MannKind Corporation (NASDAQ:MNKD) Cantor Global Healthcare 2021 Conference Call September 27, 2021 11:20 AM ET

Company Participants

Michael Castagna - Chief Executive Officer

Conference Call Participants

Brandon Folkes - Cantor Fitzgerald

Brandon Folkes

Hello everyone and welcome to the 2021 Cantor Fitzgerald Virtual Healthcare Conference. Thank you very much for joining us. I am one of the biopharma analysts here at Cantor, Brandon Folkes. And next up, we have a fireside chat with MannKind, and joining us from MannKind is CEO, Michael Castagna. Welcome, Michael.

Michael Castagna

Good morning, Brandon. Thank you for having us.

Question-and-Answer Session

Q - Brandon Folkes

Pleasure, as always. And so, we are probably going to run short of Q&A on this fireside chat. If we do, please feel free to e-mail me any questions that you may have, and I will get them across to Michael and his team, but Michael, let me just dig in straight away. So, I think a lot of people know MannKind, but that maybe driven from Afrezza right, I think it’s maybe just worth providing an update to not just Afrezza, but everything you have going on at the company these days compared to maybe the MannKind of 2, 3 years ago.

Michael Castagna

Hey, Brandon. A lot has changed for those who are new to the story the last couple of years. So, we have done a deal 3 years ago with United Therapeutics on Tyvaso, which is now called Tyvaso Dry Powder Inhaler that’s at the FDA. We have done some formulation deals we have announced, some of them we have not announced. And so, when you think about MannKind, you got the old legacy Afrezza, you got the pending second approval of the product on our technology platform. We have a pipeline about 4 or 5 assets that are moving pretty quickly over the next couple of years. And then you have the ability to help other companies, especially once you get a second approval, your ability to work with a bigger company and say, hey, you can take a bet on for the next 5 and 10 years on their novel molecule with our technology, I think goes a lot further than it would have 2, 3 years ago when the company was struggling. So, this whole pivot of the company is about to transform over the next 6 to 12 months.

Brandon Folkes

No, absolutely. And maybe just delving straight into Tyvaso DPI, right, interesting month or weeks ahead, I guess, what’s the latest you can share with regards to the PDUFA date potential launch? And then I think on 2Q call, you called out the onsite pre-inspection approval was complete, anything you can say from that side of things at this stage?

Michael Castagna

Yes, I think on the [larger] (ph) one of those if we are going to make it, there is a lot of delays because of that we announced that the FDA did come in, not only did they come in, they were satisfied with their pre-approval inspection, but they come generally every 3 years to a factory to re-inspect. And they did that at the same time. So, we were happy to have the FDA with us for 9 days during COVID. They did a great job. We had a great discussion, great dialogue, and landed in a really good spot in terms of the pre-approval inspection and the follow-up full factory inspection. So that went as planned and as expected for the team. We are always ready for the FDA. I think they want to come in or any regulatory bodies, we have Brazil now as well. In terms of one of the investors who asked me, based on the data, the PDUFA date, you should be having labeling discussions any day. Those things are true. We should expect that we are not going to announce anything until obviously seeing the FDA approval but otherwise, everything looks to be on track from approval date. We haven’t had any indication otherwise. And we will be -- it’s just a question of once you get that approval, then how you launch what your sequence of effect and as our shareholders should know that’s a lot on United Therapeutics decision, not ours. Our job is to manufacture the product to make it available ASAP after approval. And so, we will fulfill that obligation. And then the next question was getting us around our capacity, and you know we have built the factory in anticipation of two indications, and so that’s something we will be able to manufacture enough to supply the market over the next 12 to 18 months. We are in the middle of expanding that facility in COPD, in ILD, in IPF readout.

Brandon Folkes

Right. And I just want to tackle this side of things and could have done it maybe a little bit upfront, but can you just walk us through the different agreements you have with United Therapeutics, right? Obviously, I think the most understood is the plain and simple in people’s mind, royalty agreements on DPI sales, but I think you do have other agreements in place. So, maybe just can you just talk about that relationship and maybe some of the other revenue streams or things that you are doing for the company outside of a lot of investors just thinking looking at the Tyvaso DPI expectations and kind of putting a royalty on top of that?

