MannKind Corporation (NASDAQ:MNKD) Q3 2023 Earnings Call Transcript

MannKind Corporation (NASDAQ:MNKD) Q3 2023 Earnings Call Transcript November 7, 2023

MannKind Corporation beats earnings expectations. Reported EPS is $0.01, expectations were $-0.02.

Operator: Good afternoon and welcome to the MannKind Corporation 2023 Third Quarter Financial Results Earnings Call. As a reminder, this call is being recorded on November 7th, 2023, and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call until November 21st, 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 conference over to Mr. Castagna. Please go ahead, sir.

Michael Castagna: Thank you, DD. Thank you everyone for joining us today. It’s been six years since Steve and I became CEO and CFO. We’ve turned this company from losing well over $100 million a year to our first profitable quarter in our history. We’ve helped over 20,000 people on a MannKind manufactured product last quarter and our pipeline is moving faster than ever to help more as we continue to live our mission to help patients live a better life. As you think about our highlights this quarter, we’ve made great progress on the clinical and financial aspects of our Company. In the orphan lung space, we’ve seen Tyvaso royalty revenue of over $20 million and manufacturing of $13 million. On the pipeline, MannKind-101 cannot be in a better position.

We came from our last earnings call when we just had learned of a fire in our facility, our partnership in Germany, to successfully moving CMC here in Danbury, and we have manufactured our first clinical batch in record time. On MannKind-201, our inhaled nintedanib program has continued to progress towards filing an R&D and starting our Phase 1 trial in the first half of ’24. Feedback from our quality [ph] users has been very positive on this program and we’re excited to get this into humans as quickly as possible. On the endocrine business, we’ve achieved our first quarterly positive contribution. This is one quarter ahead of our expected Q4 goal. We made $0.5 million in Q3 of this year. That was driven by our Afrezza 24% growth year-over-year.

As we think about INHALE-1 and INHALE-3, we were super excited on the clinical progress these two trials have made as they are pivotal for our future in the diabetes business. On INHALE-1, we achieved our pre-specified interim analysis, which was run when we hit 50% enrollment to determine the size of the trial was appropriate or not. We now expect to finish up enrollment and continue to progress this trial for filing hopefully in 2025. As we look at INHALE-3, this was an incredibly exciting trial, we’ll talk a little bit more about it, but we are two months ahead of plan enrollment. And on the financial income, net income of $2 million and we’ve also began paying down our mid-cap debt. We are continuing to deleverage our company, so we can drive greater shareholder value.

This way, we continue to free up cash flow to drive future growth by reducing our interest expense. As we look at Tyvaso, many of you may recall from the last quarter when there were some questions around what happened at the end of Q2 in the inventory and the $30 million number we heard from Unither. And so we plotted here was a continued quarter-over-quarter, including the $30 million now that it’s transparent of what our royalty rate is. We can show you the breakdown between what $30 million would mean to MannKind in terms of our royalty rate on those $30 million in sales. And when you look, patient demand continues to be very strong quarter-over-quarter since launch of last year. The next question I often get is around manufacturing, and I would like to hopefully put this to bed as we go forward for shareholders.

As we exit 2023, we expect our new fill finish to come online for 2024, improving our ability to build inventory and supply the market growth for many years to come. As you look out, we expect new bulk capacity come on in the second half of next year, continue to bring more efficiency more upside production as UT gets ready to wrap up their IPF trial, hopefully showing a positive impact for patients. As we look out, you’ll see MannKind can make 25,000 to 35,000 patients a year we can serve with our manufacturing capacity and we can build that up to 35,000 to 50,000 through additional efficiencies without any additional manufacturing plant. And as you all know, the IPF market is well over 100,000 patients and UT will be able to supply to the upside scenarios in addition we can manufacture.

We’re extremely grateful that United is investing over $0.5 billion in CapEx to duplicate our facility there in North Carolina and look forward to supporting them on that transition. As we look to turn back to MannKind, MannKind-101, we’ve made our first batch since the fire. This is amazing work by our team in Danbury, who did this in record time on top of the build-out of Tyvaso, on top of the progress of the pipeline and getting ready for IND. We expect chronic tox data here this quarter as well as FDA feedback on our final protocol design. And all this would put us on track to start our Phase 2/3 trial in the second quarter of next year. And here’s a nice beautiful picture of our first thousand vials coming off our production line. Thank you to the team in Danbury for your incredible work.

