MannKind Corporation (NASDAQ:MNKD) Q2 2023 Earnings Call Transcript

MannKind Corporation (NASDAQ:MNKD) Q2 2023 Earnings Call Transcript August 8, 2023

Operator: Good afternoon and welcome to MannKind Corporation 2023 Second Quarter Financial Results Earnings Call. As a reminder, this call is being recorded on August 7, 2023, and will be available for playback on MannKind Corporation website shortly after the conclusion of this call until August 21, 2023. This call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from these stated expectations. For further information on the company’s risk factors, please see their 10-Q report filed with the Securities and Exchange Commission this afternoon, the earnings release and the slides prepared for this presentation. Joining us today from MannKind, are Chief Executive Officer, Michael Castagna, and Chief Financial Officer, Steve Binder. I would now like to turn the call over to Mr. Castagna. Please go ahead, sir.

Michael Castagna: Thank you, and thank you, everyone. Happy afternoon. So a year ago in Q2, when we were notified that United Therapeutics got FDA approval for Tyvaso DPI, at that time we said that would put us on the path of profitability. And as we kick off a year later, we are proud to say that we’ve achieved our first operating income, making us a long-term sustainable company, which helps us live our mission to ultimately give people control of their health and the freedom to live life. Today, we probably have between 15,000 to 20,000 people taking one of our diabetes products. And there are thousands of people benefiting from Tyvaso DPI. We’re really proud of all the hard work, and we’re really excited to share this quarter’s earnings with you.

Let me first start off by a couple of highlights here in Q2. Orphan lung disease business is off and running. United Therapeutics is doing amazing job, strong patient demand. We received royalty revenue of $19 million or 63% growth just over the first quarter. We also took a step to improve manufacturing capacity through efficiencies and yields, increasing that by about 250%. Additionally, our orphan lung pipeline is starting to come into the purview. We expect to have 2 INDs filed and going into Phase 1 and Phase 3 in the next 12 months. INHALE-101, as we just notified you previously, there was a fire, unfortunately. We are now moving GMP manufacturing to Danbury, Connecticut. And fortunately, we have facilities there where we can move the equipment into.

Our chronic tox study is now complete, and we’ll have a full study readout on that here in Q3. On MannKind 201, we did receive FDA feedback on our inhaled nintedanib program. For those of you following the IPF market, that is a generic for Ofev, which is marketed by a company named Boehringer Ingelheim. We are planning to progress that to IND filing shortly and kick off a Phase 1 study next year. We’re super excited to get that in the humans. On the endocrine area, we have now Afrezza and V-Go, both synergizing our success. Starting in July, we have now moved everything to one sales force, one management team, one focus, to help people with mealtime control in type 1 and type 2 diabetes. As you look at Q2, Afrezza TRxs grew 16% versus last year, mainly driven by the Medicare access that was created under law in January of 2023.

And I’ll share more with you of that shortly. Additionally, INHALE-1 has continued to roll nicely. We had our best enrollment in the month of June ever. And INHALE-3 just kicked off and that’s already enrolled patients. And that’s the first study we’re doing to show you where – how and the conversion factor for pump switching. We have no data on that in our package insert. And it’s a question we get, which is, can you switch from Afrezza to a non-pump. And that is the study that will drive that, which is built upon the pilot study we did last year. Announcement over a year that we closed the V-Go deal, and that is achieving our first year forecasted net revenue, we gave a guidance of $18 million to $22 million. And we are coming in exactly on the high end of that forecast from a year ago.

Overall, what does this mean for shareholders? Our operating GAAP income was $2 million, driven by the strong growth in DPI year-over-year, and our non-GAAP operating income is $8 million when adjusted for certain non-cash items that I’ll describe later. Tyvaso DPI saw strong demand, and we were able to supply that demand with our increased manufacturing. There is an IP update from United Therapeutics in their recent quarterly earnings, where we heard the patent for ILD should be issued and give allowance through 2042. We have revenue expectations and continued strong patient demand. And want to give clarity for our shareholders that for every 10,000 paying patients, we expect annual revenue demand kind between $250 million to $300 million.

Additionally, we are on track to complete our high-volume capacity expansion, which is now in the end of next year. We have both spray drying scales happening with 2 new spray dryers being installed as we speak. And we have a fill/finish line coming in here in August that hopefully will be online between now and early next year. As we look at the Tyvaso quarterly revenue from Q2 of last year all the way through Q2 of this year, you can see significant growth consistently quarter-over-quarter, and this has continued to put us on the path of profitability. We’re very proud of the launch. We think it’s doing amazing. We hear great patient stories. And we see nothing really slowing us down as we keep going. And I just want to say thank you to our partner, United Therapeutics, for helping so many patients on our technology.

