Welcome to the MannKind Corporation Third Quarter 2019 Earnings Call. As a reminder, this call is being recorded on November 6, 2019 and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call until November 20, 2019. All participants will be in a listen-only mode for the duration of this conference. [Operator Instructions]. 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 the 10-Q report filed with the Securities and Exchange Commission, the earning release and the slides prepared for this presentation. Joining us today for MannKind are Chief Executive Officer, Michael Castagna; and Chief Financial Officer, Steven Binder. I would now like to turn the conference over to Mr. Castagna. Please go ahead.

Thank you. And thank you, everyone, for dialing in this morning for our Q3 earnings call. I look forward to sharing our results and discussing our plans for the future. Before I get started, I'd like to wish our Founder, Alfred E. Mann, happy birthday. Today would be his 94th birthday if he was with us today. His foresight was 20 years ahead of the market in terms of predicting automated insulin pumps and the challenge that we can now see with continuous glucose monitoring in regards to the delay of insulin that has on controlling sugars post mealtime. His quote here is true more than ever as we just completed 35 interviews with healthcare providers, and I don't believe one of them understood that injectable insulin subcutaneously took almost two hours to start working to bring down your post mealtime sugars. The scientifically engineered particles that we create today will not only impact people living with diabetes, but will extend to many diseases such as pulmonary hypertension, cystic fibrosis, oncology, migraine, and allergies, which impacts someone in each of our families. Despite the challenges and setbacks we have faced, our company has survived for over 20 years and our growth is just beginning. As we've talked about previously, these four pillars have fundamentally transformed our growth. As you look back, the partnerships highlighted in bold are important to our future. As you can see this year alone, UT will generate more revenue than AFREZZA. As we look forward over the next 24 months, these four pillars will be critical to our growth platform that we expect to drive shareholder returns over the coming years. For Q3 update, first I want to highlight international sales to Brazil through Biomm at $0.7 million. Second, as we announced on Monday, United Therapeutics…

Thanks, Mike. And good morning. I will be discussing preliminary financial results for our third quarter, which show total revenue growth of 225% for the third quarter over 2018, net AFREZZA revenue growth of 46% for the third quarter, including our first international sale of AFREZZA to our partner Biomm in Brazil, and continued improving gross margin as the year has progressed. We also announced Monday that we achieved the second milestone in our license agreement with United Therapeutics and received $12.5 million subsequent to the quarter end. Let's start out with looking at the revenues for the third quarter. Total revenues for the quarter, which is the bottom blue line, for $14.6 million versus $4.5 million for the corresponding third quarter of 2018. The 225% increase is primarily generated from the recognition of revenue related to the United Therapeutics license agreement in the amount of $7.9 million, as well as growth of 46% in AFREZZA net revenue to $6.4 million. The AFREZZA net revenue increase is favorably impacted by volume, including our sale Brazilian partner Biomm, cartridge mix, and partially offset by an increasing gross net deduction of $4.7 million. The AFREZZA gross net deductions were 43% for the third quarter of 2019, a decrease from 47% in the prior year. The third quarter 2019 growth to net percentage was favorably impacted by the sale of $0.7 million Biomm, which does not have any gross to net deductions, and accounted for approximately a 2% rate favorability, but was more than offset by unexpected increases in our product returns and rebate accruals of $0.7 million, having a negative impact on the gross to net percentage of approximately 6%. We continue to refine our gross net estimates each quarter, which can result in unexpected adjustments like these. Also please note that…

