MannKind Corporation (NASDAQ:MNKD) Oppenheimer's 31st Annual Healthcare Conference March 17, 2020 1:50 PM ET

Company Participants

Mike Castagna - CEO

Conference Call Participants

Steve Lichtman - Oppenheimer, Senior Medical Devices Analyst

Steve Lichtman

Hi. I am Steve Lichtman, Senior Medical Devices Analyst at Oppenheimer. Welcome to the 31st Annual Oppenheimer Healthcare Conference. Happy to have with us next MannKind Corporation and CEO, Mike Castagna. We're going to do a fireside format. If you have any questions please key them in and I'll get them over the mic. I will say I'm going to continue with this presentation even as a giants fan and what - and the eagles mic is currently rang. With that, Mike, thank you for joining us.

So I guess just before we dive into the opportunities, I think for those that don't know this, already, why don’t you just give a quick background on the core Technosphere technology because of course, that is the foundation for not only Afrezza, but for pipeline. So maybe a little bit of background would be helpful to start out.

Mike Castagna

Great. And as we deployed better, our CFO is a giant fan, Steve. So we always have this debate internally every Sunday, Eagles we'll see what happens in the future. But for those that can see the back says [ph] of Afrezza, so that's really the goal here, is making Afrezza number one.

Upon the Technosphere platform. That has been a - this year is our 30-year anniversary of the company. We were formed in 1991 on the original inhalation technology. And so there's a lot of know-how and built-in expertise that has transpired over the last 30 years that we've invested in. So we really know how to make powders fly, we know how to make them go within our devices and how we measure success and predict success on formulations.

And that's been - you know, when you think about most dry powders or lactose blend powders that just blunt, force, stuck in and you try to get some of that powder into the lungs. And most of that powder get stuck in the upper airways.

When you think about Technosphere powders, they're actually specifically designed to fly deep into the ventricles. So they concur, go down the curvature of the lung, brake fields and get to the endpoints of the lungs, so you get a more widely dispersed dry powder across the lung alveoli and get into the blood very quickly at the end of that lung surface area.

So the lungs are half the size of a tennis court. And that's one of the things we look at with insulin, you're spreading all that insulin across a very large surface area, it's getting immediately absorbed into the blood, and just like oxygen picks up through the lungs, you pick up the insulin, you get a very fast uptake. And that's why it work so well.

The same thing we see with Tyvaso now is our next product coming down the road with United Therapeutics. You know, even that they just came out, you're getting less variability. And that's because our device and our technology is very - it's really precise, it's very linear. It's not this blunt force instrument. And so you can dose, you know, like Afrezza 4, 8 level at the 48 le unit.

The same thing with Tyvaso DPI, we see, you know, looking from its all the way up into the 150 microgram range. That is very linear, and you don't get this curvature because there's a certain aerodynamic particle size, that the powders don't fly any better, right, they just get stuck. And that's it.

And so we haven't seen that in our technology. So far, we've seen it continue to dose increases, and that they're additive. And I think that just speaks to the volumes to whether we're dosing micrograms in Tyvaso, or milligrams in the case of Afrezza. We get very consistent absorption and you get deep lung penetration.

And I always give the analogy, returning to corner [ph] 90 miles an hour in a car, you're going to crash. And that's where you got to do with these powders when you're sucking in an Advair, you're throwing that powder in at a very high velocity, and it just can't get into the deep lung ventricle. And by the way, you lose a bunch in your device, you lose a bunch in your cheeks and the back of your throat. And so you're only getting about 20% of the drug, even into your lungs. And most of that goes a different way.

In our case, we slow those powders down so they can turn the corner nicely, they get deep into the lung and you probably get a 60% of the powder into the lungs instead of like 20. So we know that we can deliver a better therapeutic experience for patients and ultimately, hopefully less systemic toxicity if you can lower the dose in certain drugs, that's what our - that's always the goal is, you know, get the right amount in the body, to do what you need to do.

Steve Lichtman

That’s helpful. So, let's touch first on the core business of Afrezza today. That the franchise, you know, has had a number of headwind over the years. And I think you mentioned on the last earnings call. You feel good about sort of the state of play right now in terms of your commercial organization and kind of seems more forward leaning now. Maybe talk to us a little bit about you know why you think that the business today and Afrezza is positioned to accelerate ahead?