Now I want to bridge over to our diabetes business. This is one of the things that we control every week and every year. We’re trying to do a better job this year in improving patient access and keeping patients on therapy on Afrezza as we also turn around V-Go into a growth driver for the company. As you think about Afrezza, a couple of highlights. For those of you who don’t know, Medicare passed a law that all insulin will be $35 starting in January of this year. And you can see Afrezza was underpenetrated in this market because it was never put on a – it was always on a non-preferred formulary, which forced patients to have a huge cost differential, we could do anything to close that gap. When it was covered by $35, you can see we quickly got back to what you see as the standard of care rapid-acting insulin.

About 28% of all prescriptions are for Medicare Part D recipients and Afrezza now in Q2 has now gotten that back up to where the market is for rapid-acting. Really proud of the team work here and hopefully continue to grow and help more people living with diabetes in the Part D space. Additionally, in order to make our access method simple, we lowered our – we adjusted our commercial co-pay to be $35 to be consistent with Medicare. And you can see our TRx and our NRx growth on the next slide here has grown consistently, and we really have had an inflection, if you look from last year to this year, Q1 and Q2. Hopefully, we continue this as we go into the second half, and we continue to see really good momentum year-over-year, quarter-over-quarter, and we’ll kind of keep watching this on a weekly basis.

I wanted to share also, I think it’s important, I get a lot of questions why can’t we grow Afrezza faster. I think we had a lot of things to fix over a long period of time. Most of that is behind us. And a lot of the fruition of that work will come out next year. In the meantime, we continue to push forward while we don’t have any new data to share. And you can see how patients feel about our product. When you look at the right side of this picture, innovative, adventurous, smart, complex, exciting, bold, we are pushing the envelope in mealtime control. This is a completely different drug. It takes a completely different approach on how you manage your sugars day to day. And when you look at patient satisfaction, we rank the highest of all mealtime insulins rated out there by patients.

This is an independent analysis by dQ&A. And that is something we’ll continue to watch as we go forward. Now I want to bridge over to V-Go. We achieved the high end of our forecast, as I just mentioned. But what’s nice to see here is when you look at our TRx trajectory, we started telling you last quarter it was flattening out on NRxs and TRxs should follow, and I’m really proud to show you now in Q1 going into Q2 we have slowed the decline and now we’re back on a growth trajectory, which we expect to continue for the foreseeable future. So we had 4% growth in TRxs in Q2 over Q1, and this should continue, that we feel like we’ve hit bottom that the white space has continued to decline, while the rep targeting efforts on [indiscernible] doctors continues to go up.

So we feel like we’ve hit that inflection and hopefully continue to see V-Go do well and help more patients as we go forward. This is another slide just showing you NRx and TRx year-over-year. Obviously NRx was our leading indicator what’s going to happen in the future. And you could see from Q2 of last year, negative 8% on NRxs, up to a plus 4%. That’s a 12% difference year-over-year. And that’s contributing to positive TRx growth that we’re seeing. On the scientific front, our medical team is working really hard to start to articulate the benefits of this product with the new dosing arrangements that we’ve been studying. As we look here, we want to expand the eligible population for Afrezza as we go forward. In particular, when you think about diabetes and the transformation of the insulin pump market or the CGM market, it always started with kids.

Doctors and parents are very progressive. It’s a life-threatening disease. Hypoglycemia is a life-threatening condition. And we believe we’ll be able to demonstrate in this trial, hopefully, positive benefits when it comes to the safety of hypoglycemia as well as the efficacy. This is a non-inferiority trial, but we do know from a lot of our analysis that hypoglycemia is lower with Afrezza. And we’ll have to see how the data pans out. This is more than halfway enrolled at this point, and we will have some insight here in Q4 this year with a primary endpoint wrapping up mid next year. Cipla Phase 2, I got a lot of questions on when the data was coming out. We did receive the data. This data analysis is being finalized. We don’t expect the data to become public until sometime in 2024 once Cipla’s done finalizing their plans here for India.

On INHALE-3, we call this our type 1 aka pump sparing study because this is the first study we’re doing head-to-head showing you how the rotate off an insulin pump or how the rotate off injectable insulin to really just Afrezza, Tresiba and Dexcom, and that’s where the 3 comes from. We only think you need 3 things to manage your diabetes and it’s really these 3 secret ingredients, hopefully give you a really tight control and then give you the ability to live your life. There’ll be quality meds run in this trial as well as improved dosing regimens from our previous trials, and this is a 4-month primary endpoint with additional 3 months of follow-up. So everyone in this trial will switch to Afrezza by the end of the 7 months. Now I’m going to turn it over to Steve to talk about our financials.

Thank you, Steve.

Steve Binder: Thanks, Mike, and good afternoon. I’m pleased to review select second quarter 2023 financial results. Please supplement this call by reading the condensed consolidated financial statements and MD&A contained in our 10-Q, which was filed with the SEC this afternoon. Our total revenues grew 157% versus second quarter 2022 and 189% for the 6 months ended June 30 versus the same period of 2022, which highlights the revenue growth associated with Tyvaso DPI and to a lesser extent our endocrine business, which included the results of the V-Go product acquisition from May 31, 2022. Revenues from our collaboration with United Therapeutics totaled $30 million in the second quarter of 2023, which made up of royalties of $19 million and collaboration and services revenue of $11 million.