Thank you, Steve. Go to the next slide here. You see that our TRx have continued to grow just like I just previously showed you our cartridges and this is on Symphony PHAST Data. So this is not adjusted for gross-to-net. And what you continue to see quarter-over-quarter growth in prescriptions and revenue and we expect to see this in Q4 as we go forward despite some of the challenges in sequential growth Q3 to Q2. I'll talk about some of the next near term milestones that we look out for the company. Number one is the Brazil launch. They just recently had a conference, there down there in Brazil with all the thought leaders where they showcased AFREZZA and introduction of AFREZZA into the marketplace. Number two, is initiate our Phase III clinical trial in India, which was recently approved a few weeks ago by the SEC which is the equivalent of the FDA here in the U.S. I want to remind you, this is actually a robust study where we're going to generate data in another 200 to 300 patients in the type 2 setting against oral placebo products -- placebo against the oral product standard of care. We look forward to using our new dosing protocol that we saw in Phil Levin results back in Q2 and we think we're going to demonstrate in a much larger study really clinically strong results for a market where 81 million people are living with diabetes with the large majority having an A1c of 10 and out of control. When you think back to the Phil Levin study, the average A1c was a 9. We saw a 1.16% A1c reduction in 12 weeks. So we look forward to using that protocol in our next Phase 3 trial here. We also…

Thank you. [Operator Instructions] We will take our first question from Brandon Folkes of Cantor Fitzgerald. Please go ahead, your line is open.

Hi, thanks for taking my questions and congratulations on the progress during the quarter. Firstly, can you just talk about the data you have generated that you're using to help prescribers with a better understanding of how to convert patients onto AFREZZA from the current insulin, and any feedback you've received from the prescribers since you began this effort? Thank you.

Brandon, first thank you for initiating coverage last week. I really appreciate it and thank you for also visiting our site up in Danbury. That's a great question. One of the things I will tell you about the research, I think we're really happy with this. We always feel like sometimes we're moving our scripts at a snail's pace, which is true, because this is a large market and we should be growing a lot faster. But I'm really proud that some of the insights we have gained is around the clinical profile AFREZZA. We don't need additional data to convince doctors that AFREZZA is a great product, and that’s the good news. A lot of doctors understood the profile and actually believe it's better. A lot of their objections to adoption were related to managed care and reimbursement, patient onboarding, patient dosing, and patient training. That's very different than talking about clinical data and clinical considerations. The second part I mentioned is what you just asked about was the conversion from current insulin to inhaled insulin. As some of you who've been following the company, for those doctors that we target, I was really happy to hear doctors actually understand that conversion feature a lot more because when you look at the latest data on AFREZZA, it's somewhere between a 1.5 and a 2 and you’ve really got to use each individual patient's results to make that judgment call. And that's one of the things you'll see in the [indiscernible] trial where we took people an injectable insulin and we converted them at a 1.5 to inhaled and we'll get those results shortly, and we think they'll be very compelling to reinforce this exact nature. But a lot of the doctors we talk with actually understood how to do the conversion, and our messages are resonating with customers in regards to the clinical efficacy and the dosing of the product’s appropriate dosing, which was a major issue historically. So, we feel good about that. I think the proper training around inhalation and cough probably a lot more noise on that than we've seen in the trial and I think that's really important to address, but I think it's a great question. I'm really happy that the customer feedback. Actually, I did call that out and confirm that they are starting to understand that more and more.

Great, thanks, and one follow-up. You actually just touched on my next question which is, you called out the coughing in your prepared remarks, can you just give us some color in terms of how you are going to manage that feedback and how you manage those patients to make sure that they don't drop off AFREZZA? Thank you.

I think the first thing is reminding doctors of our clinical trial data, which you know we have thousands of patients who've used the AFREZZA in trials. And then, there you saw a 3% cough discontinuation rate, so any doctor says I lost the patient for cough, it probably means if they lost 1 patient out of the 3 that they've written, there is a problem meaning they probably either didn't train them properly or the patient coughed because they weren't getting the drug, and we got to give clarity that it's okay to cough because 1 out of 4 patients will get a cough in the first 30 days. But really getting patients to that 30-day adjustment period, where very few people have a cough after 30 days. And if they do get a cough, it is interment. It's not hacking cough or a mucus-producing cough. So, I think it's really just clarifying, and a lot of doctors are writing their first script right now and they don't understand that sometimes. And so, for the experienced doctors, it is not big of an issue, the less experienced doctors is building their confidence. So, I think that's why I highlight this because it just came out of the research a little bit more than we expected, but we know from all of our clinical data that it can be addressed and controlled. The second part, I'll answer your question is we've actually put things in our [indiscernible] study as well as our Indian trial on how to address cough if it does occur. For example, take a glass of water, before and after, evaluate split dosing if it's 20 units of insulin, at a mealtime take it 2 eights and a 4, break down the inhalation. Bluehale I think will give proper inhalation technique where someone is trying to inhale too strongly, they might try to get more force than it's required. So, all those things are going to our retraining as we think about our business model next year. It will be really important that a trainer that goes out educates that patient face to face on those particular issues, and I think that's going to really reduce that dropout rate.

