MannKind Corporation (MNKD) Q1 2016 Earnings Report, Transcript and Summary

Welcome to the MannKind Corporation 2016 First Quarter Conference Call. [Operator Instructions]. Joining us today from MannKind are Chief Executive Officer Matthew Pfeffer, and Principal Accounting Officer Rose Alinaya. I would now like to turn the call over to Ms. Rose Alinaya, Principal Accounting Officer of MannKind Corporation. Please go ahead.

Good afternoon, and thank you for participating in today's call. Before we proceed further, please note that comments made during this call will include forward-looking statements within the meaning of Federal Securities laws. It is possible that the actual results could differ from these stated expectations. For factors, which could cause actual results to differ from expectations, please refer to the reports filed by the company with the Securities and Exchange Commission under the Securities and Exchange Act of 1934. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast May 09, 2016. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this call. I now turn the call over to our CEO Matthew Pfeffer.

The first quarter of 2016 had many challenging transitions for the company but we believe that MannKind 2.0 strategy to commercialize ourselves and leverage our Technosphere platform for future growth is the right one to deliver long term benefit to patients and shareholders like. In the first quarter of 2016 our mission was to transition Afrezza back to MannKind while ensuring no interruption of supply to our users. We executed on that plan and we’re very happy to announce the return of Afrezza rights on April 5th. Also in the first quarter we completed our first licensing of the Technosphere platform to Receptor Life Sciences and we recognize that 250,000 signing fee, payment from them in our first quarter financial results. This first program milestone payment from [indiscernible] is expected in the fourth quarter as we complete initial product development milestones. I will now expand our blueprint for the remainder of the year. Building a commercial organization from a ground up is our main objective in the second quarter. Our commercial leadership team is now in-place Mike Castagna that’s head while his two key Vice President's. We expect to have a diabetes nurse educators deployed by the end of this month and we’re in the amidst of hiring a 60 to 70 person U.S. wide sales force which will be in the field by the end of June. On the Medical side, our Chief Medical Officer, Ray Urbanski is currently recruiting a VP of Medical Affairs who will deploy a team of geographically based medical science liaisons. These MSOs are charted with building relationships with key opinion leaders, professional organizations and patient advocacy groups within the diabetes market. Saleswork will support field sales activity and will also leverage our medical information capabilities including a professionally staffed call center which has been in place since April 5th, MannKind will have a presence at the ADA Conference in June with Afrezza the focus of six abstracts to be presented including four papers related to the characterization and differentiation Afrezza PK, PD profile which we believe to be critical differentiators of Afrezza compared to other insulins as well as two papers related to the safety and efficacy of Afrezza specifically around pulmonary function. In addition we've secured a modest booth at ADA and anticipate staffing it with company personnel. In the second quarter, our R&D organization has been continuing to develop inhaled formulations of epinephrine for Anaphylaxis, and [indiscernible] which Ray Urbanski has talked about in prior calls. For each of these compounds our initial evaluation criteria, our aerodynamic performance and ambient temperature stability for epinephrine which was the last program to start but which is rapidly pulling into a lead position. Two formulations have been tested both of which met our performance criteria and we will now evaluate their PK profile during this quarter, a total of six formulations of [indiscernible] have been prepared and evaluated on the two criteria and four of those formulations are moving to PK profiling with additional formulation development work on all four are continuing through the quarter. Of the palonosetron formulations we tested both showed acceptable aerodynamics but will require additional work to improve ambient temperature stability. Also in the second quarter, our clinical development group established a steering committee of several well respected pediatric diabetes investigators to develop a revised protocol for our pediatric study. Additionally, we have engaged the Juvenile Diabetes Research Foundation to provide inputs to our protocol and our meeting with them this week on this topic. We're evaluating amendments to the protocol to support approval criteria needed in certain international markets. We expect to have this protocol finalized in the third quarter and can provide more guidance then. The third quarter marks our launch of MannKind branded Afrezza to the commercial market. Our manufacturing pm has been working overtime. I'm pleased to say that we are now in production of MannKind branded product of Afrezza. Shareholders who will attend our May 19 Annual Meeting in Danbury will have the opportunity to tour our production facility and see firsthand our fill finish lines producing product carrying the MannKind brand. That branded product will be in commercial distribution channels starting in July by which time our field salesforce will already be calling on doctors. Over the course of third quarter MannKind branded product will supplant the Sanofi product already in the channel as MannKind