Royalties earned on the net sales of Tyvaso DPI of $19 million was a result of strong patient demand for innovative products and our low double-digit royalty rate. We recorded $11 million of collaboration and services revenue in the second quarter, which was almost double the prior year. This amount is primarily related to revenue associated with manufacturing Tyvaso DPI, which we started to manufacture commercially for UT in the second quarter of 2022. Total revenues from our collaboration with UT were $53 million for the first half of 2023, again representing strong patient demand for Tyvaso DPI as compared to $8 million for the first 6 months of 2022. The 2022 6-month period includes the start of commercial manufacturing of Tyvaso DPI by MannKind midway through the second quarter and the commercial launch of the product by UT towards the end of the second quarter.

Moving down the table to our endocrine business. Total endocrine revenues were $18 million, which was made up of Afrezza net revenue of $14 million and V-Go net revenue of $5 million. Afrezza net revenue of $14 million compares to $11 million in 2022, a growth rate of 27%, which is very consistent with our first quarter growth rate. The growth was mainly driven by higher patient demand with underlying paid TRx growth of 16% year-over-year, increased channel inventory to support higher demand and price. For the June year-to-date period, total endocrine revenues were $36 million. Net revenue from V-Go was $5 million for the second quarter of 2023. We purchased V-Go on May 31, 2022, so the increase over 2022 is mainly from a 1-month versus 3-month comparative.

For the 12-month period post acquisition, V-Go had net revenue of $22 million, which was at the top end of our forecast range. The next slide shows our revenue growth by source on a quarter-by-quarter basis from the first quarter of 2022 through the second quarter of 2023. We’d like to show this graph because it really highlights how dramatically our business has changed in the last 2 years. We started 2022 recognizing revenues primarily from Afrezza and now we have 2 revenue streams from Tyvaso DPI plus 2 endocrine products delivering commercial revenue. In the second quarter of 2023, we grew total revenue by 20% from the first quarter, fueled by the growth of Tyvaso DPI royalties. Below the graph, I have plotted the loss per share for each quarter, and you can see the impact from the increasing revenues, in particular from Tyvaso DPI royalties, which don’t have any associated expenses.

We recorded a loss per share of only $0.02 in the second quarter, representing an 82% decrease from the second quarter of 2022. The second quarter of 2023 we had our first quarter of GAAP income from operations since I joined the company 6 years ago in the amount of $2 million. There’s been a long time coming, but the growth in revenues associated with UT collaboration that had a significant impact on turning this positive. Starting with this quarter, we will communicate a GAAP to non-GAAP reconciliation so that investors can clearly see the impact of certain non-cash items on our P&L. Looking at the table, we had positive GAAP income from operations of $2 million in the second quarter of ‘23 as compared to a GAAP loss from operations of $21 million in the prior year.

When adjusting for the non-cash items of stock compensation of $6 million and a loss of foreign currency of less than $1 million, we had positive non-GAAP income from operations of $8 million for the second quarter of 2023. When looking at EPS, we recorded a GAAP net loss of $0.02 per share, which when adjusted for non-cash items of stock compensation, loss on foreign currency and a gain on available-for-sale securities, we had non-GAAP EPS of $0 for each share. The primary difference between our income from operations and net income included in EPS, is interest income and interest expense. We plan to continue to show a reconciliation like this each quarter to enable more transparency into the impact of our operations on cash. We continue to [indiscernible] manage our cash outflows while benefiting from the increasing revenues associated with Tyvaso DPI and our endocrine business as we move the company towards profitability and being cash flow positive.

We continue to believe that our current level of cash, cash equivalents and investments, plus the anticipated operating cash inflows and outflows will allow us to adequately invest in and grow our business without a need for any follow-on stock offerings. Thank you. And now I’ll turn it back over to Mike.

Michael Castagna: Thank you, Steve. First, I want to talk about a new addition to our leadership team. We hired Dr. Burkhard Blank, who is our Executive Vice President, Head of R&D and Chief Medical Officer. We’ve had the pleasure of working together over the last 2 months as we’ve done a deep dive on all of our assets. He’s visited our facility where we had the fire. And he’s really helped build the team and help us think about the future structure of how we move these assets forward. When I get the question of what’s going to be the next leg up for MannKind over the next few years, it really is the R&D coming into fruition, which we thought was time to bring in someone like Dr. Burkhard to help us put the governance structure in place and manage these assets as we have 4 or 5 great assets coming down the road.

He has more than 25 years of global development experience at several companies, starting his career out of Boehringer Ingelheim going to Acorda and ending at a company recently in France. He has experience in multiple disease areas, early preclinical and successful NDA submissions and got small molecules, drug device combo as well as inhaled therapeutics. It’s very difficult to find somebody with such breadth and depth of experience. And we are very fortunate to have someone like Dr. Blank join us and help us lead our efforts here over the next several years. As you can see on the next slide, the pipeline that we’ll be working on, we had all the work with Afrezza pediatrics and the filing that will come with that. We have the international work coming to get us back into Brazil and India.

