally, there have been requests to contribute a drug for a PK study to confirm that gestational women can inhale at the same rate as adults, which we have no concerns about. We would want to obtain this data to support that demographic. There's also a large trial underway in which they would like our participation; however, we would not fund it and would only provide the drug and support if a third party finances the project. The crucial point is determining how we can support this initiative and what the market demand will be. While we are not considering a large pregnancy trial at this time, we are keeping the option open for the future, pending the outcome of the PK data. Currently, there are only two medications available for these patients: metformin and rapid-acting insulin. Researchers are interested in a treatment plan lasting approximately 12 weeks that integrates with continuous glucose monitoring (CGM). We are engaged in internal discussions to ensure we feel confident about the overall situation and requests.

Operator, Operator

I'm showing no further questions at this time. I would now like to turn it back to Michael Castagna, CEO, for closing remarks.

Michael Castagna, CEO

I want to clarify a point that some of you have raised in emails regarding our outstanding share count. Our share count hasn't increased despite reporting a profit in a quarter, so the average share count stands at $270 million, compared to $263 million last year. It hasn't risen as much as some of you might think on the retail side. I want to thank Steve again for a great quarter. We're performing well, and our teams are working hard for you. We have many upcoming meetings with ATS, including patient and physician advisory boards, and investigator meetings. I believe MannKind's reputation in the inhaled orphan lung space will significantly improve this year, and we expect to provide updates on clofazimine's progress every quarter moving forward. Getting through the earlier stages was challenging, and we’re now positioned to enter Phase 3 trials, which is a crucial step toward delivering this treatment to patients as swiftly as possible. We are in our strongest financial position yet and have been focused on reducing company debt. We will continue prioritizing what's best for our shareholders, carefully allocating capital and managing expenses. I look forward to seeing some of you at the upcoming investor conferences, and please feel free to ask questions next week. We always want to maintain open communication with our shareholders as we have much to share about our exciting future and our hopes for continued strong performance in the coming years. Thank you.

Operator, Operator

Thank you for your participation in today's conference. This does conclude the program.