Mike Castagna

Yeah. So I think there is a couple things here, right? When you think about Afrezza, it's a disruptive insulin, right? We've been treating diabetes 100 years with insulin, and it's been all around carb restrictions carb ratios and avoidance of hypoglycemia. And everything we've done in this disease state, in insulin dependent diabetes is all around trying to minimize hypoglycemia.

So we've invented better insulin pump, we invented CGM. All this technology is all around avoiding hypoglycemia related to the injectable insulin. And I think that's when you take a step back and say, you know what, we have a physiologic influence it matches the time your food and your meal are peaking with your insulin profile, and it gets out of the way. So we see less likely less weight gain, less binge eating, all the things that come with that mismatch of food and insulin.

So when you have disruptive technology, Steve, there is a lot of learnings that probably weren't prepared in the marketplace. Number one is dosing, you know, how do you think about an inhalation pulmonary unit versus an injectable unit? They're not one to one, right? We spent a lot of time in the last three years doing new studies to show retrospectively what our data showed, as well as prospectively, and now we're taking that data set. We're using that for our upcoming PEACH [ph] trial. We're using it for the trial in India.

So I think all the new studies coming out, we're going to show you exactly how to dose the product and how to get the best outcome possible. Where before, we know all the pivotal trials were done with undergoes [ph] patients, it took doctors a long time to titrate up, they never titrate the glycaemic effect the way they should have. And we lost valuable time, and they will see reduction in those early studies still got approved. And what I'd say is undergoes the present work pretty well in those trials. But we could do better. And that's really we're looking to read out in these new trials coming up. So I think dosing is a big component. The other - and that's around the disruption, you know, of a powder versus injectable.

Then you get into technology. So we love CGM. We think it's great. We think patients seeing their services is an awesome feedback loop. But now we're going to take Bluetooth technology, connect that to our device and start to build integrated logarithms, where you can see exactly when you took your Afrezza where your CGM went, and because Afrezza works pretty much within five to 10 minutes, you know, you're going to be able to see on three dots on a Dexcom, what's happening with your sugar, did you under-dose your Afrezza and maybe need to give a touch up dose in an hour. But you'll be able to start to see that real time on your phone over the coming years. That's really exciting. So the technology interplay where we are today versus where we were four years ago is different.

And the third and fourth thing I'll highlight that probably were some of the major objections of the brand, when we got here was around safety. So people worried about insulin in the lungs, right Pfizer didn't work out, Sanofi didn't work out, two leading world class companies could not make inhaled insulin go little, while MannKind has not only done well, but we got an Afrezza over the hump. We've proven out now over five years, all the safety data has come out that looks fine. We've had no major issues in our in our database, and our thousands of patients have taken the drug.

We're going forward in the kids, are shortly with FDA just gave us the green light. We're submitting the final protocol next week. So that's starting off. And so now when doctors, endocrinologist are very conservative by nature. And so for them, no even Omnipod or Dex, took 510 years for these drugs to start to get into their through swing. I think we're just about to hit that with Afrezza.

And the last thing I'd say is getting all that data published, right? The data was not - we did it. We filled it with FDA. But a lot of that data was not in the public domain and we referenced for guidelines for doctors to search. And when you ask them doctors and say what data, they said I want to see your head to head studies and I'm like, Oh my God, we have had that slice. How do you think this drug got approved? People's basic understanding of Afrezza insulin [ph] is so little that we got to dramatically increase education. That's one of the things we're now – with the recapitalization of the company. And now we're finally funded. And now we can invest in medical education, we can fund the pediatric trial, we can spend a little more money on marketing and we see things working.

So I think our ability to push Afrezza forward today is more impactful than ever. And I'm not sure even if we had the extra money, two, three years ago, to spend as we saw in DTC, the doctors weren't ready, the clinical data wasn't published. All that stuff is done now. And to your last point, we have new Chief Medical Officer, Alejandro, ran and Medtronic Diabetes Franchise, did a great job there. He's joined us we got Dr. Carson who just joined us in pediatric and running our medical team. We got a bunch of new MSLs out there educating doctors. We got to scale up salesforce.

