MannKind Corporation (NASDAQ:MNKD) 2021 RBC Capital Markets Global Healthcare Conference Call May 18, 2021 4:15 PM ET

Company Participants

Michael Castagna - Chief Executive Officer

Conference Call Participants

Daniel Busby - Pharmaceuticals Equity Research Analyst, RBC capital markets

Daniel Busby

I'm Dan Busby, the pharmaceuticals analyst at RBC Capital Markets. Our next company presenting today is MannKind Corporation, which we recently initiated coverage on. And I'm pleased to be joined by Michael Castagna, the company's CEO.

Mike, there is a lot to talk about. But before we jump into Q&A, probably makes sense for you to provide some brief background on the Technosphere platform, for those investors who may not be familiar with it, and which is, of course, the technology behind Afrezza and Tyvaso DPI. So, over to you.

Michael Castagna

Thank you, Dan. Yeah, MannKind, believe it or not, been around - the original technology goes back 30 years this year, so technically 1991 is when they started working on Technosphere. And about 1998 is when they dosed the first patient on Afrezza, so we're talking 23 years ago. When we're thinking about drug development and timeline, sometimes it takes much longer than we'd like.

And you move fast-forward to today, the good news is we've built the infrastructure. We got the knowhow. We've learnt through our own TRL what it takes to make dry powders, what it takes to scale the dry powder. And these R&D, these tests we do, when you look at 200-some-million-dollar plant in Danbury with all the people, knowhow and equipment, took years to build up and establish those capabilities.

And now, finally, MannKind is really a development company, manufacturing and a commercialization company, right? So we're just traditionally a manufacturing R&D and then over the last 4 years we really built up the commercial infrastructure. And really in over the last 3 years, we built our second pipeline compound with United Therapeutics with the product called Tyvaso.

We made dry powder inhalation version. And just over the last 12 months, we really started working on more partnership opportunities with the Technosphere. So one of the challenges historically for MannKind was are we financially secure and are people comfortable putting their long-term assets in here, when you're thinking about a 5- and 10-year development plan. And for now, the company is in a really good stable position.

We now have 2 assets on goal in terms of upcoming FDA approval this year if all goes well. That starts to build people's confidence, using our platform for their own BD opportunities or pipeline opportunities.

So we have our own pipeline. We have other partnerships we're working on. And we have Afrezza, that should be a multi-value creator here and plus Tyvaso coming, so a lot of exciting things happening.

Question-and-Answer Session

Q - Daniel Busby

Okay, great. And I do want to definitely hit on all of that. Let's start with Afrezza, your commercial product. And the rapid acting meal-time insulin market is massive. But at the same time, it's highly competitive. There are big players involved. Can you talk a little bit about where Afrezza fits into that market, which segment you're really focused on? And ultimately, how you view the market opportunity for that product a few years down the road?

Michael Castagna

Yeah, I think there are 3 things when you think about the market opportunity for Afrezza, right? The first is the current market. And there is about 3.5 million or 4 million people in meal-time insulin depending on the report you read. But even if you just took 1% market share, that's 35,000 patients. That's 4 times more patients than those are on the product today.

We have about 8,500 people on Afrezza. And so, that 1% share would translate into about $35 million a quarter, $140 million a year in annual revenue. So I think when you think about the market size of the current market we're targeting, it is large. We are a premium product. That's something we really do focus on, because insulin market has been commoditized. And you've got the biosimilars coming in and there's interchangeable meal-time insulin is on the way.

So you're going to see a lot more pressure, I'll say, from the competition, not against MannKind and Afrezza, but much more the meal-time injectable market is already been under tremendous price pressure with rebates going way up on that side. People are always taking a different approach, which is the premium product, total cost of care, driving outcomes and that's continues to be our focus, mainly because even if you were to discount it, the payers aren't going to give you a bunch of market share what they do to the competition.

And so, our model had to be different than what's traditionally out there for [indiscernible]. The second part of our market opportunity is really around the pediatric expansion. So, there's about almost 0.5 million people that are diagnosed as children. Most of them are type 1, type 2s are growing.

And also, we're hearing anecdotally that, that with COVID there's a lot more kids getting diagnosed these days. As we don’t always call for type 1, there does seem to be some noise in that segment. But even if we took kids, we feel our trial will be head to head against MDI, probably 40% or 50% of kids are on a pump. But there are 40%, 50% that are just on multiple daily injections.

