Welcome to the MannKind Corporation First Quarter 2019 Earnings Call. As a reminder, this call is being recorded on May 07, 2019, and will be available for playback on the MannKind Corporation website, shortly after the conclusion of this call until May 21, 2019. All participants will be in a listen-only mode for the duration of this conference. [Operator Instructions] Joining us today from MannKind are Chief Executive Officer, Michael Castagna; Chief Financial Officer; Chief Financial Officer, Steven Binder; and Rose Alinaya, Investor Relations. I would now like to turn the conference over to Rose Alinaya. Please go ahead.

Good morning, and thank you for joining us on today's call. As indicated on Slide 2, I need to advise you that 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 our risk factors, please see the 10-Q report filed with the Securities and Exchange Commission, the earnings release and the slides prepared for this presentation. I will now turn the call over to our CEO, Michael Castagna. Mike?

Thank you, Rose. Today, I'm going to go through Q1 highlights and give you some perspective on how we see the year shaping up. Number one, we are focused on enhancing shareholder value on the four key pillars outlined on this slide that we laid out, over the past 24 months. Overall, we looking to implement a cohesive strategy to transform the Company with an entrepreneurial spirit that drives innovative solutions. The first pillar in this is our partnerships, and as you've seen us continue to announce United Therapeutics updates as recently with the $12.5 million milestone received. Cipla, I had the pleasure to be in India recently to go and help secure the pathway for regulatory approval. Biomm, where we expect, hopefully, approval, surely in Brazil. And Receptor Life Sciences in the cannabinoid space that looks to hopefully launch in Canada and beyond. When we bridge over to the Technosphere platform, United Therapeutics was one of the molecules that we announced last year with Treprostinil. We continue to have a very strong partnership and move together as we think about BluHale connected care and manufacturing facility capabilities. The next milestones related to United Therapeutics are things that we control. I'm very proud to announce that during Q2 we started to build out the factory to make high-potency molecules, which establishes a new capability within MannKind. Additionally, BluHale continues to help integrate our platform with other pipeline molecules and Afrezza, as we think about how to get into connected care in the future. Next is Afrezza. Afrezza, as we all know, was approved back in 2014 and launched by MannKind in Q1 of 2017. We continue to highlight new scientific data that articulates the profile of the product, as I'll show you in a second, with the One Drop study…

Thanks, Mike, and good morning. It's my pleasure to discuss and highlight our first quarter 2019 results, which show a 5x growth in total revenues over first quarter of 2018, $12.4 million in revenue recognized from our collaboration and services agreements with United Therapeutics, a 49% growth in Afrezza net revenue versus first quarter of 2018, the achievement of consecutive quarterly Afrezza gross profit and net cash used in operating activities of only $11.6 million. I'll be discussing select financial highlights and urge you to read the condensed consolidated financial statements and MD&A contained in our 10-Q, which is filed with the SEC this morning. First, let's review our sources of revenue for the first quarter of 2019. Starting with the left hand table, total revenues for the first quarter were $17.4 million versus $3.5 million for the corresponding first quarter of 2018. A 404% increase comes from both the recognition of revenue related to the United Therapeutics license and research agreements of $12.4 million, as well as growth of 49% in Afrezza net revenue to $5.1 million for the first quarter of 2019. The Afrezza net revenue increase was favorably impacted by volume, cartridge mix, as Mike showed earlier, and price. Afrezza gross to net of 38% was 3% higher than the first quarter of 2018. We benefited from a favorable adjustment related to estimating our gross to net liabilities. In addition, both gross and net Afrezza revenues in the first quarter of 2019 improved due to a lower level of free goods or vouchers received by patients versus 2018. The table to the right of the arrow shows how Afrezza net revenue for the first quarter compared to demand TRx at WACC, adjusted for gross to net, as Mike just showed you, was unfavorably impacted by $0.9 million…