Great, thank you very much.

We will take our next questions from Oren Livnat of H.C. Wainwright. Please go ahead, your line is open.

Thanks. So, a few questions. You did speak to the gross-to-net this quarter and some of the pushes and pulls, and I'm just wondering going forward, especially as we head into Q1 2020 and beyond, it sounds like some changes to the free drug and that may be copay treatment program. Can you just talk about how we should model scripts translating to revenue with your best guess at this point going forward?

I wouldn't. Until we identify the new program that we're going to be launching, I wouldn't adjust your model yet. We're getting a feedback, give me one second. Okay. I wouldn't adjust your model yet because Q4, we wouldn't expect any major shifts from Q3. And I think by the time we get to the Q4 earnings call, we'll have clarity for you on how to interpret that. I can tell you one thing we are considering, we still have a program we just don't promote as much. Is the free goods program and that was managed through our reimbursement hub and that's at our COGS as opposed to retail prescription costs. So the cost dramatically dropped by two-thirds just by moving it from one platform to another. But before we do something like that, we want to make sure all the kinks are worked out and that's going to be able to launch successfully. So I wouldn't change anything yet, but know that will bring you clarity either interim before as it gets implemented or as we get to the earnings call.

We will now take our next question from Pasha Saraf of SVB Leerink. Please go ahead, your line is open.

Hi, this is Dylan pre-sitting in for Pasha. What I'm trying to get a little more clarity around Brazil with the early market looks like, what the potential ramp might look like and then walk us a little bit how you guys are recognizing revenue as part of the partnership?

On Brazil they just got the product of customs a couple of weeks ago, so I don't want to comment yet on their launch plans. I know they're finishing up pricing negotiations with the government, I think until all that happens, we're just -- we know there's a lot of excitement down there, but I think we need another month or so to get the feedback on how that flows out but otherwise product down there has gone through customs. It's in the warehouse.

And I'll take the second piece of that. Dylan so we recognized revenue when we ship the product or hand it off to our partner AUM. They take possession of it as it ships out of the United States. There is no right of return on the product so that's why we recognize it right away. And we also don't have any growth to net. There's no rebates or anything associated with it.

Okay, thank you very much.

We will now take our next question from Bert Hazlett of BTIG. Please go ahead, your line is open.

Thanks. Thank you for taking the question. Just with regard to [indiscernible] and the revenue there. I have a couple of different questions. Should we be considering the gross-to-net being exactly the same as it was this quarter or how should we think about gross-to-net with that particular component of revenue going forward?

So Bert, we tried to identify the U.S. AFREZZA on the gross-to-nets on the slide which was at 45% for the quarter. There is a little bit higher. It actually created 2% favorability for us and also we talked about this quarter having some unexpected accruals that we took into the gross-to-net. So we don't project out and we don't try to do that as a general rule. So I think you can look at the prior quarters, which on a year-to-date basis we had a 42% gross-to-net. They're going jump around a little bit. So I hope that helps.

I think it's right to say we don't expect to be as high as it was in Q3, but until we get to Q4 we can't really guess.

Okay. Then, with regard to United Therapeutics, what are the particular -- the pacing that we can -- that you're expecting from the personal [indiscernible] for your program? How long will the clinical effort take? And anything where you can provide along the trajectory of the timeline that would be helpful.