We have V-Go, we continue to evaluate that for other opportunities and grow here in the U.S. And in the pipeline itself with M-101 being clofazimine, 201 nintedanib are both going into IND Phase 1 and Phase 3. And then you have DNase alfa, which we’ll continue to work to get that into patients as quickly as possible. And another asset TGF-beta, which continues to work through Thirona models until we get into a preclinical formulation ready for testing. So you’ve got a lot of work in front of them. We’ve been moving this along. And that’s the question I always get, is why isn’t Afrezza growing faster. And I don’t think what people appreciate is it takes a lot of money and time and people to run four development programs. And that’s the choices we’ve made, fund pediatrics and fund 101, 201, 301 and 501 in order to ensure we have one launch per year starting in roughly 2025 either a new indication or a new product launch.

We continue to be focused on that effort, and we believe this is going to be really critical to our future success. The next slide shows you some of the milestones associated with these pipeline investments that we’re making. These should ultimately give us new product revenue or expand the product revenue with existing products. As you look at the endocrine business, INHALE-3 kicked off here. We expect to have that data in the first half of next year. The India trial readout, that data will be finalized here in the second half and discussed next steps at that point. And the INHALE-1 pediatric trial read out should happen late in the first half of next year as the primary endpoint of 6 months. We’ve added a new milestone here in the second half of ‘23.

For INHALE-1, we’ll have an interim analysis telling us either trial is properly sized, it needs more patients, it’ll take a little longer or is a field exercise that keep going. Obviously, we believe the primary endpoint is sufficiently and statistically will be sufficient. But until we get to that interim analysis in October, which would be late October, so we’ll have that information by the next quarterly earnings call. That will be important to share with shareholders that we think that it will be on track in order to drive to that read out there in the first half of ‘24. On the orphan lung, things that we’re in control of is the 201 pre-IND. It’s now the filing of that IND. It’s the IND submission for clofazimine, one of the things we’re evaluating based on the FDA thoughts post the fire, which is can we use our – some of the data that was generated in Germany in order to bridge for U.S. to keep the IND on track and ultimately get this trial off the ground in early ‘24.

And then finally we also have United Therapeutics working on the Tyvaso [indiscernible] study, and we know that’s critical for continued expansion there for Tyvaso. So as we look at the key value drivers, these are real and they’re significant. The pipeline, as we think about 101 going forward, every 1,000 patients that we capture in that disease will roughly bring in $100 million of revenue at the time of launch. For 201, this is a multibillion dollar opportunity littered with failure. We’ve taken the market leader, have made it into an inhaled version, hopefully minimizing the systemic toxicities and being able to enable patients to have a well-controlled therapeutic dose in IPF for 201. As it comes to DPI, you can see the strong start there.

At the end of the day, there are multiple ways that you can see this growing to over 10,000 patients. And what we wanted to give you clarity on is how we think about that from a shareholder of MannKind. Obviously we’re not in control of the launch, but we feel very good about United Therapeutics’ investments and opportunities to continue to help as many patients as possible suffering from PH-ILD as well as IPF, hopefully in the future. The pediatrics is the thing we highly anticipate next year and every 10% of kids fundamentally changed the long-term trajectory for Afrezza and let that compound for the next 20 years. But right now I want you to understand, for every 10% share in kids is roughly $150 million of revenue. We’re investing in the INHALE-3 study because we believe if we get great data on INHALE-1, that’s versus rapid-acting insulin.

The next question we get is what happens if you switch off an insulin pump, how does the data look. And we hope to show you that we’re as good or better depending on the data, but hopefully not worse. In our pilot study we show that we were as good as using insulin pump versus not. And the reason that’s important is we expect a once-weekly basal to be able to market in the not-too-distant future. So we literally could give people living with diabetes down with 52 injections a year plus and having their meal-time insulin plus the CGM. That’s game-changing for patients and providers. V-Go, we are focused on stabilization. As you can see, growth is now in front of us. We want to continue to make that a more profitable product as we go forward into ‘24 and beyond.

Now I’ll turn it over and answer questions. Thank you.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Steven Lichtman of Oppenheimer & Company. Please begin.

Steven Lichtman: Thank you. Good evening, everyone. Mike, you mentioned the real benefit that you’ve seen in insulin reimbursement this year in Medicare. How are you guys balancing wanting to drive profitability in the business versus investing and getting the word out now because it seem like it is a big change for the Afrezza business, as you showed into the second quarter here. So talk a little bit about how you’re getting that word out versus I know you want to start driving some leverage in the business as well.

Michael Castagna: Steve, thank you for the question. I think, first, as you know, we’ve tried different reimbursement support programs over the years, and they haven’t always resulted in a trend break. I think this year we saw that the Medicare patients, A, the approval ratings are very high. They’re in the 90% plus range. And so that makes us feel confident that we can continue to help more patients. And now that we can see the market share in two quarters get up to where injectable insulin is as a percent of their business, that gives us some confidence to push even harder in this segment. In terms of profitability, we have some better rebates for Medicare Part D over the years, and they’ve mostly been rejected because of the rebate game of the competition in the PBMs. As [indiscernible] we could do maybe going into next year that could change, meaning both of our patients, just the doctor needs to do a prior off and we’re seeing very high accrual rates.