Thank you, Steve. And as you can see, we continue to be very prudent with our capital allocation and the cash on hand that we have, as you think about our Q1 burn with TV included, and that was due to the resources and choices we made coming into the new year with restructuring our sales force and a different focused commercial effort. I am going to bridge over to talk about some of the Q2 initiatives you can see. So, in Q1, we focused an effort on DTC, to try to enhance patient demand and request. While we didn't see maybe as much upside as people had expected in our prescriptions, we did get a lot of evidence of getting into places that we've never been in, such as academic centers. I can tell you from my own dinner events, I've traveled the country, met customers. When I used to go to dinners, 5, 10 people would show up, I had packed rooms everywhere I went during Q1, of over 20 people each time. These events enable us to continue to educate others, so if you can get 20 endocrinologists in a room, they typically have another three or four partners, that's how you start to impact 15 to 80 people at a time. So we're very excited that we continue to get in, educate customers and help them learn how to choose and adopt Afrezza and understand the clinical knowledge that exists and the data we presented recently. In Q2, you may have seen or heard about our non-branded campaign. We are now starting to move into Phase II of change in behavior and this ad on the left side is really the first of many as we expect to produce. This one you'll continue to see during…

[Operator Instructions] We'll take our first question from Oren Livnat with H.C. Wainwright.

Hi guys, thanks for taking my question. I think we saw prescription, at lease in IQVIA down quarter-over-quarter in Q1. And can you just talk a little bit about what that's from, how much of that's just seasonal, I guess, copay, assistance, disruption and insurance and also what are your leading indicators telling you about prescriptions in Q2 and going forward? Thanks.

Oren, great question. Thank you. So when you look Q4 to Q1, there was about an 11% decline in TRxs, and if you look across the industry, specifically within diabetes, but I think you'll see amongst other companies. Outside of diabetes the high-deductible health plans definitely showed an impact in Q1 across the industry, where people obviously usually try to squeeze in one last three fill in December and we know that typically creates some softness, as we go into January and February and we start to pull out in March. That's no different than the last couple of years. We were hoping to overcome some of that decline with the DTC. We are continuing to see that decline, unfortunately, and I think the change in the air, I'll tell you, from my industry colleagues is really is -- high deductible plans, people are delaying filling their medicines unfortunately and trying to use up maybe their overstocked supply they have in safety or stretching out their meds as a pay by month. So nothing unusual in our business. We saw a recovery through March and April and we continue to see prescription trends look positive as we look at our copay card downloads, our copay card utilization, all of our indicators are back in the right direction at this point.

Alright. And cash a little bit. So obviously you guys are pretty well stocked up, at least historically speaking. Excluding that United Therapeutics milestone, I think my math says it was about a $24 million burn, obviously including that hefty DTC spend. So where should we expect spending I guess to go in Q2 and beyond? And I guess, bigger picture. I mean obviously scripts are slowly and steadily growing, not as much as you'd like, but I have no doubt they should continue to grow long term. But is there any way to right size the business realistically around the overall magnitude of this product?

Yeah, I think there's two comments I'll make on that Oren. The first is, cash, cash flow. So yes, you can see there's $24 million, including a $9.3 million in DTC and we were able to offset some of the expense with the restructuring of our sales force and holding our expenses tightly. So as you think about the next 12 months, we expect $12.5 million from United Therapeutics in the second half and we expect another $12.5 million in the first half of 2020. So there's $25 million more in cash coming in the Company, we expect there. And we believe Afrezza will continue to serve growth quarter-over-quarter for the rest of this year, and just depending on that trend, we'll drive the decisions you just asked about, which is, is there a way to manage our overall cash burn, consistent with the revenue expectations, and I think we continue to believe there will be an inflection at some point beyond the trends we've seen, but it's really a question of when and we'll continue to monitor our cash. But at this point, I think it's important, as I stated earlier, the financing plans we laid out and what we put in place, and with the United Therapeutics milestones, we expect to be able to get to mid-2020. And the only reason I'll give further guidance is, is we just want to see what that Afrezza trend is. So we obviously have some flexibility on managing our expense base. And I think that we always keep our optionality around that and I think that's where we have choices around, do we start the Ped study early or late. We have to start at some point, but we do have some flexibility on certain things, depending on how sales trends are going. And I think that's really our real focus, is to continue to invest to grow faster, but at some point we can burn the type of cash we are, if we don't see this becoming a very meaningful growth driver in the future.

And you just mentioned that Ped steady. Can you help us understand exactly what this plan is with these cohorts, and where this development program is going and just ultimately what kind of timing should we look for on this becoming an actual incremental opportunity?