So all parameters on the commercial side and medical side are in really good shape. And as COVID opens up I think this team that we prepared for the last six months can now get out there and start doing their job. And so I think we're just getting started and we got the capital to now push it forward. We're not going to go out spend $20 million, $30 million extra from where we have been, but now we see you know, bets that we can take here and there, hire a few extra people, do a small study, we're going to be able to take those bets and driver Afrezza faster. But otherwise, you know, we have diversified company now, and that's good. But I think all the foundation of Afrezza is there.

And the last thing people go argue is managed care. We will tell you, seven or eight out of 10 patients that give written Afrezza get covered. And that's why I'm going to continue to go up over time not down.

Steve Lichtman

And you’ve also made some changes and additions on the commercial initiatives in adding sort of Afrezza Assist. So I'm wondering if you could talk a little bit about that. And also, the Free Goods Program, and actually, there was a question that came in about your what portion of scripts are not being seen now on simply, I know, it's something you've addressed before. So maybe Afrezza stands out of that decision to pivot away from the Free Goods Program?

Mike Castagna

Yeah. No, so one of the objections I heard from Doc's, when I first got here was, hey, the drug is too expensive, and it's not covered. So we originally flat price the product, nobody cared. And then as we launched our new package, and we went back to linear pricing like all insulin. So that's just where we are on that one in terms of - so as we grow and better dosing, you'll see a compound growth rate for shareholders. But ultimately, that's how insulin priced.

On Afrezza Assist. When we heard it wasn't covered, we had launched a program in January or February of ‘19. And we said, look, its $15 for commercial patient, regardless of prior authorization. And the whole purpose of doing that was to take that objection away to salesforce and the doctor level. So when doctor said it's not covered, we said no, go ahead. And what you saw was not a big transformation in our inflexion points.

So we were able to now confirm that access is not the barrier to Afrezza, it's a perceived barrier, but it's not the barrier. But that program, what happened is doctors just would not do the PAs. And so if you really want to improve your managed care access, you had to show demand to the payers. And what was happening is the Free Goods was growing. But the actual pay claims weren't growing as much as we wanted.

But we saw when we looked at the Free Goods, 60%, 70% should have been paid for by insurance just based on our current coverage. And so that program is starting see be about 15% of our scripts. And it was getting to be almost a $1 million a month where it doesn't hurt our revenue either way, it was free goods, but it drives up our wholesale fees, it drives up our COGS. And you know, we felt this was a very inefficient program, and it got too big.

So we made the top choice in January, and we shifted it into a much lower cost. It's our inventory, it doesn't go through wholesalers anymore. And basically the message to the doctors are send us the prescription get the PA started, the PA generally is getting approved within a day or two. And then we provide is not approved for whatever reason we'll give the patient free drug. And we'll get them started right away. So that that's not a holdup, while we appeal those.

And we're getting great insights on what, the number one reason is like here, here's what's funny. What's the number one reason is Afrezza is getting rejected. It's because the doctor didn’t document, they fail Humalog and Novolog and our strategies that help the 4 million people on Humalog and Novolog that aren't [ph] a goal.

So we know they're not by default, those are the patient types are going after, they've already tried, so all doctors have to do is just do a better job at checking that box and documenting that, you know, 80% of people aren't a goal. So that's really our focus here. And that's what the PA, the Afrezza Assist has now given us the insights to say, to go back to the doctor and say, hey, you just need to do a better job on completing the PA and 60%, 70%, 80% are going be approved right away. That's not a bad thing with for two second prioritization. Our priorities are not that complex.

So they're basically just documenting that you're the right patient, you did the PFT lung function test, and you know, you tried to prefer agent, which is much cheaper, and we're okay with that, we think that's a fair place to be.

Steve Lichtman

So I do want to shift to Tyvaso DPI. So for those that don't know, if you briefly just started talking about the structure of the deal with United Therapeutics and how you guys can benefit once that's launched, and maybe just a brief history on the data, what the data show, in terms of why people should switch over to the DPI form when it's available?

Mike Castagna

Yeah. So for those on the deal structure, this deal was signed in - it was announced in September of 2018, probably signed in the chair that I'm sitting in. So it's really good opportunity to be [ph] Martine and United they've been a fantastic partner. I think we work well together. One plus one is really three or four this partnership, meaning they got all the disease and expertise to be able with technology expertise, and together they have a great vision for where this product is going to go.