Now if I bridge to Afrezza, we hear a lot of noise about GLPs and the impact they may or may not be having on various aspects of the healthcare system and our consumer. It’s a lot of noise, but you can see, not much impact on Afrezza and the main change here in Q2 to Q3 was self-driven, but the overall insulin market and the gray line, you can see the insulin market year-over-year is relatively flat to small single-digit decline. On Afrezza year-over-year, we had growth but in Q2 to Q3, we made significant changes to our infrastructure to drive our focus to profitability. Number one, we decreased our T&A which changed our sales force bonus structure. We actually are in the process of moving our marketing team from California to Danbury, and we merged two sales forces into one that impacted over 30% of all territories.

The new team is now in place, so we put some incentives here in Q4 to close the year strong, but this impact has nothing to do with GLPs and has everything to do with internal change to set us up for 2024. The next slide, you can see here is our first nine months year-over-year comparing the first nine months of each year since we launched the product as MannKind in 2017. I’m really excited to see that we’ve doubled our growth over last year when you look at ’21 to ’22 versus ’22 to ’23, significant growth driven by our Medicare Part D $35 insulin program that was part of the IRA with the government. As we’ve refocused back on INHALE-1, this is our pediatric trial. We met the sample size we originally projected. One outcome could it be we needed more patients, and that would have dragged on the longer length of this trial.

We now expect completion to happen and this is very positive as we can wrap up this trial next year and start to prepare for launch. As you may or may not realize, most Type 1 diabetes innovation has happened in kids, whether it’s been Omnipod with the Podders, Dexcom with CGM, or insulin pumps that our Founder Alfred E. Mann built. As I bridge over to INHALE-3, here we are who would thought 20 years later running one of the largest switch trials in Type 1 diabetes away from the standard of care which is including the AID automated insulin pumps where half the patients in this trial are on an AID system and switching in record time. We’re using the latest CGM technology with G7 and we’re also, including 20% of people whose A1c is less than 7.

So this is going to show you, whether you are at goal or above goal, how can you best use Afrezza and a once-in-a-week, sorry, in a daily Tresiba to show how you can maintain control or improve control, hopefully with less hypoglycemia. These are top-tier sites and we are well ahead of schedule and looking forward to releasing this data in Q1 and Q2 of next year. Flipping the card over here to V-Go. The decline in V-Go has been abated after a two-year decline. We are focused on improving the margin for 2024. As you will hear from Steve, our gross to net went from 49% to 58%, mainly because of rebates. We’ve now started the process of changing these contracts and improving them, and we’ll provide guidance on our next call as we’re in the middle of negotiation.

However, we’ve had some early wins with Kaiser and some of the DME suppliers and are now working on the PBMs. So we’ll continue to watch this closely. With V-Go, we believe we can continue to drive demand and improve the margins as we go forward. Now I’d like to turn it over to Steven. Thank you.

Steven Binder: Thanks, Mike, and good afternoon. I’m pleased to review select third 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. Let’s start by looking at the total revenues at the bottom of the table. Our total revenues grew 56% versus third quarter 2022, and 121% for the nine months ended versus the same period in 2022, which highlights the second quarter 2022 launch and the subsequent 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 31st, 2022. Focusing on revenues from our collaboration with UT, revenues totaled $33 million in the third quarter of 2023, which consists of royalties of $20 million and collaboration services revenues of $13 million.

Royalties earned in the net sales of Tyvaso DPI of $20 million was a result of continued strong patient demand for an innovative product. We recorded $13 million of collaboration and services revenue, which is primarily related to revenue associated with manufacturing Tyvaso DPI. This revenue grew 27% over the prior year as we sold more product at a higher price to United Therapeutics. For the September 2023 year-to-date period, total revenues from our collaboration with UT were $87 million as compared to $25 million for the first nine months of 2022, representing strong patient demand for Tyvaso DPI. Additionally, the 2022 nine month period included the start of commercial manufacturing of Tyvaso 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. Afrezza net revenue of $13 million compares to $11 million in 2022, a growth rate of 24%, which is fairly consistent with our first and second quarter 2023 growth rates. The growth was mainly driven by a higher patient demand with underlying paid TRX growth of 12% year-over-year, a lower growth to net reduction and price. For the nine-month period ending September 30th, 2023, the 26% increase was mainly related to increased volume from higher patient demand with underlying paid TRX growth of 18% price and a more favourable gross-to-net adjustment. Net revenue from V-Go was $4 million for the third quarter of 2023. Revenues were 18% lower versus 2022, primarily due to a lower level of patient demand.