Michael Castagna

Yes. So, at the highest level, you have royalty and net sales. So, let’s just place some numbers, they do $500 million a year, and call it $100 and some million a quarter. We will get low-double-digit royalties on that every quarter after that happens. The second part of this is a manufacturing agreement. So, we will be a responsible party for manufacturing for the foreseeable future. And one of the things as I showed you, used to remind me, the factory was very inefficient for Afrezza and it would cost a lot of money with fixed costs of running the factory. So, as you put a second product in that factory, the ability to spread those costs over two products makes everything more efficient, right, makes the Tyvaso DPI more efficient, makes Afrezza more efficient. We are in the process of hiring quite a few people to get that factory running, up and running for the second. Way to go, it’s a separate line that was made on Afrezza. So, it’s actually a factory within a factory to think about it. And there will be people dedicated to Tyvaso DPI processing. So, that part of it is there. And then there will be some COGS plus X (ph) on the manufacturing side that we make as well. And those are the big buckets there. We will be making the devices for the inhalers and things like that. But the big focus for our shareholders should be the double-digit royalty and the COGS plus X and the efficiencies we will get by utilizing the factory more efficiently for everybody.

Brandon Folkes

Okay. And I don’t want to talk about numbers or anything like that, just given where we are in the quarter, but conceptually should we think about potentially some pre-approval, manufacturing scale-up activities on the MannKind side of things? When should we start seeing this flowing through, I guess MannKind’s P&L outside of just the launched product, just how should we think about when we should start seeing this benefit flow through MannKind?

Michael Castagna

Yes, I think a meaningful number you will see us start in Q4 and Q1 next year, there is a lot of moving parts, Brandon. So I think as we started to show people, because it’s hard to really articulate what it looks like on Afrezza, what it looks like on Tyvaso, so some of those depending on launch quantities and sequencing. So, that first quarter or two, you will see a lot of those noises work out of the P&L and start to bring some light to shareholders. Overall, it’s net positive to everybody. And so we are excited about getting it out there. But I think you will see some activity here in Q4, you will see more activity in Q1. And then as the factory shifts up to 24/7 operations, that will be another leg up in terms of the efficiency scale. So, I think for the next call it two, three quarters, I think you’ll start to see some normalization. And then after that, it should be pretty much clockwork for everybody to see.

Brandon Folkes

Okay. And you talked about the hiring of additional people to support this ramp up, but also just to support kind of where the company is going, can you just give us some insight into the progress there. Obviously, we hear from a number of companies about challenges in general in this environment, so maybe just how has COVID and maybe some of the macro things we are hearing impacted your ability to hire the correct people there?

Michael Castagna

Yes, we were very fortunate. We have expanded our recruiting team. We have done a really good referral program. First couple of weeks went out a little slower, but over the next couple of months things got a lot faster. I think we are on track or exceeding our hiring goals for the year. So, we are in pretty good spot there. We have had the typical, couple of people start and then they took a second job that was coming right behind ours. And we have had – we have probably been the recipient of that where people had another job and they jumped on ours too. So, I think give and take that’s happening, but it’s in the minor numbers of percentage of people that we are hiring. Otherwise, I was at the factory a couple of weeks ago and it’s really nice to hear some of our old employees came back from 5, 6 years ago and we are talking about how different the company is, how different vibe it has, how excited they are to be back. So, it’s also nice to see some of our former employees rejoin us as you may or may not know Denver is a small area. So, the talent pool there is not hundreds of miles wide. And so often when we are hiring, we are hiring so people had joined us 5, 6 years ago when we had some downsizings unfortunately. So, it’s nice to have them back into MannKind family , nice to hear their comments about the change in the company, because I was not here to appreciate kind of what they went through and the journey and really excited to hear the feedback we got, also a lot of new people. So, that brings new energy, brings new focus and brings new ideas. So overall, I think the hiring has been a real big plus. It’s enabled some people internally to grow and externally to bring in new breath, new talent. So, it’s overall been a really good environment. But nothing, I hear the challenges out there. And there are challenges I am not saying it’s easy to hire people. But I think our team is doing a really good job of recruiting and on-boarding and hopefully keeping people here in the next few months. And the other thing I’d say adoring COVID is probably 85%, 90% of our people in Denver are vaccinated. And so, when you think about – we just went to mandatory vaccinations as a company this week, so everyone has till November, but our new employees, they are coming at 90%, 95% vaccinated. So, we are seeing a higher percentage of vaccination amongst people who we are hiring than the people that were already here. So, that’s also going to minimize any type of supply disruption or supply risk that we could see going forward, so…