The deal was $105 million in upfront plus milestones. Those have all been met as of Q4 of 2020. And then from there, once it's approved, we get royalties, we get double-digit royalties, on that sales of Tyvaso. So last year it did roughly $500 million. And Steve, I think you got projections, this can get to $1.6 billion, roughly and so we will get low double-digit royalties and we expect most Tyvaso as I’ll talk about in second, it should switch over to our platform. There is really no clinical reasons why that patients wouldn't want to try the dry powder from a nebulizer.

The other part of the deal is manufacturing. So we originally were open to other UT manufactured or we manufacture the commercial scale, we will be the commercial manufacturing for the foreseeable future. In fact, we're building scaled up facility within Danbury to handle future indications and future demand. So that's where we're excited about this asset, and we think it's going to be a great opportunity to help patients. And we will make - I think we put in 12.5% COGS, plus 12.5% in your model Steve, and I'd say that's in the ballpark. We've not disclosed that publicly. But I think you're close enough for people to see and we'll get clarity as we finalize our supply agreement and give you some clarity as we get to Q4.

But we’ll be making Tyvaso here are Q3 and Q4, and getting ready for launch. And that's exciting. And then and then don't really stop there on the deal terms. So that's what it looks like. So royalties, plus manufacturing. And as you know, Danbury is a very large facility and Tyvaso we run in 24/7 there. So it'll be very exciting to get this manufactured and get that team really up to speed in the factory and running full speed ahead there.

You'll see several hires this year there. So there's probably 40 jobs posted to manufacturing to give you some color here. There's going to be a scale up here in Danbury where we get the two shifts running in 2022. So a lot of work to do. I'll be in Denver next week, getting ready for Tyvaso. So and then making sure we're good to go.

But the second part of that is the clinical data. So UT, United Therapeutics had released some data in January, which I thought was really important. Not only did we set out to show PK bioequivalence and, you know, be biocompatible [ph] That's great, but I think it was nice to see that in three weeks of switching to our technology, patients had an improved six minute walk test. That's not an easy feat, right, the drug is approved on a six minute walk test. And not only did we switch to our Tyvaso DPI, we actually improved patient outcomes in three weeks. That's pretty impressive. And now we have data going on for a year, by the time we get approval of data go on for two years in those patients.

So a lot of exciting opportunity here because someone coming out on my mind for improved Tyvaso, they better be going up against our DPI version, because it's better then in Tyvaso, indirectly, I don't want to make that claim without FDA approval. But all indicators are safe. You got about a six minute walk test, you got good patient reported outcomes, better than Tyvaso, they're happy with it. And the safety was there 96% of people completed the three week phase and only one person dropped out for call out of the two dropouts.

So nothing significant. We see people going on for a while now, we see what the dose and titration is. And they're really excited to help patients that PK looks good, the human factors data looks good. Stability looks good, everything's in good shape. So we're ready to file here in April.

Steve Lichtman

And I wanted to shift to the pipelines. As we got a couple questions coming in on that. You did also allude to the confer that you guys recently did, and got a couple questions in on that. So maybe start there if you could Mike, what is the use of proceeds, the rationale for this latest deal with? There is a couple questions coming in on sort of use of proceeds overall?

Mike Castagna

Yeah. So the first is you know, MannKind when you take a sale leaseback and the convert and the cash we had, you're talking almost $400 million, you know, coming into the company by April. That's more than our market cap was for the last three, four years for the most part. And so to be able to like take a company, which was, you know, near bankruptcy at a $70 million market cap and no cash to now have a fully loaded cash balance sheet to fund the company at cash flow, breakeven.

And we feel very excited about the transformational list, you know, 3.5 years 4 years. It was a long journey longer than anybody liked. But I think that to be able to be in a position we're in is amazing, considering how far behind we were. And so the first step on the use of proceeds will be reducing our outstanding higher yield debt. And so you'll see some communication on that over the coming weeks. So that's the first step.

The second step will be completing sale leaseback. We're pretty close to wrapping up the definitive agreement, purchase agreement so that that'll bring in roughly, as we said, $95 million to $105 million. It's very in that range, pick the midpoint if you want. And so that'll be signed and then close roughly within 45 days. And then - so that's the short term use of proceeds.