So maybe as we go into 2024, we’ll start to see either PAs be removed completely in Medicare Part D or continued success that we’re seeing this year, and we can help even more patients next year beyond what we’re doing. But it’s nice to see in 6 months we can get back to the market share of injectable insulin as we’ve always felt that patients were not getting the product properly because of the differences in Medicare Part D reimbursement co-pay to a patient. And we work pretty closely with CMS to explain this, and they understood it and fortunately to help patients. And so I think that’s really what you can see, is that cost is hurting people at the end of the day. And we do what we could but there’s only so much you can do on Part D.

Steven Lichtman: Got it. Great. And then, I guess, as we think about the back half, I see – based on your visibility, how should we think about DPI royalties sequentially here in the third and fourth quarter, 2Q coming in certainly a lot better or higher than we expected. And so is this a good level? Or based on your visibility, can you give us directions directionally into the third and fourth quarter? And then also on gross margin, first half strong on Afrezza, V-Go, I think around 70%. Is that a pretty good level for the back half?

Steve Binder: So Steve, as you know, we don’t provide forward-looking guidance or forecasts. So if you listen to UT’s call, they’re very bullish on patient demand for Tyvaso DPI as you can see through our royalties and the manufacturing of the product. So without providing any guidance for the second half of the year, we just believe there will continue to be strong patient demand, and we’ll report those revenues in the third and fourth quarter as they come in. As for the margin, 72% is right for a combined Afrezza and V-Go. Afrezza’s got a better margin than V-Go does. We don’t provide those separately anymore, just combined. That is a pretty good margin for there. There’s variability quarter-to-quarter with the amount of manufacturing we do on Afrezza that impacts the Afrezza margin from quarter-to-quarter. But we feel that it’s in the right ballpark for the margins for our commercial products at this point.

Steven Lichtman: Okay. Great. Thanks, Steve. Thanks, Mike.

Steve Binder: Welcome.

Michael Castagna: Thank you, Steve.

Operator: Thank you. [Operator Instruction] Our next question comes from the line of Olivia Brayer of Cantor. Your line is open.

Olivia Brayer: Hi, good afternoon. Thank you for the question. Can you guys talk about the decision to take an interim look at an INHALE-1 and whether that was built into the trial design initially? And then just what’s the clinical bar for success in order for that study to continue as planned? And then I got a follow-up question on DPI.

Michael Castagna: Sure. This interim look was always planned in the original statistical plan analysis, so that’s not changed. It’s the only thing we didn’t know is when we would hit 50% enrollment in the trial. That was the driver of that, that – and so now that we know that we hit that milestone, it was a matter when they could crunch the data and meet together as a DSMB. MannKind will not know the data. Unfortunately, it’s confidential to the DSMB. But at least we’ll know at that point is the trial futile and we’ll keep going, we’ll need more patients. And we obviously powered it, and so hopefully hit the end points we need to hit and ramp up in 6 months after that as the primary endpoint. And the secondary endpoint will be the second cohort and the control arm switching over to Afrezza for an additional 6 months.

So we expect the primary endpoint of that trial will be wrapped up hopefully 6 months after that early November date. And we’ll go from there.

Olivia Brayer: Okay. Got it. And then second question is, it looks like you guys increased DPI revenue assumptions per every 10,000 patients to $250 million to $300 million. Can you give any color on what’s driving that increase?

Michael Castagna: Yes. I think as we continue to fine-tune Tyvaso each quarter, we get a little bit more clarity on what does it look like in terms of pricing, packaging, dose, all those things go into account. I really – we don’t break out the details of the forecast, but we wanted to give people some guidance [indiscernible]. I think the one thing as you hear about the different indications and the different factors to be built between our expansion and UT’s plan, we want you to at least have a range of number there. And some of that changes over time because of discounts or manufacturing revenue assumptions. So that’s what we gave a range as opposed to more than anything else with the number of patients.

Olivia Brayer: Okay, got it. That’s helpful. Thanks, Michael. Appreciate it.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Gregory Renza of RBC Capital Market. Your line is open.

Anish Nikhanj: Hi, Mike and Steve. It’s Anish on for Greg. Congrats on the quarter. And thanks for taking my questions. Just a couple for me on 201. Maybe just for some color on differentiation. Other than drug delivery of nintedanib, how would you describe 201’s ability to differentiate against the drug like pirfenidone in patients with IPF? And how would you characterize the received FDA feedback? And how are you incorporating it into the development path going forward? I appreciate the time, and thanks again.