Brandon Folkes

Right. And so you talked about it, a new energy in the company, the company being very different from a couple of years ago, but one thing that is going to be very, very different as we sort of get into next year and the next few years with this Tyvaso DPI collaboration is going to be your liquidity position, right. There is a potential to throw off a tremendous amount of liquidity for MannKind. And so, how should we think about capital allocation going forward? Assuming right, that Tyvaso DPI is successful and getting approved by the FDA, you have got your pipeline now, you have got Afrezza, we have seen and we will touch on this, but business development opportunities. So, how do you think about MannKind strategically going forward, especially now that you have the potential to invest behind a number of opportunities?

Michael Castagna

Yes, I mean, we never want the company to get back into position it was 4 years ago when I became CEO, which was really tough environment, really lots of cost cutting. And our employees went through a lot from salary reductions to 401(k) cuts to everything you name, everyone here has sacrificed to make sure, a) we survived and b) shareholders got a favorable return from what we have seen over the last couple of years. We always want the stock to do better, we always want to grow faster, but there is always a balance of spending money and growth in it. So, we try to balance moving the pipeline forward and movement of Afrezza at a reasonable rate. We could always spend more money on Afrezza growing a little bit faster, but I think that would burn more capital that we would get on a return. And so we have taken this cautious balanced approach. And I think what you will see now is we are in a good position to push to lever on Afrezza’s growth faster. We have got several pilots we are kicking off here this year, so that when we get into 2022, we see which ones are starting to driving some faster growth. We have some fuel in the tank that pushed against the lever, for example, hiring an extra 20 reps in a pilot, if that works, the ability to go to 60 or 80 or 100 reps is very fast, very easy, but let’s make sure the first 20 works. So, we are doing small things like that to show that maybe covering primary care and specialty together with trainers and local marketing reimbursement (ph) specialists help, marketing ideas, we got a brand new marketer starting today to lead our marketing efforts who is going to really dig in and try to come up with some new ideas and new ways to get that patient journey across. So, I think you will see a lot more on Afrezza going into 2022, not to the tens of millions of dollars. We are willing to take those types of bets, but not till we start to see a little bit of progress. So, you will see some of that place.

I think the pipeline is an important one. We weren’t always in a position to fund the pipeline. So, therefore, like UT, we had the partner, our lead asset out there. But now we are in a position where we can fund our pipeline for growth. And that’s really, really important, because we intend to build an orphan lung division in the company over the next 4 years. And so as that gets – when we think about the company the next 3, 4 years are going to be Afrezza’s growth, U.S. International Pediatrics, then you got Tyvaso’s growth U.S, I have no idea if UT is going to go international or not, but they have ILD, IPF and COPD. So, they got three new indications they are launching over the next 3, 4 years. Those two assets alone are brands within brands that you think about drugs like Humira can keep growing naturally and organically on top of the volume that you see with global expansion. So, those are both exciting assets for the next 4 years. And then I see the pipeline starting to kick in and that’s really what we are funding that growth for. So we will be in a good position to allocate capital. For those, there are strategic BD opportunities, we will look at those, we bought a small company last December. We will continue to look for things. Honestly, we are so busy right now. We have had a chance to – we could even do due diligence if we wanted to. So I think that’s the challenge of our staff right now to getting Tyvaso off the ground, getting Afrezza off the ground, we are firing on all cylinders across the company, so…

Brandon Folkes

Okay. And that does touch on my next question, but I just want to sort of ask it anyway, because I think it is important, we have seen co-promoter agreements in the commercial front development partnerships kind of really building towards this company you mentioned right, instead of much, much bigger than just Afrezza. Can you firstly talk about some of these and then you did touch on this? So, my question was should we expect more, but maybe, I am going to rephrase it in terms of sort of should we expect more maybe in the future, how do we think about this longer term?