Yeah. So the first phase took us a little longer than we'd like, which was good and bad unfortunately for us as a company overall, because we, at the time when we started, we probably couldn't have started Phase III when we wanted to. So the fact that this took a little longer in cohorts one through three, I think the timing works out better overall for the Company. But when you think about each cohort, its dosing by age group, so it's a single PK study followed for 30 days. And so cohort 1 was 13 to 17 year-olds, cohort 2 is 8 to 12 year-olds and cohort three is four to seven year-olds. So we have to keep dosing down to prove that Afrezza absorption in kids is consistent with that of adults. And so the good news is, one thing we hear often from doctors who've never used the drug is I need a 2-unit cartridge, because doctors think they are dosing so accurately and I remind them how many patients use three units of insulin a day, because it's basically what you're getting with a two-unit cartridge and they recognize it's not a lot. And so with kids, so far down to the eight year-olds, we can safely say four units dosing is working fine and in fact we see kids going up to eight in the four to 12 and 13 and beyond. So we feel good about our dosing so far down the eight years-old. The next cohort three, which we'll open up, will continue to look at is the four-unit cartridge appropriate or not. And then once we get cohort three opened, we will go head, submit a protocol to the FDA for a Phase III trial design. And that's really what we're in the middle of right now, is what should that Phase III trial design look like to accelerate enrollment. And so, for example, if you go against MDI, one of our challenges with these dosing study is you can't be on an insulin pump. And for you to come into the trial, you have to come off your pump, get on injectable and then switch over to Afrezza, that's a multi-month process and not easy for many parents and patients to want to do. So that's the lead enrollment. And then we have some -- IRBs take a little longer to open up, but we're basically at 12 sites and we expect cohort 3 to go a lot faster than cohorts 1 and 2. And so, we're just literally on the cusp of talking with the chairman of the program today actually and hopefully opening up cohort 3, which will get this study moving and closed out where we can start to move to the large Phase III study.

All right, thanks.

And we'll take our next question from Pasha Sarraf with SVB Leerink.

I'm sorry, what looks like in the prescriber base?

Okay, great. Sorry. So on the DTC, I think we're waiting, because SYMPHONY had some data issues in the quarter, and so we're waiting for that restatement, which we actually get tomorrow. And once we get that restatement, we'll be able to start to analyze the DTC by district, by area. So for example, we kept 10 markets on throughout the entire campaign and then there are other markets where you flight in for two, three weeks and you take a break and then you flight in. And so we'll be able to see the level of investment by market and what happened to drive demand in terms of new writers, NBRx, total prescriptions, refills et cetera. So those analytics will take place. It's one of the reasons we stopped DTC at the end of March was to give it time to see what happens, A, when you stop the copay card downloads -- copay card redemption, but also allow some time to measure, because it was a big investment and you don't want to continue to burn at that rate, if you don't think you're going to anticipate that's a huge return on that investment. So we're measuring it and we will give you updates once we have that data in-house, but we need to wait for the restatement of SYMPHONY, which again is coming tomorrow. On the prescriber growth, one of the interesting details I was looking at was, we're up to 2% market share, a little above 2% through April on the doctors that we target who are actually writing Afrezza. So when you look at our target list and we had a little over 2,400 prescribers, I think, last I looked, through the first four months of this year. And so we're continuing to see that growth on prescribers. But then there were some docs who have never written that weren't on our target list that were within our territories and you saw almost 3% market share and that was growing month-over-month during the DTC campaign. So there are some new writers starting to grow, and you're seeing that business and we'll add those to our target list as we go forward. So that's just some data we'll start to show in Q2, but we kind of want to let another quarter go before we start looking at these types of things. I hope that answers your question, but we're continuing to see new writers growing and existing writers writing more.

We'll take our next question from Anita Dushyanth with Zacks Small Cap Research.

Hi, good morning, and thanks for taking my questions. Just a couple here. Could you just throw some color on your strategy for the DTC? And I know you just mentioned that you have turned it on for 10 markets and the others you probably add on for a couple of weeks. So after you get the analysis data from SYMPHONY, would you plan to sort of keep it on for the 10 markets, or how would that -- how would you change that?