But I can say a couple of things. Everything is on track to date so there is nothing that from what we laid out a year ago to today, we've been actually ahead of schedule on certain manufacturing attributes. Products are upon stability, the plants built, we were ready at the inspection whenever that occurs. That's all very strong. The clinical trial that's ongoing with Tretti -- I don't remember if they have 7 sites or 12 sites, but they have enough sites up enrolling. Patients are enrolling. I know the preliminary feedback that we're hearing anecdotally is extremely positive. Some of the quote -- I won't get into here. But the quotes from the patients are heartbreaking at the end of the day, how this is impacting their life. So we remain very, very excited about getting this to patients because we believe being able to dose higher level to partner will be important in this trial, we actually allow people after I think a couple of weeks dosing to go to higher doses in the trial and follow-up for a while. That's the pivotal trial on the switch study. The next part will be running here in a few weeks will be the human factor study. Mankind is running that based on our history of our dream both device. Our team is fully capable of doing a study. I don't expect a lot of risk. It should be relatively easy to do. That will be happening here in LA in a few weeks with people living with pulmonary hypertension. And then after all this is done, early next year we'll run a PK study and that'll be the pivotal PK as a result of the dosing we're doing now and the preliminary data we have previously. Once that's done we'll pretty much start to wrap up any final attributes of the product and we get ready to file. So not a lot left. It's really just time consuming more than anything, but there is nothing here that's freight limiting beyond -- what we had to do first was get manufacturing batches up on stability.

So just to follow on, there is discussions on United Therapeutics call about material label expansion for Tyvaso. Are you expecting to be able to participate in that label expansion, and if so how? And if not, if you have to do additional work could you just describe the plans for that additional work as well?

I think there's a saying you may need a bigger boat. Depending on that label expansion and where they're going after we've built our plant to serve the current capacity of what we expect the market. If the label expansion dramatically improved their population penetrations such as the COPD and early treatment of PH then that will dramatically increase the potential Tretti royalties that we would expect at some point. I can walk you through just how that happens. So they will get their label update for Tyvaso and Tretti and then our labor will be a 505B to that label. If you look back on growth hormone I did this where we got approved with 2 indications. Our competition has 5 other indications because we were 505B we filed an amended application and got all 7 indications. It will be a very similar process here. The question is, does it happen before or after Tretti approval and that's going to drive the strategy meaning if the expanded label happens before our approval by default we should get that label. I'm not aware of anything that's different that wouldn't apply to us. If our approval happens and then their label approval happens after we'd have to file an amendment to our application and get the label expansion, but it would apply to Tretti is the short answer.

Okay, thank you. That's helpful. Just one more for me. Just could you give a little more granularity on the changes in marketing effort that you were referring to from Q3 to Q4? Just a little bit more granularity on what you were discussing in the prepared remarks.

I think Bert when we did research in late July, August we got the results and I think presented one slide back in September, which I'm happy to share with you offline. But it really showed that on 11 out of 13 attributes, doctors understood AFREZZA was as good or better than the standard of care. The 2 areas that came in a little weaker were around dosing and the second one was around managed care coverage. Managed care coverage is way more important than dosing because the dosing one is solved with experience. We have an update to support that one. The managed care was frustrating for us because we had launched several programs this year that we felt addressed this objection. And so when we went out and talked to some of the customers we realized while we may have the right tools, how on they were being communicated and how they were being marketed through the sales force was off a little bit. And so that's where the marketing team quickly came together with the change in marketing that we made. We have several new members in the marketing team in Q3. They came together and relaunched a set of new materials primarily focused around reimbursement support prioritization checklist, simple things like that, re-messaging around our co-pay card in the bridge program and we saw an immediate impact of that the following 3-4 weeks post-sales meeting. So in September, we actually retrained all of our sales force in 2 to 3-day meetings in separate weeks across the month of September. They have all the new materials and that they can now go to the customers and some of that was additionally around messaging around patient type on Type 1 and patient type on Type II and getting…

Okay, thank you for the color.

Oren, I do apologize if you're still listening. We lost you on the queue so we can talk offline if there's any other questions. Thank you.

I would now like to turn the call back over to our speakers for any final or closing remarks.

Thank you. No other questions?

I think we're good.

Thank you. Everyone have a great afternoon and evening.

This concludes today's call. Thank you for your participation. You may now disconnect.