And so we believe even if we took conservative estimates in that segment of 10%, let's just say, that's almost 50,000 patients. So when you start adding up these same segments, you can see how Afrezza can still be a pretty good value driver for years to come, just on the current market we're targeting plus pediatrics.

And then, the last thing we're really serving our current market is solving some of the friction. A lot were asking me, why isn't Afrezza growing faster? There is some friction in the marketplace. And we're really working hard. Now, we got a whole team up and running, to go out and solve some of that.

For example, FEV1, generally not a problem for doctors who use the drug. But for those doctors who never prescribed it, they don't understand it. They want to get comfortable with it. We think we have enough data now that maybe articulate that should be optional, as opposed to required.

And so, we'll continue to work with the FDA on things like that. And then on the payer side, we'll continue to look at ways. Therewe launched the new reimbursement program this year, that's going well. We're seeing lot of patients come in. We now see the reasons for denials. We see the approval rates for different payers. So that's going really well.

And then, the last part here is clinical data. We have a lot of good clinical data that we generated in the last 3, 4 years in new publications. Then we're starting to hear anecdotally doctors are taking a fresh look at Afrezza. But we also want to do some new trials.

We're doing the [indiscernible] study, which will be coming up here in Q3. But more importantly, we're doing a dosing study right now, which is just in 20 patients showing what happens if you were to double the dose in the first dose, because there's a big misperception that injectable insulin and inhaled insulin are dose for dose and they're not.

And that's a lot of the data we generated over the last 3, 4 years showing, we got to titrate up faster with inhaled insulin, and you really get better control and that's really something with dosing study. Hopefully, we'll read out here at the end of the month, and we'll share that at the appropriate time. But that dosing is going into the [peet's] [ph] protocol. And then we might roll that into another study to start to get through a robust data showing. They're not just equal outcomes, but hopefully better outcomes as we go forward.

Daniel Busby

Okay. That's helpful. When you talked about the size of the market, the number of patients that are on Afrezza, I also believe there’s 3,000 physicians that you have that are prescribing it. It seems like that would be a good place to grow share. Can you give us a sense as to what the penetration rate is for Afrezza within that subgroup of physicians? And where you think that can go and the levers that you have to grow it with physicians who are frankly already familiar with it and using it?

Michael Castagna

Sure, if you just take that 3,000, the top 10% of them, our market share goes somewhere between 4% and 30%. So, when you ask me like, can we get to 1% or 5% national share? The answer is, yes. We're already there with certain physician in certain geographic markets. The question is, how do we scale them up nationally? And there's a lot of good pilots and marketing going on right now.

You saw this past weekend we [sponsored ND Connerson become a spokesperson] [ph], trying to raise awareness around inhaled insulin, trying to raise patient demand. There is a lot of digital marketing side, patient waiting rooms, a ton of stuff going on across the board.

But I think what's most important is taking those current prescribers and driving deeper prescribing within them. And then opportunistically add an extra 1,500 prescribers a quarter, I think that will start to build up over time.

But we do see - there are probably 2 things on the depth of prescribing. Number 1 is length of time to represent a territory. And so, when you look, as a company, we weren't always the best recruiter company, I'll say, in retaining our employees. I think we put a big effort in over the last 18 months to make sure we got the right incentives, right bonus structure and that we're recruiting the right people.

So as those people now go into 1, 2, 3 years of experience here, we know they're really going to kick in and start to ramp up. And you look at our top 10 or 20 reps. They have been here for 4 years. They have the trust. They have the respect. They build a base business. They understand the product.

And so, to be in the top 10 or 20, very few people will break in. And we have one or two right now breaking in to the top 20 reps as we speak, because they got hire this year, and they're knocking it out. But if we could start getting 60, 70, 80 reps all going in that direction, and then driving those physicians to prescribe deeper, and then involving in our prescriber base, you'll start to see that compound effect that you traditionally see with that chronic treatment versus acute treatment there.

I feel like we made so many changes over the years in terms of our packaging and turnover and the sales force and structures, that we weren't able to continue to build that base that you would expect to see with a chronically administered drug. So hopefully, we started to seeing it in 2019 and 2020. And when we come out of COVID, we'd hopefully see it grow a little bit faster.