I think we have a budget that we're running the Company against and had DTC gotten above our trend that we expected internally, we would evaluate additional spend and investment opportunities. But I think until we can see that data start to really come in above trend that we expect internally, I'm always going to be prudent with the cash allocation. So I don't want to speculate we will return it back on, do we need to do a new TV ad, I think all those things are on the table. I think it's really measuring what we did first before we continue to spend at the rates we were. And so just to clarify, we basically ran TV for about 11, 12 weeks and during that timeframe we took a break every two or three weeks, depending on the market, but in general pretty much ran at a full national campaign for Q1, all the way through the end of Q1, and then we had about 10 sub-markets that we kept it going throughout. And I can tell you we've heard very positive feedback from doctors, from our sales force, from our patients. So it's not that it wasn't a good investment at this point, we just want to see how many writers came in white space that we don't cover, how many writers came inside of our targets within our reps. We're actually fully staffed with the exception of one position in North Carolina, I believe. And so, we have only one opening right now on the sales force. So as people think about Q1, we had about 15 openings in the quarter and now we're fully staffed up. We just had our first Phase II training class. So from a sales force focus and execution energy, the two manager positions have been filled and we're very excited about. We got three quarters now in front of us with a full team. And so, I think that plus the DTC opening up doors, should give us a nice, hopefully, trend as we continue to look for the next two, three quarters.

Great, thank you. And the other question was, are we expecting the large trial in India to begin before end of the year?

Yes. We believe it will be a few hundred patients, type II, and we're literally discussing as we speak. We're trying to get to better dosing in type II. We know from our Phil Levin study that will be coming out that the dosing in that was a way to standardize insulin titration and that's a big focus for us, is to make it very easy for prescribers to titrate patients who are naive to insulin or switching over to insulin. And I think that's the beauty of the Indian trials, we will be able to do a study probably the way we wish we could have done six, seven years ago on our last study with proper dosing and proper titration, because we know in that particular original pivotal trial, it took docs about 12 weeks to titrate up to the effective dose and even then we'd say it wasn't effective, because they had to stop titrating at the end of that period. We're trying to not repeat those mistakes in the Indian design and so far, we feel very good with our partner Cipla in that trial design and execution. We will be ready to start that trial.

Okay, thank you.

Thank you.

And we'll take our next question from Bert Hazlett with BTIG.

Thank you. Thank you for taking the question. I actually have two. In general terms, Mike, could you discuss the overall strategy regarding publications surrounding Afrezza data? Again, the Phil Levin study looks very intriguing. If you could just discuss maybe what the general characteristics about what drove the oral presentation slot for that?

Yeah, I think the late-breaker will be -- I think late-breaker as I recall at ADA are only posters. So as much as I would like an oral presentation, I'm not sure late-breakers are accepted as orals, but I could be wrong on that, Bert. But I think what we saw there was for the first time using a fixed-dose titration along with lead rate, looking at baseline timing range, baseline A1C and end of treatment timing range and A1C, and we can see with a fixed-dose titration what the average dose was per patient, percent A1C reduction, time and range. I think all the key things that everyone are talking about. Remember, we did this STAT study last year, which we remain excited about and continue to -- most people still, unfortunately -- when I talk -- I just met a doctor last night and just learned about the STAT study last week. So we know the data is still out there, we know people are still learning it and as they start to see that the pool of data build up, they always ask questions, but we kind of point -- we have multiple studies showing you head to head Afrezza works. And then now we're building these small studies to show you how to actually get even better results than we saw in our development program. So I think when you think about the publication strategy, it's really trying to nail down the objections that we hear from customers. Do you really have less hypoglycemia, are lungs really safe and effective delivery route, how do you probably titrate the drug? These are all the things that we hear that we have lots of data on that we think are really important to highlight out there. And the…

We'll take a follow-up. Looks like he has removed himself from the queue.

Okay.

We'll go to our next question, follow-up from Oren Livnat with H.C. Wainwright.

Thanks for the follow-up. Yeah, you mentioned earlier that you have some docs that, let's say, 2% share. Why isn't that higher for the docs you've already broken through with? Obviously, awareness and that breakthrough is a huge challenge at scale. And I'm just wondering if they're seeing the same, at least anecdotally the same successes that I'm hearing about with regards to their glucose control and A1C reductions. Why aren't these guys much higher than 2%? Is insurance really not a roadblock? Are you hearing any negative feedback from them on certain patients not having good experiences with the product? Thanks.