Michael Castagna: Yes. Great questions. I think the good news is there’s been some data out there on the pirfenidone, and that tells you delivering an inhaled route via these products could work. I think our particular product and our focus has been on nintedanib. We originally had both in development. We actually picked this one to go forward versus trying to develop both. The reason is we believe the limiting side effect of Ofev is around the GI side effects and the dosing. And by putting in the inhaled route, it’s got very low bioavailability via the oral route, and that allows us some flexibility here in our design and our thinking around INHALE. We believe we should be able to minimize some of the side effects that patients see.

Obviously, we have to get this in human trials, but that’s going into our thesis. And the FDA feedback gave us some flexibility to think about healthy volunteers versus IPF patients and how we think about a Phase 1 to Phase 3 design. So that work will be finalized. I was waiting to Burkhard to start before I really put my fingerprint down which way we should go and that will be aligned and that will go into the IND filing here very shortly. So we feel pretty good about product profile, the lung-delivered dose and the ability to differentiate, hopefully, on the tolerability side. As you may or may not realize, we believe 30% to 40% of people drop out of Ofev because they just cannot tolerate the product, and that’s a pretty significant population that’s not getting help.

And so again, product may or may not go generic by the time we get to market, but the fact that people cannot tolerate and get the efficacy when they got an 80% probability dying in 5 years is a significant unmet need. And so we feel pretty good about the FDA feedback. There’s always things to work through, but nothing that was a showstopper for us.

Anish Nikhanj: Great. Thanks so much. Appreciate.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Thomas Smith of Leerink Partners. Your line is open.

Thomas Smith: Hey, guys. Good afternoon. Thanks for taking the questions. And let me add my congrats on the solid results. Just on the endocrine business unit performance, I think you’re now guiding to profitability in 2024. I think previously you talked about your expectations being to get to breakeven by the end of this year. Just wanted to check in and get your updated thoughts. Has anything changed in terms of timing or outlook for the rest of the year? And then maybe as a follow-up, if you could just give us an update on how you’re thinking about investment here in the pipeline and platform broadly? How should we think about the R&D spend over the next couple of years as you guys think about bringing clofazimine and then have nintedanib and some of these other pipeline programs forward, balancing that versus desire to maintain profitability? Thanks.

Michael Castagna: Thank you. Great questions. I think on the breakeven in Q4, that’s still our intent to get there, will we be exactly there, plus or minus a couple of hundred grants the year will ramp up. But I think we’re still on track. I don’t think Steve there is anything to add but looking at…

Steve Binder: We’re on track, but it could be off by a little bit.

Michael Castagna: But yes, it shouldn’t be anything major, I think, in the grand scheme. So that should be profitable as we look into ‘24 overall. The R&D spend, I’d answer that two ways. One, we don’t intend to launch these products ourselves outside the U.S. So we will be seeking partnerships for rest of world. And when you think about a product like NTM with clofazimine, the Asia Pacific area is a large market that we would hopefully find one partner to launch and take over some of the costs associated with the development there. Within the U.S., there’s a couple of things wrapping up next year. So the first will be in INHALE-1 and the second will be INHALE-3. So those two trials do cost us quite a bit of money each year, and we would expect some of those costs as they wind down to shift towards clofazimine.

So we haven’t given quite exact guidance yet because some of this is the timing and the outstart the patients on the clofazimine trial, which if you look at the time line, a large majority of those expenses will hit ‘25 as opposed to ‘24. There will be some expenses, for example, some manufacturing expense, but that will hit cash flow versus I think Steve commented on the amortization on a quarterly basis.

Steve Binder: Yes, this could be a mix of things that are put on the balance sheet and amortized over the clinical trial period and others that are expensed as incurred, so.

Michael Castagna: And then I think the Phase 1 studies aren’t that expensive in the grand scheme of thing. So I don’t – even if we got clofazimine in Phase 3 and nintedanib go into Phase 1. I don’t think that’s an unbearable expense and we should be okay as we look at 2024 to 2025 time frame. Keep in mind Afrezza should continue to grow. V-Go looks like it’s starting to grow and Tyvaso should continue to do well. So I think as a company, we want to make sure we’re not in a position that we started in 6 years ago, and that’s our #1 focus. But we think when we look at orphan lung, this is a big growth area for the company and future revenue that we want to make sure we’re able to capitalize on for our shareholders and patients.

Thomas Smith: Got it. That’s makes sense. Thanks for taking the questions, guys.

Michael Castagna: Thank you.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Oren Livnat of H.C. Wainwright. Your line is open.

Oren Livnat: Hi, thanks. A couple of questions. First on Tyvaso DPI. I know you’re not giving guidance and there’s a product to talk about. But you did point to their call where they certainly are quite bullish, but they did call out $30 million in stock in this quarter and sort of linked it to your advancements and improvements in capacity and yield for the product. And so I guess, can you just help us understand where are you at now and going forward in terms of supplying that, whether it’s hand-to-mouth or if you’ve actually now well ahead of demand? And do you expect, And do you expect, I guess to keep having to fulfill like orders, so we should keep seeing that grow, if demand is growing going forward versus really fill the channel up a lot now and we could take a breather. I have follow-ups.