Michael Castagna

Yes, it’s a tricky question, because it takes so long to get some of these agreements off the ground. And when you had no capital those are the right decisions to make to make sure the brand of the company could have grown, but now that we have capital, I think it’s hard pressed to say that we should be distracting ourselves with some cases with these agreements with these other products versus going deep and wide on Afrezza, right? Can we just grow Afrezza faster not distract ourselves, there is so much upside opportunity where their products sitting today? That – and that’s a strategic question we are asking ourselves right now is you know do we go out and find a big – a bigger primary care brand that help drive some upside faster? Do we go on hire our own sales force and do it ourselves, right? I think our pros and cons to that. And my bias is slightly towards, no one is going to appreciate and understand Afrezza more than us. We have spent a long time building our scientific curriculum out there training of our sales force, our culture is really strong. Our sales force is really motivated. We got medical liaisons on board. So, I think getting more laser focused on Afrezza is probably the direction we are heading as opposed to more opportunistic, finding PD partnerships to supplement that sales force separate, because when you didn’t have the capital, every little dollar helped offset that cost of Afrezza. But there is so much upside on Afrezza. We want to break that 1,000 scripts a week. We want to get to 10,000 scripts a week. So, that’s our focus is how do we help thousands and thousands of patients, not just the 1,700 we are seeing. We know we can do better. And that’s a lot of the changes we are making right now that get that focus core, you are going into Q4, so we come in on the year strong into 2022.

Brandon Folkes

Okay, great. And I actually do want to switch to Afrezza and the product has done very well in 2021, even with the end of the free goods program and COVID challenges, just in general, can you maybe talk about where the product is today, how we should think about these COVID variant outbreaks just in terms of your promotional efforts, the sensitivity of Afrezza to in-person promotion. And then along those lines, what are some of the levers to pull for growth over the coming years for Afrezza?

Michael Castagna

Yes. So, we made every 2 years and basically make a lot of changes, because we try something that doesn’t scale, we try something else. And I think during all those changes, despite all the noise, Afrezza keeps growing roughly on the same trajectory. And so one of the things we saw that we tried before is doctors would say it’s not covered, reimbursement was a headache. We took that entire objection off the table to see whether you could break an inflection point, because we don’t believe that’s the case. We see 70%, 80% of patients who do prior off get approved. And when we took that one fact away, what we saw is our growth didn’t accelerate much faster. So, when you look at it, 3,000 docs, when there is 30,000 docs to prescribe, we only target about 10,000. So we are getting about a third of our docs to write, but we didn’t see another 70% start writing. And I think that’s the focus here is how do we get doctors to write the first script and not just the first one, but the first 10 because anytime you write one script, something is going to happen. I want to see real trial, real experience with this product and not these one-off patients that we get, I think it’s really important to challenge the doctors now after being on the market. This long, we are investing in PTE, we are investing for growth, doctors really got to step up and start using just to help their patients. So that’s what we are seeing on the Afrezza side. And one of the things we made a big change on was the reimbursement model. We are going out and we said don’t worry about the PA, that program was we were giving away almost $15 million a year in free drug between samples in this program. So, we made a change this year and converted that to a reimbursement hub model. It’s very unique, very different. The industry in fact other companies are now adopting it this year in the next year for their launches. So, I think we are setting a new model. It’s working out really well. We just need more reps and doctors execute against that model, but that will now have as the patient comes in, an EPA is automatically generated, it’s really – it’s got smart AI around it. And then that usually gets approved pretty quickly. We get all kinds of great data with that, which allows us to go back and have really strategic direction with payers around what we are seeing in the PAs, what’s holding up blockages and also give our feedback to our reps. For example, the number one thing doctors don’t do is just document failure. They don’t want to admit that a 7.58% won’t see as a failure. Well, it is failure. But for them, they have let a patient coast there for 20 years and they don’t want to admit for 20 years, they let a patient fail. So there is some of that psychological barrier that we got to work through and say that on their definition of A1C goals, ADA guidelines, insurance company policies, those are all definition of failure and 80% of the people on insulin today, there is about 5 million of that 80% are not a goal. And that’s our main focus is we think about that market, 4 million patients is a lot of patients to help on sitting at 1,700 a week suite. We have a big upside in front of us to just execute the reimbursement trial on adoption in that segment there for that. I think you will see more consumer activity not necessarily TTC, but more digital marketing in office promotions like the digital board just seeing the offices, patients are signing up for new patients in the office, they get those little advertisements. So you will see EMR advertising, things like that going in. And then I think we can do a bigger job of conferences as they come back a lot harder to get in front of doctors in virtual environment. They are just Zoom burned out. I don’t think there is a whole energy in this industry to go to Zoom and say we can completely change your model and go to Zoom. I think docs have so many Zooms now. They just give up, because unless God is coming to talk to them, they really just want to go see their families or finish out their day. There is just so many – so much information overload coming from the industry to docs. I think it’s called back to that in-person promotion is going to really be what wins at the end of the day. But – and we did seek to your point on the variant here in Q3, in July, August, there was a lot slowdown of access to doctors, when everyone is like, what’s going on with this huge mass vaccination, access got a little tied up. And we will slowdown one of our expansion pilots to start later in Q4, because it was happening in the Southeast, where a lot of COVID was happening. So, we have slowed that down as things get under control. We are now hiring those people and getting them onboard and training for November and December.