Daniel Busby

Right. And as you do your long-range planning and think about 5 years from now, what are your expectations for the relative contribution to growth from your existing prescriber base versus expanding it to additional prescribers?

I guess, what I'm trying to get at, what are the key metrics we should be following, kind of gauge your progress towards your long-term goals?

Michael Castagna

I think in the next 5 years, as we start getting our own confidence in seeing our programs working, then we'd want to scale up even faster, because there's nothing - traditionally our biggest hedge was really capital, we just didn't have the extra capital. So, even when we saw something working, we didn't have the fund to scale up the sales-force or put our marketing dollars at work.

Now, we do. So we're going to take a good capital allocation approach, which is, hey, we can allocate more and grow the pipeline faster. That's great. And we see some opportunity to grow Afrezza faster, we're going to take that bet and go with it. We fully believe Afrezza has a lot more upside from where we are.

And I think all the things we're working on this year will start to show some increased trends. And then, from there, which one do we bet further on. For example, there we go out to target primary-care docs. It would take an extra 100, 200 reps, which once we have that conviction of the growth trajectory, we can take that bet now and put them out there.

And so you might ask, the next 2 years, it's going to be our existing infrastructure, leveraging that, get in depth in prescribing, and continue to accelerate that adoption from the time a doctor starts the first patient to the - starting of that patient to the next patient, right? We got to shorten that window, how long it takes to get a patient every week, every 2 weeks.

And then, as we go out further, I think you're going to see - right now, we target roughly about 7,000 active doctors. So, considering we have 3,000, as you get to the - about 4,000, 5,000, we're going to reach the capacity of our sales-force, to the way you start to go up there and hire more reps, maybe about 10 or 20 each year and kind of grow it that way.

But we have almost a little over a third of our docs currently prescribing the drug. And I think the longer we're there in those territories, we'll see more and more docs adopt it. But the real question is we add 1,000 feet end of 2, 3 years, when we get approval. We just added about 500 this year for Thyquidity.

And that's given us an opportunity to start to build that relationship in that segment and understand that a little bit more. So we'll keep adding targets. And we'll keep adding reps as we go forward. But we really want to make sure we got the growth trajectory we expect before we start putting a lot more capital risk.

Daniel Busby

Okay. One more question on this topic, on Afrezza before we move on. I want to touch on the international opportunity. You have partners in Brazil, India, Australia. How are you thinking about other regions? Is Europe a high priority? Is there a reason you haven't partnered there yet?

Michael Castagna

Yeah, I just talked to Australia last night. So, we're working closely with them and try to get that filed this year, if we can. Honestly, COVID just stopped the whole world over the last 18 months, whether we like it or not. And [indiscernible] for June, people are - Australia is still in lockdown, for example. India is under lockdown, Brazil is under lockdown.

So, if not a lockdown on these markets, that's the first thing is about saving lives in the companies. But Brazil looks like it's stabilizing. India looks like it's falling, starting to come down a little bit, still pretty bet over there. And Australia, we're fully excited about Afrezza and getting on board there. So, I think those are 3 markets as we - we don't expect much movement this year, maybe the India travel will open back up and get done.

But rest of that is going to be a 2022 story and beyond. And then, to your point on Europe, the only reason we didn't file in New York was we wanted to get - we needed the pediatric program approved by the FDA. You couldn't file in New York, unless you had a PIP exclusion. And we knew we weren't getting exclusions.

We had actually showed that we had a pediatric plan. And that's now done, and the FDA just approved our protocol to move forward. So now we can actually file in Europe. And that's something we're looking forward to. I think you'll see us look in Canada as well. So there are a couple markets that will come on board.

They'd probably take a good 24 months from the time we file to the time we get approval. But those are going to be additional expansion opportunities. And they're more likely to be to a partner depending on how MannKind is doing, right, we could always evaluate bolt-on opportunities outside the U.S.

But I think our main focus is getting Afrezza growing in the U.S., getting the product filed for ex-U.S. And then, as we accelerate the growth in U.S., how do we find the right strategic partner in some of these global markets?