Now you look and say, well, it's costing us to borrow $50 million a year, we now borrow, you know, we're able to borrow $230 million for roughly the same cost. So now we have a lot more capital to fund faster growth of the company overall. So what does that look like? The pediatric study that's probably going to be in the neighborhood of call it, $10 million to $20 million over three years. So now we can kick that off and know that we got the funding to complete it.

We're going to be looking at how we can drive more efficiencies in manufacturing, you know, can we bring packaging in-house, can we increase real times, you know, have turnaround times, things like that on the manufacturing to improve gross margins over time.

We're looking to now file this in Europe [ph] and we know it's going to take about 24 months from filing for approval. So let's go ahead and get that filed. And whether we find a partner or do it ourselves, at some point, we got time to figure that part out. But the biggest risk is de-risking the approval, that's where you're going to find a good partner and say, here's an improved asset for Europe, we think that's an opportunity for growth.

And then the - you know, just being able to take some bets on the present. So we never been in a position to actually fund faster bets on something that we see working, we have several irons in the fire on digital marketing, social media, salesforce, medical liaison, everything is up and running now. And if we see something starting to work, we can now scale that. And I think that's what we're looking for is. We're not going to spend an extra $20 million, $30 million, but there's incremental bets we can take there to drive faster growth in Afrezza, we want to be able to do that, we think Afrezza has still a lot of upside.

And the good news is most people have minimized the Afrezza future in terms of the impact on the company, on the Wall Street side. But we know from an unmet needs and data coming out Afrezza is still has long - a good room to grow and make impact for the future shareholders. So we don't think it's anywhere near its potential. And we think it's got a lot of upside from where it is. But we got to show that and demonstrate that the Wall Street which - you know, we've not seen that inflection that everyone's waiting for it. But that's a core focus right now on use of proceeds.

And in the pipeline. So how do we fund faster growth in the pipeline? You know, we got this corn [ph] that we purchased in December with clofazimine, that's going to go into Phase I this year, could go on Phase II next year. And that'll be an exciting asset number [ph] need for, you know, abscesses and Mac, we think this is an area that nothing's been really shown dramatic impact. And we think a nebulizer version, if that's what we start with. And the dry powder version is hopefully where we end up with that will have a tremendous opportunity to help patients living with cystic fibrosis, as well as the elderly patients who get these infections in the East Coast a lot.

And then when you think about the next funding coming up will be DNase alfa. So again, we can get our antibiotic going in cystic fibrosis, and then we launched a DNase alfa with the same platform, all of a sudden the doctor treat [ph] morphine lung diseases, whether it's Tyvaso DPI, it's the clofazimine it becomes the DNase alfa all of a sudden, but our technology and our platform, we're going to be integrated into orphan lung areas and rare disease.

So that's our future vision over the next five years is how we build that portfolio up, so we have successive launch of products as you go out. So the next three to four years, you can see the platform we laid is Afrezza and rational expansion, pediatrics continued growth in the US and Tyvaso DPI.

Then when you look out from ‘25 to 2030, you have successive launches of orphan lung disease products launching between clofazimine, hopefully DNase alfa, and two other products, we didn't - we announced them on the platform, we have announced what they are, but ones for interstitial pulmonary fibrosis, idiopathic pulmonary fibrosis, and the other one is an unknown - unnamed indication. But that will be hopefully come in public as we move that forward faster.

So you know, I think that's exciting for us. And then we're looking for other opportunities. So we've identified some BD opportunities. And one area, Steve, that, you know, we're looking at is, do you think about diabetes as a care model? Right, Instead of just thinking about a drug company producing a drug find [ph] chronology. You know, one of the biggest challenges I see is patients don't get the right education, they don't get the proper time. And you know, as there a bigger way MannKind can play a role into care of the patient in any way we think about the [indiscernible] does dialysis. You know, if we think about this very differently in diabetes space, can I get insulin as subscription model, there's other innovative business models that we want to continue to think about how you build out this disruption that you're bringing and support it in a different way. So that's some of the innovation that we're trying to think about as we go forward as well.

Steve Lichtman

Thanks. You got a few questions coming in, all lined-up on the potential for COVID vaccine. I think you've talked about something along these lines early in the - early days of approval. I got a few people asking on that I am wondering, but what if anything, is there?