Brandon Folkes

Right. Well, yes, we have some pretty good attendance on our Zoom today, Michael, so not quite good, but I think says a lot for what you have done. I think investors are still interested in MannKind. But I do want to touch on something you said, insurance coverage, right, so, you have taken that pushback off the table. But is that because this is a very big opportunity and you have good insurance coverage, but we can expect that to be a lever that you are going to pull just actually expanding better coverage? How would you characterize your current coverage on the insurance side of things? Is the work to be done on expanding coverage or expanding docs understanding of your coverage?

Michael Castagna

Yes, I think it’s the latter. I think if doctors can understand the drug, it’s going to be covered 7 or 8 out of 10 times that a patient is prescribed Afrezza. I think that’s a pretty good spot for us to be in. We also have a $99 month cash program. So, we think that’s a fair price. We are even looking at that, in some ways to take that better. We are moving even more into some pilots there, specifically in the Medicare population where maybe costs are a little bit more. And so we have a couple of ideas here we will be launching in early Q1 is my guess at this point. But helping take the price equation off the table is number one for us. We want patients to be treated, because it’s the best clinical drug for them, not because of the perception of costs, right that is really important. The second part of that is just getting that experience, but we don’t see enough docs who have driven 5 and 10 scripts to really show that they really have that clinical experience with the product. And our strategy is insulin failures. And in that model, the payers are generally going to cover us, because nothing – we are in the last resort. Nothing else has worked. And we are the last resort. So, I always tell people of cheap insulin works great. Why would you use something more expensive, like you shouldn’t use a reasonable cost at first and if it’s not getting you where you need to go, things like us and others? Well, that’s why we focus on the pumps and pods and inhaled insulin, these are more expensive, but they are hopefully bringing outcomes to the patients that they couldn’t get otherwise. And so yes, we are not looking to go out and give a bunch of rebates and get more coverage. We are looking to solve some of the prior authorizations that are more complex than they need to be, simplifies some of the processing or those types of things, but not necessarily wholesale change in coverage, because I think the value we are getting for the coverage we have is fair.

Brandon Folkes

Great. And then in the discussion, you touched on the PTE study, can you just talk about Afrezza Inhaler 1 pediatric study, when is it expected to begin? And when should we expect data? And then what does this do due to the potential addressable market for Afrezza?