Daniel Busby

Okay, we'll be keeping an eye on that. Let's pivot to Tyvaso DPI. It would have been newer opportunity for you and your collaboration with United Therapeutics. Maybe to start, provide some brief background on this deal. And just maybe outline what MannKind's responsibilities are, what you've done today? And then, what your responsibilities are going forward with the manufacturing? And then, what you receive in return in the form of royalty payments and supply revenue?

Michael Castagna

Yeah, yeah. Fortunately, actually, the bulk of the risk, because the approval falls on MannKind, meaning it's a lot of manufacturing. At the end of the day, we're responsible for it. We're scaling up and it's our technology. So, I think from the clinical perspective, United Therapeutics have done an amazing job. Their trial enrolled nicely.

We've never [indiscernible] effective filing. And so now, the onus is making sure the manufacturing is up and ready. And we feel comfortable with the FDA. We should get an accepted file, hopefully, this quarter. And then, that would - we're expecting approval by the end of the year. And we'll be ready, that is if FDA just issue

One of the questions I get from investors is, do you think the FDA backlog on factory inspections could be an issue? My answer is I don't expect that to be one. In fact, the FDA just issued guidance. I think it was yesterday it just came out. That said, here's how they're going to prioritize inspection with what they have. And because this is an accelerated approval with the voucher, I do expect that we'll get prioritized for inspections if we need it.

But the good news is, FDA just said, if you are inspected and you have no major issues that might be a lighter touch or may not require an inspection. So we'll continue to watch that closely. We'll be ready for an inspection if they want to come. And the good news is we're about an hour-and-a-half from the Boston office in Danbury, so that shouldn't be an issue.

And otherwise, the DMF, the Drug Master File, that's our responsibility, and an NDA as you know. So we're doing work to make sure that that file is complete for the FDA and no questions left unanswered. So that part looks good.

For us, we feel pretty good. I think I heard Martine present, I think it was today or yesterday. This morning I believe. We feel very confident in the first time approval here. We’ve learned what we need to do. We deal with FDA all along. They deal with FDA. So we feel pretty good about the opportunity here and then probably the risks there.

Daniel Busby

And so, once that product launches, assuming it's successful, I understand you're eligible for low-double-digit royalties on sales. And then, have you shared the specific details of the manufacturing agreement or is that still a little bit work in process?

Michael Castagna

Yeah, so to your point, Dan, we'll get royalty. So part of the nuances here that, why we haven't given too much guidance is, in the first 6 months, we're going to start making products here in Q3 and Q4 in anticipation of approval. So, the supply agreements being finalized to accommodate for the hiring of all the people we're making, the expansion of the facility, and the pre-production inventory and any risk we're taking on hiring people.

So, all that is being worked out. We have pretty much as a framework, it's done. It's just got to be literally finalized with the [indiscernible] and everybody, but we feel pretty good about that. And then, we'll give the market clarity.

But you're right, we'll get double-digit royalties on sales. And then, we will get some manufacturing markup on cost plus X. We just have not disclosed X yet. But we will do that probably in the late second half of this year, once everything's up and running. But that'll be important.

But not - so we'll get manufacturing revenue, we're also going to be allocating a lot of our people to the build-out and see how and some of that part. And then, you've got the royalties. So, it's a multipronged investment on our part, and as well as their part to make sure this is successful.

There's nothing more important for MannKind or United to make - other than making sure Tyvaso DPI law suits falls..

Daniel Busby

Okay, that's helpful. And then, as we think about the moving parts that will ultimately determine the value of this opportunity to MannKind, it seems to me that there are 3 big ones. There's, one, how quickly the existing Tyvaso market migrates to Tyvaso DPI? Two, there is how much new indications like interstitial lung disease and COPD can grow the market? And then third, you have a few years down the road, the potential impact of Tyvaso generic entry in 2026.

So, I understand in fairness, that this is outside of your control, because United Therapeutics will - kind of be running the ship. But can you maybe briefly touch on each one of those 3 and just provide some high-level thoughts on how you're expecting those dynamics to play out?

Michael Castagna

Sure. I’ll add a fourth one, Dan, which is in United's - both to control, which is really around, is this going to be linear price to flat price like Tyvaso is today? Do we see higher retention in the early stages of a Tyvaso patient, because today, we know those dropped out fully on the nebulizer?