Mike Castagna

Yeah. I mean, I think that people are trying to keep up with demand right now on the vaccine. So you know, we've - I've reached out to colleagues in the industry saying, hey, can we work with you to put your vaccine on our in-health platform. And I think, you know, they're just trying to keep up with what's out there and you know, everything that they can possibly make us be involved.

So I think that can we get, you know, the question I have for COVID is, you know, we formulated four or five drugs in the last year on COVID opportunity for therapeutics. And we've kind of see what that looks like, we just met with one of our partners on that the other day. On the vaccine front, the question we - you know, as we talked with other partner was, how do you see COVID evolving? Is this going to be an annual vaccine that's going to be combined with the flu vaccine? Is this going to be a booster shot that's being given every so often, it's going to come with other variants. So I think that's evolving over the next three to six months. And that'll be maybe how we start to think about the future part of this.

But we can easily put probably a vaccine on our platform and make it inhaled. And maybe there's a way to do booster shots. I don't know that answer yet. But we wouldn't do that ourselves. We'd only do that in partnership with one of the vaccine players, but they're pretty busy trying to save the world right now. So let them get turned down. And we'll try to continue to find ways to work together as things go.

Steve Lichtman

Another question that's coming, on the pipeline is relative to the United Therapeutics, when the deal was first announced, there was the potential for a second molecule, what's the latest on that?

Mike Castagna

Yeah. I think I talked often, so I think you will see other opportunities for us to work together. The number one thing was getting [indiscernible] off the ground was nothing more important, in the United future. And there's nothing more important to our future, you've laid out the business model. If Tyvaso sneezes, right, that's not good for either company. So we want to make sure that gets filed cleanly with FDA, get that to market as quickly as possible, and get that off the development teams place which should happen over the next, you know, might see manufacture wise will be, you know, running all the way up to the approval.

But I think in terms of freeing up capacity on our teams team with the new indications coming for their product, you know, now they can start to think about what's next. And so we have some ideas lined up. And I think some of you already started to think, talking about. When you will see, at some point, you should see some other stuff with us and UT working together. So if they like our platform, we do a great job of what we do. And I think they're seeing the results of Tyvaso and this could be a nice platform for PH for them in the future.

Steve Lichtman

What about Receptor collaboration, as well as some other opportunities to talk about in the past, like epinephrine anything else that you want to through update us on?

Mike Castagna

Yeah, so on Receptor, I started talking about them a little bit more, mainly, they just got a new CEO, they got FDA feedback on a proof-of-concept study. They're looking to get the Phase I hopefully this year if they can. And so I think you know, we're meeting them next week, in Danbury, as well. So I think you'll see a little bit more on Receptor in terms of where they're going, how they're thinking about the marketplace, and the cannabinoid space. And that's really evolving quickly, as you know, in the last 24 months away from what I'd say is a not state trying to collect taxes off legalized marijuana to you know, GW Pharma getting acquired for $6 billion and what this can be for therapeutic advantages of FDA approved product.

So I think it took us a while to probably sit through those channels. And now they're fully focused on the FDA route, which is exactly what we think we need to be. And we have an FDA platform that they can run with in the future. So we're excited to work with them closer as we go forward. And I think you'll be seeing more out of them as time goes on. So let's get the proof-of-concept going show that this therapeutic treatment can do something in a population and then from there, that'll open up the aperture for what else can be treated with this technology and platform, so that they're.

On the other assets, there's probably four or five, three to five assets, I'll call it. Now we have done some formulation where we feel very good about them. We think they're not going to need epinephrine you mentioned, palonosetron is another one, migraines from a triptans [ph] that can go in Phase I this year. So now with the capital just came in, we're taking a step back, we were going to look to partner those. We're just - we're worried now literally at that decision point, right? Do we go external with a partner and kind of outsource them and we still do the development that they funded? Or do we think we can get a better return by funding into a Phase I and selling it off. And now we have that extra capital to direct. We just have to hire a few more people in Danbury. And that's just some of the trade-offs we're going through right now with the with the money just came in. That's all part of it.

Steve Lichtman

All right. Well, I think we're out of time. I apologize to those that didn't get the questions, but we'll have those saved and get those over to management. But thanks so much, Mike, for joining us today. Thank you all for dialing in, and hope you have a great rest of the day. Thanks, Mike.

Mike Castagna

Happy St. Patrick's Day.

Question-and-Answer Session

End of Q&A