SKUs, come out of production and begin shipping. Generally distributors will continue to ship existing Sanofi inventory until it is depleted at which point MannKind SKUs will be stocked. We expect that any unsold Sanofi inventory at the end of the third quarter may be returned. This orderly transition benefits mankind in Afrezza patients as it allows MannKind to introduce it's branded SKUs in a coordinated way while still ensuring continuity of supply to a Afrezza users. MannKind will continue to be credited with 35% of profits from Sanofi branded sales in the quarter as part of our collaboration accounting. Sales of MannKind branded product will be included as sales in the income statement. In the third quarter, our commercial team is charged with getting in front of our target physicians and rapidly building the prescription count. While we acknowledge the prescription count to been slowed in recent months this is attributable to concerns in some quarters about the future of the product giving some doctors pause before prescribing it or redoing prior authorizations with use insurers. Given that we're gratified that our loyal patient base is hang in there and we're looking forward to adding to that base as our most important goal during the balance of the year. To support that goal we have several new programs also launching in the third quarter. First we'll have a new spirometry solution for providers which will minimize the need for patients to go to multiple doctors and will eliminate one of the hurdles for starting patients on Afrezza. In addition, we're launching a new sample program which will include revamped sample packs to give patients a better initial experience. In the past, patients who received sample packs were given four unit packs of 30 cartridges, patients who needed more than four units per meal found their sample packs ran out before they got their prescriptions filled. Those who stretched the sample pack to last the 10 full days found they didn't get sufficient efficacy and too often didn't feel to renew their prescription. So we'll have two new sample packs, one will be a combo of four and eight unit cartridges and the other will be eight and twelve unit cartridges improving the patient's initial experience on the brand. We are also introducing a new starter titration pack for Afrezza with a combination of four unit and eight unit dosage strength to enable new users of Afrezza to more easily titrate to the dose appropriate for them during the initial 30 to 60 day onboarding cycle. In addition, we will launch a new patient reimbursement support hub in July to eight patients with insurance and preauthorization processes. We have feedback from the top of Afrezza prescribers who are very supportive of these programs. Our marketing efforts during the third quarter will support sales by centering on direct contact with the target doctor population of endocrinologist, hyper scribing, primary care physicians and current Afrezza prescribers. Our message to them is that Afrezza is here to stay, offers our targeted patient population important advantages and we have a team and programs in place to support patients who try the product and to maximize their success with the product. The fourth quarter will be our first full quarter of sales with we hope only MannKind branded product being sold. And all Afrezza sales booked as revenue on MannKind's income statement. During this quarter we will look at not only prescription counts but also revenue trajectory as leading indicators for what 2017 holds in store. Additionally our medical organization will implement clinical based work to support the appropriate use of Afrezza in our target population. Specifically, we tend to initiate small, fast and inexpensive studies to demonstrate improved dosing and titration recommendations for our Afrezza users. These studies will draw on the experiences of our most successful patients and doctors prescribers and we thank them for their invaluable inputs. We're also planning a time and range study for patients with access to continuous glucose monitors. Our plan is to target these studies for pop publications initially with a potential to evolve into a label expansion study thereafter. We continue to have a high interest from a number of potential international partners interested in adding Afrezza to their portfolios. These partnerships are strategically attractive and will continue to progress in tandem with our marketing plans in the U.S. but these deals will not be completed in our target timeframe for financing. Therefore, we still have yet to address that but we expect to very shortly. So I will appreciate your patience as we're quite close. Our commercial organization will cost in the range of 20 million to 22 million through the remainder of the year. As you'll hear in Rose's presentation of our first quarter financials in just a moment, we've continued to realize cost savings in other areas and anticipate offsetting some of these increased expenses with the reductions in these areas. In addition, with the full value of product sales of our own branded product coming to mankind during the fourth quarter we're in a better position to benefit from a ramp up of sales. As a result of all of the above we expect our cash burn rate to remain approximately 10 million to 12 million per month for the remainder of the year more or less the same ratio of burn as we've been reporting for about as long as I can remember. With that I would now like to turn the call over to Rose Alinaya, our Senior Vice President and Principal Accounting Officer who will run through our first quarter financial results and thus discuss further some of our financial projections before we open the call to your questions. Rose?