And it looks like in our clinical data, we're seeing nicer outcomes in the first 3 weeks. And those that continue an effort that we're seeing more patients on the back end. So, I also think there's an organic growth built into the DPI version that necessarily may not come up with the nebulizer.

Let me get on the first one, on the conversion, I was trying to think through - I've done a lot of conversions over my career, whether they're device conversions, extended release conversions, or 3 pill to 1 pill conversion. Even here within Afrezza, we had to convert all the [Fanadu] [ph] patients to MannKind brands and products in less than 6 months.

So conversions can go as fast or slow as you want. And in my mind, I think is 6 to 12 months a reasonable timeframe? Absolutely. And there are a lot of good reasons to convert. Number one, patient convenience, right, taking a small inhaler like this with you and getting out of your house is something a lot of these patients can do. They set up the nebulizer, they need sterile water, they need backup, need electricity. Who wants to carry a suitcase when you leave your house?

And so, this is a life and death situation. This is unfortunately. And as DPI need to be on the go, I think has tremendous - which is patient satisfaction which we saw in both of that press release, United release. So I think that's a positive to drive conversion.

The second one is you have potential competitive entrants later in October 2022. You want to make sure as many patients are on our Tyvaso DPI as possible, because we think it's a good product. We should have great outcomes. We showed we're slightly better in a 6-minute walk test over nebulizer. So we think it should be a fast conversion and easy conversion. And then, I think there's no reason why a patient wouldn't want that experience or some people want to stick to Tyvaso. Absolutely, it's always going to happen.

But is it going to be insurance reasons? I don't think that will be most of it. I think most of it will just be people's comfort with what's working for them. But I think the large majority, I think I heard United say over 70% in their expectation will convert. And I would expect the large majority tend to happen in the first 4 months. That's for the one on conversion.

On the new indications, I believe we're planning for success in terms of - when we went out, when we went to build our Tyvaso DPI, we were focused just on the pulmonary market. The rest are upside. And the good news is it will be orphan protected in many cases, for years to come. And we have IPs on our platform till 2030.

So I think as you look at ILD coming. We're fine with that. We expect to get that on the label, [like even UT] [ph], so they expect that to double their Tyvaso patients by the end of next year. A lot of that's going to be the ILD market. So that's exciting. And also make sure we're scaling our factory to make sure we have enough capacity to deliver for these expanded indication. So we're not in a tough situation. And we don't expect to be. We're well ahead of that.

The second indication is COPD. I mean, that's 100,000 patients. It's a very large market. We have very easy delays. We get really deep lung penetration. So we think the study reads out. We think applying that to our DPI version will be strong.

And then the last indication is IPF. And that's a tough disease. I got to [remember] [ph] with it. And, if we can help those patients, I think it's going to be absolutely amazing. And that's just another 40,000, 50,000 patients. So I think as you keep looking at each of these, we're taking what is, say, 45,000 patient PH market, with UT, all the way up to 200,000 patient market, almost - between all these indications, so a tremendous amount of opportunity here.

And that's why when people ask me, what else are we doing, like there is nothing more important to both companies than getting Tyvaso, right? This is a multi-100-million-dollar opportunity for MannKind. It's a multi-billion-dollar opportunity for United Therapeutics. So we got to get this right and nail this head on with them, in terms of manufacturing, freed up for the trials, getting the data published and getting acceptance and adoption.

In terms of generic, I think you've already seen that Tyvaso injectable generic, they didn't get much over the last year that they've been out there. I remember [Avendos] [ph] working on biosimilars, working on generics, there was Flolan generics from GSK to, I think, [a tad ahead] [ph] at the time. They never penetrated much of the PH market.

Generics, payers, I don't want to say they'll never do anything, but these are orphan patients, there's not a lot of them. And they're generally expensive. But there is oncology patients and gene therapy 5, 10 times more. So there is just not a lot of these patients to stretch over that amount.

But it's also - if our clinical data continues to hold up, we'll have almost 2 years of safety and efficacy data by the time we launch. And I think we saw in the first 3 weeks where we had a nice improvement in 6-minute walk test. You can't really tell patients, let's go backwards and do something that wasn't working that well for you. So it's going to be very hard for generic and payers to say take something that showed its worse.