Michael Castagna: Yes. I think Oren, if you were to take away the $30 million in revenue, you could see with the range, you can see it’s grown quarter-over-quarter. I don’t think Tyvaso is anywhere near capped out in terms of deny and around new starts and continued conversion and ILD is not fully penetrated, obviously. So, as each quarter goes on, that will show up more inventory, more days on hand. And ultimately, we got to keep stocking and keep building that inventory. So, we are not giving the exact guidance on how much we have on hand. But I would say we don’t think it’s flat, and therefore we expect continued growth as we look out.

Oren Livnat: Yes. Don’t misunderstand me, I think it’s pretty clear demand has grown as well. I guess I am just trying to understand, were you just basically catching up to where inventory sort of needed to be in general to keep supplying the market as expected, or have you – such that you expect – or do you have any pauses as they now work through that inventory on the wholesaler side?

Michael Castagna: Yes. I mean we are not privy to their contractual obligations with the pharmacies and they look – I know they want more than we could give each pharmacy at the time as we close Q1. So, I think we have made some changes here in Q2 to enhance that. And I think as we close out the quarter, you can see we did a good job with increased demand. And so again, I don’t want to comment for you too in terms of what inventory will project to be in Q3 or not. I think our job is to make as much Tyvaso as we can and we are doing that.

Oren Livnat: Okay. And I will move on to the pipeline. And 201, just want to clarify your earlier comments, you mentioned some of the FDA feedback relates to clinical work either in healthy or IPF patients. And I am just trying to understand, are we talking about theoretically, is this just a discussion for Phase 1, whether that needs to be in healthies versus patients, or in theory, are we actually talking about deeper into the development timeframe. Given what we already know about these molecules is it possible, I am just speculating, is it possible that you could do, I guess a streamlined or abbreviated full registration quality development program potentially that would just be, I guess PK or bioavailability based and not necessarily even have to do a full clinical trial in patients?

Michael Castagna: I would say I wish in the second part of the question. I think if you look at the FDA, typically as you are changing route of administration, they will always require a clinical trial. And so that would be our expectation in treatment to these patients. How we designed that trial and the endpoint of that trial, I think are still things we won’t go public with. But the fact that the Phase 1, we were going back and forth in terms of do healthy or do we do some in IPF. It does appear we have flexibility to make that call on our side. And I guess well Burkhard here now will talk about the pros and cons. Obviously, we do healthies, it can go a lot faster than if you do people with IPF, they are harder to find and get up in the trial and it just takes a little bit longer.

And they don’t want to spend days in a clinical research site. So, that’s always something we are trying to manage around what insights are we trying to get and what are we trying to prove, what’s the right thing to do so. But we would fully expect the Phase 3 trial to at least be in patients who have IPF.

Oren Livnat: Okay. And just lastly, I guess building on Steve’s question upfront where you talk about sort of the trade-offs between contracting profitability. In general, where are you guys at in terms of contracting? I mean clearly you have a high margin or higher margin product, higher-priced product with small market share. And I am just wondering, given the high positive feedback you get relative to all of these other therapies, what opportunities have you explored in terms of being able to – I mean of course, you are never going to match injectables on price, but is there a possibility that you could get substantially better coverage and get a step function and access next year or maybe 2025 depending on the bidding cycle such that you are willing to give up some economics for a chunk of lime?

Michael Castagna: So, I was looking at Steve, was that a question for Steve or Steve Lichtman’s question. So, I think you are spot on in terms of we always weigh giving discounts for faster growth versus being profitable. And I think based on all the programs we have done historically, we have not seen that relieving some of the administrative burden has actually caused any faster growth for Afrezza. I think it’s really about conviction that efficacy and safety wise you are as good as an insulin pump or you could safely switch from MDI and get equal or better outcomes. So, that data sets will come out with next year. If the rebates are going away, as I suspect they are with all the price of screening around injectable insulin and the contracting which really did prevent us from gaining open access to Afrezza in a preferred way.

If what I suspect happens in ‘24, there could be an opportunity to move up our discount range a little bit, and that would hopefully result in greater volume. The way contracts are structured in general in the payer space is they can choose to put the product on formulary and collect a little bit higher rebates. They just have not made that choice over the years. And so not every PBMs has that contract, but a couple do. And so we are not made aware right now that, that’s going to change for next year. But I do plan to go out and meet with some of the big players to talk about this because we see the Medicare Part D success, and we would like to continue to help patients gain access to our product. But we are not looking to – part of the value proposition with Afrezza is you don’t need to pay hundreds of dollars a month in insulin pump supplies.

You don’t need to pay for the pump, you don’t need to pay for the maintenance and everything else, but you still need to pay financially when you get a pump. So, the whole economic value prop, whether it’s an Omnipod or Medtronic or Tandem pump plus the cost of insulin, plus better efficacy is really what we focus on with payers, and that’s some of the work and data sets on the read out next year. So, to your point, maybe we get some plans next year, but hopefully we will push for ‘25 as we think we really have a differentiated product and it results, hopefully preparing for clinical trials. But I wouldn’t expect…

Oren Livnat: Alright. So, if I am hearing you, that data is going to give something really new to talk to the payers about next year for the 2025 cycle.