Oren, great question. Let me clarify that statement. So what we do is, we look at the overall number of rapid-acting analogs and their current market share of Afrezza. Remember, 90% of patients in most doctors' offices are the base stations they've been seeing and maybe they see 10%, 20% new. So you're always fighting for the new patient and/or an existing patient, and we know doctors generally don't change treatments, they just add on to it. And so when you think about, I'll call it, for rough simplicity, you take 2,500 prescribers all of the rapid-acting analogs, including Afrezza, we continue to see share penetration grow in that market. So I don't have it right in front of me, but I think we went from 1.2% to 2.07% just in the last 12 months. So we're continuing to see that growth in share amongst 2,500 prescribers. Now remember, some of those prescribers may have just started prescribing recently and some may have been prescribing for two, three years. So as that base of prescribers builds and patients build that share will continue to build. And I'm sure if I looked at NBRx or NRx, we'd see it be a lot higher, probably in the 5%, 6%, 7% range. So we expect that 2% to continue to grow as we go forward. But to your other comment, we have doctors where we have 90% market share and 70% market share, because they -- and they just use on other type IIs that are appropriate. And so we do see docs and when the people ask me why do I continue to remain very optimistic and excited, is because what we see in certain micro markets, I'll pick on New York and Texas is, you see doctors starting to adopt it,…

All right. Thanks.

And we'll go back to Bert Hazlett with BTIG.

Sorry, I had some phone problems. Just asking, you may have made some comments early on in the call, but would really like to understand, has there been any progress or additional thinking with regarding to expanding the Technosphere pipeline? And in particular, is there any movement on the Receptor Life Sciences collaboration with the cannabinoids?

Yeah. No, great question, Bert. I think when we get to our Q2 earnings call, by then I should have an update on the pipeline. we are going through our strategic review for the Company, in terms of where do we see ourselves over the next three to five years, what's really important to drive growth for shareholder value, and that includes how do we accelerate Afrezza, how do we maximize international, there's lots of ideas we've had over time. Some we've executed, some we've held off, but the pipeline is one that is a major focus in terms of bringing in new talent in the Company to accelerate the development program and focus on those programs, as well as potential partnerships. And then -- so you'll hear more about the pipeline, I think, probably as the quarter rolls out into Q2 results. On Receptor Life Sciences, we've been meeting with them really to figure out where is this market going. We remain very excited about that particular opportunity. So, for example, in Canada, we know that you can launch a Receptor product there in the cannabinoid space, that would be exported to the rest of the world, and as well as kind Canada, with the exception of the U.S. And in the U.S. market, while you can potentially cross state lines with CBD, I think the government is stepping in a little more in that space and our real focus there is can we get a prescription-based U.S. FDA product of an FTKP cannabinoid and which ratio and which combination should that look like, the real discussion we have with them, and where should we -- we believe we can be the manufacturer of that. But we look at like GW Pharma, you just saw their Epidiolex sales in Q1 of over $30 million. So I think that gives you some hint that this is going to be a real market in the U.S. on the prescription side, and so we're excited to continue to partner with Receptor to identify those opportunities and move it along as quickly as possible. So I don't know, anything else I should -- okay. So I hope that gives you some clarity there, Bert.

Thank you. Should we get visibility on any of those movements in -- with Receptor, specifically, in 2019, or is that something that's a little further out?

I think you'll see updates this year on that. I mean we're talking to them. It's been a multi-year partnership and it's one that now they have a team in place, they have capital in place, we are now more focused here from a survival mode to a growth mode. And I think that you'll continue to see how can we work together, so that one plus one is three and not one plus one is 1.5. And I think that's really our focus with Receptors, is moving this particular class of drugs faster, to get the patients and drive an unmet need and I think the more we see that space evolve, the more exciting it will be for our shareholders to know that we'll get some benefit from that in terms of milestones and royalties in that agreement.

Terrific, thank you.

And that concludes today's question-and-answer session. At this time. I will turn the conference back to you for any additional or closing remarks.

Okay, thank you everyone for your time today. Appreciate you dialing in so early on the West Coast as well as the East Coast and international markets. We will continue to hopefully demonstrate continued growth of Afrezza, give you some clarity on the pipeline as we move forward in international expansion. So look forward to seeing our shareholders there in May, next week in New York City and hope we'll take additional questions there. Thank you again.

And this concludes today's call. Thank you for your participation, you may now disconnect.