And so that's the good news about our data, is our deep lung penetration shows good dispersion. We saw improvements in 3 weeks on 6-minute walk and quality of life. Those are meaningful endpoints for these patients. And we think they're important, so I don't think the generics are going to be the biggest issue. That's on UT to worry about.

But I think from my own experience in all these markets, you never want to underestimate competition. But I think we have a really good product that's going to benefit patients. And it's going to be hard to tell people go back to the nebulizer. And they may or may not be as well. But we'll see.

Daniel Busby

Okay. That's great color. I have more questions on Tyvaso. So but in the interest of time, we only have a couple minutes left. I do want to hit on the pipeline. You have a lot of programs that you've disclosed. You have many that I believe you haven't disclosed.

I know it's hard to pick favorites. But are there any that you're particularly excited about and that we and investors should be focused on, in terms of potential updates over the next year or two?

Michael Castagna

Yeah, I mean, I'm most excited about clofazimine right now, because we bought it because we thought it was a nice opportunity where we could apply our technology. We can bring in a strong leader. And we could advance it faster than we thought going independent of us.

And so, I think Thomas here is just driving it really quickly. And I'm really excited, because I think NTM is going to be a growing area, not just in the U.S. but Japan, Middle East and Asia. And then I think there's not a lot here for these patients. So I think being able to find - we want to make sure we design the trial to show really strong outcome and maybe think about disease burden and pill burden, and everything else that these patients are going through.

But the early preliminary efficacy data in the animal models is really encouraging. And I think the toxicity data we now have in house, that looks positive, and positive in terms of no tox tissues. So we're really excited about this molecule and trying to move it as quickly as we can.

And then, we have a couple others, which I think will move very rapidly as we bring those public into Phase 1 next year. And I think you'll start to see, every year from here on out, not just our own pipeline, but then partnerships on top of that, where Technosphere is being applied to other companies' molecules.

And so you should see a good 5 to 10 year run of new innovation coming on Technosphere, not just with our own company, but other partner companies. So I'm pretty excited about some of the stuff we're working on for other companies right now as well. So that gives me - it's just nice to see the different ways we're helping patients and helping other people, it targets along that, just could use a benefit from our products so - and our technology.

Daniel Busby

Cool. Yeah, we're definitely looking forward to seeing more out of the pipeline. We're up on time. I want to squeeze in one more quick question. We've had a lot of investors ask about the plans for Danbury, whether you plan to do a sale-leaseback there. And just more broadly, I guess, you're well capitalized right now, how do you plan to deploy that capital? Is it into the pipeline? Is it into the Afrezza launch? How should we think about that?

Michael Castagna

Yeah, I mean, the good news on drug development with what we have, even if you gave me an extra $500 million, I can't push molecules any faster, meaning we've just hired more people, the throughput is fine, we're working night and day over there. So if we can push the pipeline faster, we have the capital to do that. We absolutely will.

But just know the pipeline is going as quickly as humanly possible on that one. On Afrezza, I do think there's a lot more we can do. And we're filing the right financial position to take those bets. On the COVID, we've made a lot of changes across the field leadership team, across the marketing team, across our Chief Commercial Officer.

So we feel, overall, we're in a good spot for that team, the medical team. I mean, everyone's in a really good spot. They're really coming together. It's nice to see that we're brainstorming today, how we went in the second half. So I'm pretty excited about where we're going to be with Afrezza. And we finally got the team. We got the money and the runway to make things happen.

So I think that's going to be exciting part of the story as well. And we got to prove that one out, because people have been disappointed on Afrezza, Dan. And I don't want a false pretense. But I feel pretty good about the insights we got in the clinical data and the direction we're going in the fall, we're starting to get behind this. So from overall capital allocation, I think we're in a good financial position to do what we need to do to run the company towards cash flow breakeven.

And we got removed our going-concern language from our financials. So I think the sale-leaseback, the real question is, what do you do with the extra capital? Do we really want to add an extra expense in very expensive capital? And we got a Board meeting this week and a shareholder meeting. So we'll talk to the Board, and kind of - really, it's about capital allocation. And if there's ways to allocate that capital appropriately, then we'll consider that opportunity.

Daniel Busby

Okay, great. I think that's a great place to end. Mike, thanks for joining us. Appreciate it.

Michael Castagna

Thank you, Dan. Thanks for the coverage.

Daniel Busby

All right. Take care.