Thank you, Matt. Turning now to the financials, the net loss applicable to common stockholders for the first quarter of 2016 declined to $24.9 million or $0.06 per share compared to the net loss applicable to common stock holders of $30.7 million or $0.06 per share for the first quarter of 2015. Research and development expenses were $5.1 million for the first quarter of 2016, a decline of 45% compared to the same quarter in 2015 largely due to the reduction in force and closure of our Paramus, New Jersey facility in 2015 and reduced development expenses as we transition to commercialization of Afrezza. General and administrative expenses were $7.4 million for the first quarter of 2016, a decline of 30% compared to the same quarter of 2015 primarily due to the risk and closure of our Paramus office in 2015 in addition to reduced professional fees related to strategic planning activities incurred in 2015 and lower non-cash, stock compensation expense. Product manufacturing expense was $7.5 million for Q1 2016 due to the underutilization of our manufacturing facility during the quarter. As a facility was nearly at idle but also included a loss from foreign currency translation of $2.4 million related to prepaid purchase commitments. For the first quarter of 2016, our portion of the loss sharing arrangement with Sanofi related to Afrezza was $5.5 million. The amount outstanding under the Sanofi loan facility is now $68.8 million which includes 2.8 million of accrued interest. Under the terms of this facility it is not due for repayment until August 2024. Cash and cash equivalents were $27.7 million at March 31, 2016 compared to 59.1 million at December 31, 2015. In the first quarter of 2016 as Matt mentioned we received a signing fee of $250,000 from Receptor Life Sciences pursuant to our previously announced collaboration license agreement. In addition our employees continue to exercise their stock options resulting in $467,000 in proceeds this quarter. We still have $30.1 million available to borrow under the amended arrangement with demand group. Our recently filed universal shelf registration became effective a couple of weeks ago along with a prospectus supplement to refresh our $50 million ATM facility. There was no use of our ATM facility during the quarter or year to date. We expect G&A to remain relatively flat for the remainder of 2016 as a result of the restructuring measures we affected last year which will be offset by an increase in professional fees related to the Sanofi termination. We anticipate our overall R&D expenses will decrease compared to 2015 due to our focused efforts on the commercialization of Afrezza this year and minimal incremental costs associated with our development pipeline. We will incur sales and marketing expenses this year as our commercial effort intensify. With the exception of last quarter's inventory write off we expect product manufacturing expenses to remain relatively flat as compared to last year with sufficient inventories of critical raw materials on hand. With that we would like to open up the call for questions. Operator?

[Operator Instructions]. And our first question comes from Adnan Butt from RBC Capital Markets. Please go ahead.

I will ask two please. First, in terms of raising capital, Matt. How long do we wait for you to give us some more definitive strategy? Is it going to be equity debt partnership or some combination when do you think you'd be able to provide an update there? And then just secondly on your more detailed selling efforts could you tell us that for your targeted endocrinologist and high prescribing GP focused targets. How many prescriptions they write or how many patients do they see overall? Thanks.