Michael Castagna

Yes. We are super excited. It is no longer to get the kids that we wanted to, for lots of reasons with COVID didn’t help. But I am really happy that the team worked with the FDA over the last year to get the protocol approved work with the Davis Center. We will have probably 35 sites up and running between now and sometime during Q1 is my guess. Our first couple sites have been activated. So, we expect the enrollment really momentarily any day now. And that will go pretty quickly. And I think it’s just the speed, as COVID slow things down or not, I think we are over that. But until I really see those patients coming in every month, I don’t want to speculate, but it’s an open label trial. So, we should start to hear anecdotally what’s going on, right. We don’t want to necessarily wait for the full 26-week cohort. I think doctors will see what’s happening at weeks 12 and 24. And there is a 52-week safety endpoint. And so for those that don’t know the trial, the first 26 weeks are head-to-head against multiple daily injections. And then the second 26 weeks, anyone that’s on multiple daily injection, will switch over to the Afrezza side. So, we will have all the patients in the trial about 230 patients all are present for the whole 52 weeks at the end of the trial. The first 26 weeks is head-to-head and that’s the primary endpoint. The secondary endpoint will be the 52-week safety. So, that’s where we are and we hope to get some early reads probably late next year realistically and earlier following years or so. But when you think about the future of care, I always talk about, pups have been adopted in kids, CGM was adopted in kids and so these products and these parents – technology has been adopted in children, because people are proactive about their care. And then those kids start into adults. And those young kids fulfill and ultimately train. They don’t want the ground to break the norms. And that’s what you saw the insulin pump market over the last 20 years. It’s what you saw on the CGM market over the last decade as you have huge penetration in children, much lower in adults. And as those kids get older, the adults how to use it and they adopted and I think that’s we are going to see here on Afrezza is we will continue to grow in the adult population like we are. But in terms of making a major inflection point, I think getting the kids right, getting the safety of the children will show this drug can really help people in a big way. And the number one thing we are doing, Brandon is making sure we dose patients properly. When you look back at all the MannKind trials, and I don’t – it’s no one’s fault. It’s just we didn’t always have the dosing down from injectable to inhale. And now we worked really closely with the FDA. We are doing the first dose in the office. We are showing almost a doubling over injectable insulin, that that’s roughly the equivalent dose. And so we are using all new dosing protocol here that shouldn’t deliver better outcomes than we have seen in our previous trials that time will tell us. So, we got to wait for those results, but we set the trial to hopefully do very well. It’s a non-inferiority trial. So, we don’t want to look into beat, but we dose properly, Afrezza, we think you can get really good results and they will be time will tell what that looks like.

Brandon Folkes

And I do want to dig deeper into that dosing and the two 26-week portions of the trial. The fact that the second 26 weeks, you are converting people or these pediatric – these kids to Afrezza, does that answer that sort of equivalent dosing question and how to switch patients in practice? I know in the adult patient population, you talked about, probably a year or 2 years ago, but doing a lot of work and just making in helping physicians understand that conversion. Does this trial go a long way to answer that question in practice, should it get approved?

Michael Castagna

Yes. I think this trial is going to show you in a head-to-head trial in a big way, what that looks like. In the meantime, we have done a small dosing trial in 20 patients, which will come out in November, and that data looks really strong. And we are working with the FDA actually to do some modeling as a pilot hopefully. And where we can show that this new dosing algorithm will deliver safe and effective outcomes over what we are recommending today. And it’s really that first dose in the label. Once you get to the first dose, your ability to stay on that dose will continue, right, but people’s confidence seem to be very high that oh my god, am I I taking tons of injectable [indiscernible] so much, it’s not. I mean, I understand a little bit about the disease, how they feel that way. But the reality is, anytime you change route of administration, it’s not one-to-one and we got to really get over this mindset of insulin go low, go slow, versus go fast, go furious, right. And I don’t want to say go crash your sugars, but really keeping that tight sugar control only happens by aggressive titration. And you have an insulin now where you can actually do that, that’s really different way, we are changing 100 years of habit, this does not happen overnight, obviously. But you can see patient stories all the line. They loved the drug. It fundamentally changes their life. It gives them self control. And that’s really exciting. So, I think the kids will be a part of it. You will see us do some work in the adult segment as well in parallel, so by the time the kids get to the FDA, we will update it in thoughts as well. And those two things combined should provide a nice label update in terms of safety, efficacy and dosing all at the same time?

Brandon Folkes

Great. And we are just about out of time, but I do want to sneak in one more just any update on MNKD 01?

Michael Castagna

That’s going into Phase 1, here in Q4. So, whether the patient gets dosed, the trial is up and running. We get the first dose in early next year. I know we are it’s a tight timeline. They are squeezing everything they can in Q4. But otherwise, everything remains on track. And that trial should be in Phase 1 sometime this year, so super excited about that product. We just hired another person to join us to make sure the API sources are all buttoned up and ready to go. We go to Phase 2 very rapidly. And so we are anticipating that should be successful based on the early clinical data we saw. And that should probably be on to Phase 2 and beyond and we are looking forward to help patients live with MTM.

Brandon Folkes

Very cool. Mike, I am going to have to stop for today just because we are out of time. But we could definitely keep going with everything you have going on at MannKind these days. So, congratulations on that and I am obviously looking forward to the Tyvaso DPI PDUFA and rollouts. So, thank you very much for joining us today. I appreciate it. And that’s going to end the session.

Michael Castagna

Thank you.