Michael Castagna: I think that’s going to be important, to some payers with the price changes, they move us up, they might. But I would expect better discussions as we get new data readouts.

Oren Livnat: Alright. Thank you.

Michael Castagna: Thanks Oren.

Operator: Thank you. One moment, please. Our next question comes from the line of Anthony Petrone of Mizuho. Your line is open.

Anthony Petrone: Thanks and congrats on a good quarter here. A couple on Tyvaso and then I will follow-up with a couple on diabetes. Just on the renewed outlook there for 10,000 patients, $250 million to $300 million, I am assuming again that doesn’t include idiopathic pulmonary fibrosis, the new – the IPF label expansion? And are there any early kind of views as to what IPF could add to that $250 million to $300 million? And then for Steve, on that question as well, just from a manufacturing capacity standpoint, can the Danbury facility at the current capacity handle that label expansion, or will you need to have a little bit of an acceleration in growth CapEx if that label is secured? And then I have a couple of follow-ups.

Michael Castagna: I think the way you are going to look at that statistic is regardless of where the 10,000 patients come from being IPF, ILD, PH obviously they don’t have the approval for IPF right now. But if that was to drive incremental volume in a new market for them, that’s roughly the revenue we would expect for every 10,000 patients. So, it’s not just – there is really not a – when you think about the price of the product, it’s more of an annual cost as opposed to an indication cost. And the same thing is true as we built out the manufacturing, the original facility that we launched with was meant to handle really PH and ILD. And then as it expanded, UT invested in additional capital improvements, in new spray dying capacity as well as fill/finish that is really setting us up for IPF and continued upside forecast if Tyvaso keeps doing well in ILD and PH, they want to make sure we have enough safety manufacturing capacity beyond whatever we could expect so we don’t ever stock out.

This is a life-saving drug. And then UT has announced they are building a duplicate facility down North Carolina, and that will be important when you got a drug that’s doing this great, you don’t want to have a single source failure. So, we are helping now with that as well. So, hopefully that answers your question on the IPF as well as manufacturing.

Anthony Petrone: No, helpful. And then on diabetes, just is this a full quarter of V-Go? I know you guys – I think it was straddling the 1Q, 2Q full launch. So, was this sort of the quarterly run rate a full quarter for V-Go? And then on – just any update on the BluHale VIS launch integrated with Dexcom. Just maybe a little bit there. Is that going to be launched with G6 and G7, or is it one version of Dexcom. And I guess maybe even more important to that is when you think about the inhaler and the overlap with Dexcom, I mean is there any statistics that you have on the current inhaler patients that are active Dexcom users at this point in time? Thanks.

Michael Castagna: Anthony, let me answer the first question on V-Go. We acquired the product on May 31, 2022. So, our revenues for 2022 in the second quarter were about $2 million, and they were about $5 million in Q2 of 2023. So, it’s not a great comparison because you only had one month last year. But going forward, you should have comparability.

Anthony Petrone: That’s helpful.

Steve Binder: And I think on V-Go, as you may or may not realize, it was a turnaround that was one of the client for a long period of time. So, we had to stabilize before we get the growth, and we started seeing that stabilization on NRxs back in Q4, Q1, and you can finally see that translate to TRxs this last quarter. So hopefully, as we go forward, quarter-over-quarter, we can start to see year-over-year comparisons, but we are proud that we hit the first milestone, which was our high end of our $18 million to $22 million guidance. The BluHale VIS, so we are planning to use that in INHALE-3. So, INHALE-3 just kicked off this month. We are almost, got all the sites activated. And that will be the beta test in that Phase 4 trial.

And then assuming that goes well, we will evaluate continued improvement to get that into the general population. It is currently with Dexcom G6 or G7 from my knowledge. I know it was tested on G7. So, it does import it, it does work well on both. And we are not finally limited to just Dexcom, we are happy to partner with Libre or Senseonics or other parties. But that is the – the current integrations with the API and Dexcom G6, G7.

Anthony Petrone: Thanks again.

Operator: Thank you. I’m showing no further questions at this time. I would like to turn the call back over to Michael Castagna for any closing remarks.

Michael Castagna: Thank you. And thank you everyone for your patience as we continue to turn around the company. We do feel like we are on the right growth track. We have great growth drivers between our in-line assets and our pipeline assets. It’s been a long journey to get here, but we are really proud of the team, the work and the energy going into it and all the patients who are helping to benefit from your investments. So, I just want to say thank you to our analysts for covering us, and our shareholders, and our employees, and all of our stakeholders. I look forward to talking to you again. I will be at a conference tomorrow in New York, meeting some new investors as well as September we will be in New York for several conferences. So hopefully, as updates happen, we will provide them at those opportunities. Thank you.

Operator: Thank you. Ladies and gentlemen, this does conclude today’s conference. Thank you all for participating. You may now disconnect. Have a great day.