Okay, so let me try to answer the first part of that query real quickly. It's going to be a little bit difficult, I mean we've been pretty open that a large portion of our strategy is revolved around opening some international markets and doing deals as our first preference for raising money. That said we can't wait forever and if we need to do a small equity financing there device full time we will do that. I hope will be in a position to answer that question with more details and specifics very. Frankly I have to go to do it by now, that didn't work out quite the way I thought it would but it should be imminent I believe and all I can do is ask for your patience and hope you'll stay tuned. I have taken the liberty of well that we’re not speaking roles on this call for Mike Castagna, our Chief Commercial Officer or for that matter Ray Urbanski, our Chief Medical Officer. I did ask them to attend just in case there were questions that were more properly answered by them, so I will take advantage of that and have Mike answer your question about the prescribing patterns and support.

On the number of targets we’re just finalizing territory alignments but we're pretty close over the next few days. It will be 5000 to 7000 Thirty targets and that’s really up to us to cover all 5000 or 7000 just depending on how many people we want to hire but the coverage is approximately 65% of the insulin market just to give you rough number and obviously depending on the type of prescriber some may see 30 patients a day, some may see 50 patients a day. The doc side that we’re in touch with are seeing 30 to 50 patients a day easy and so I think the top decile [ph] perscribers is probably what you can expect that we're looking at is somewhere between 20 and 50 patients today is what they are seeing.

Okay and if I can just follow up in the same path, what do you find to be the hurdle from the parasite, so is it more getting doctorish to write more prescriptions or is it converting those prescriptions into something [indiscernible]?

I will try that question, a little bit, there is a couple of nuance in there, I don’t want to get into the call, but the first one is Medicare Part D contracts, as you may or may not know take 12 to 18 months in advance to secure. So we didn't have that opportunity to get the product back on April 5th to lock those in for '16 and '17, we’re working on closing that gap where we can so that that population were looking at a few different solutions on and see where we can get Medicare coverage we will, that takes a little bit of time just given all the regulations in that space, On the commercial side again we just got the product back about a month ago, we've been in touch with all the top players already, understand there are some opportunities but we're trying to do is really gauge how much of the volume can be accounted comfortably approved through prioritization process as opposed to trying to renegotiate existing contracts that are already out there for '16. So we will have updates on that over the coming quarter but I don't want to go into too much detail given there's a lot more detail in managed care and we have to cover -- not covered but we will have that in the near future. But I will answer one less thing on that one, we’re seeing roughly 7 out of 10 patients get approved through the prioritization process and I think that's a comforting statistic as we go back out there to see when doctors do [indiscernible] that they are getting approved.

And our next question is from Keith Markey from Griffin Securities. Please go ahead.

I had a question, I was wondering if you could elaborate a little bit on the use of the diabetes nurse educators for us?

Sure. I mean typically they're used to call on the centers who have nurse educators to provide them support. They can also be used for patient trainings and community seminars and they can be potentially used for depending how we go about our spirometry program, they can also be used for implementation in training around that.

So these could be events sort of event gatherings of patients who are new to Afrezza or thinking of join in you know using the drug?

Correct. It will be HIPAA so I think that's the key we're looking at making sure they can interact with health care professionals and patients at the same time.

And then I was wondering if you tell us a little bit about the timelines for development of the epinephrine product as we see it leverage as far as you can go, I would be happy. Thank you.

So with the epinephrine program we are progressing with as Matt said with a couple of formulations that we will believe will be able to bring in through clinical testing, so we're looking at having a pre-IND meeting with the FDA sometime in the November timeframe with a IND filing sometime in January. Clinical phase activities will probably start sometime later in '17.

We have no further questions at this time. I will now turn the call to Matt Pfeffer for closing remarks. Well thank you all very much for your attention. We look forward to reporting progress on the sales front and working on other important developments including our pipeline, collaboration's and international expansion during the remainder of the year. We're preparing for our annual stockholder meeting in Danbury and look forward to seeing if you're able to attend. With that thank you once again.

Thank you ladies and gentlemen, this concludes today's conference. Thank you for participating and you may now disconnect.