However, we have stopped a downward trend as TRX has been about the same amount for each of the first three quarters of 2023. For the nine-month period ending September 30th, the 92% increase is primarily related to the purchase of V-Go on May 31st of 2022, so the increase over 2022 is mainly from a four-month versus nine-month comparative. The next slide shows our revenue growth by source on a quarter-by-quarter basis from the first quarter of 2022 through the third quarter of 2023. We like to show this graph because it highlights how dramatically our business has changed in the last two years and how we are executing against expectations. As Mike pointed out earlier, the royalties from Tyvaso DPI have been growing steadily since launch and the fastest-growing revenue source in our portfolio.

United Therapeutics management stated during their second-quarter earnings call that approximately $30 million of Tyvaso DPI sales in the second quarter related to specialty pharmacies purchasing product to enable them to get through the contractual inventory levels. And then the third quarter call held last week, UT stated that the Tyvaso DPI revenues for the third quarter generally reflected patient demand. We have denoted the royalty associated with the Specialty Pharmacy Inventory stocking on the chart in the second quarter 2023 bar, which allows for a clear demonstration of the royalty-related demand growth by quarter. Based on our third quarter revenues, we have a current run rate of over $200 million, of which approximately 40% represents royalties which do not have any offsetting expenses, therefore falling straight to the bottom line with the associated cash flow used to fund our pipeline and reduce debt.

Below the graph, I have plotted the earnings or loss per share for each quarter, and you can see the impact from the increasing revenues. In the third quarter, we’ve recognized earnings per share of $0.01. This is not a typo. We have hit a significant financial milestone. We have now entered a period where we expect to bounce back and forth between earnings and loss per share, I’ll call it a breakeven period and then we expect to grow earnings per share assuming Tyvaso DPI continues its upward trajectory and the endocrine business unit increases its positive contribution. The following GAAP to net GAAP presentation was started in the second quarter of this year to better highlight the non-cash impacts of certain items to our P&L. In the third quarter of 2023, we’ve reached a milestone of positive GAAP net income of $2 million, while a year ago, looking at the right column, we had a GAAP net loss of $14 million.

When we adjusted 2023’s third quarter GAAP net income for non-cash items of stock compensation and a gain on foreign currency, we had net non-GAAP net income of $4 million for the third quarter of 2023. As highlighted earlier, we expect to be plus or minus GAAP breakeven for a number of quarters before we expect to see net income growing on a continuous basis. I will conclude with some additional comments. In the third quarter, we started to pay down our senior secured debt based on our contractual obligation to pay the loan over 24 months beginning in September, and we expect to be able to pay off this debt over the next two years out of operating cash flow. We continue to tightly manage our cash flows and had a reduction in cash and investments of only $2 million in the third quarter as we expect to progress towards achieving positive operating cash flow in the near future.

Thank you and I’ll now turn it back over to Mike.

Michael Castagna: Thank you, Steve. It’s never been a better time for MannKind employees, shareholders and partners. We’re in the strongest position we’ve been and we’re well diversified as we look out whether it’s our inline brand opportunities or pipeline opportunities or Tyvaso DPI growth in addition to any other business development things that come our way. We’re super excited at the orphan lung business as we look at IPF and specifically nintedanib and the TGF-beta programs. These are programs that have moved up in the priority list in terms of treatments coming down the pipeline in IPF as we’ve had so many failures, which is not good for patients but unfortunately good for MannKind as we are now closer than ever to help more people in IPF.

We feel very strongly that MannKind-201 can provide a differentiated product for those people and the drug that’s already approved on the market. But lowering the dose and deliver directly into the lung we think will provide a huge benefit around the GI side effects and hopefully efficacy as people can dose higher. There’s been over $400 million in the last year just in funding an ALK-5 inhibitor as well as other inhaled therapeutics around the nintedanib or [indiscernible]. As we look at the next three quarters, I want to share with you the endocrine updates here as well as orphan lung. Our 2024 milestones will be shared on the next call, but for now, today, as we look out this year, we’ve completed everything we’ve said we are and we’re on track to wrap up the year strong.

Andy is on track to file our — their regulatory submission there for India, which will be an approval if all goes well in 2024. INHALE-1 will be fully randomized and hopefully reading out sometime next year and INHALE-3 will be read out hopefully by March-April time frame. On the orphan lung, 101 is on track for submission. We expect to initiate that trial in Q2 and 201 IND submissions on track and we’ll be doing that study in Phase 1 healthy volunteers early next year. We’ve never — we’ve been near death and we take seriously our fiduciary responsibility to shareholders. As we think about our future expense management, capital allocation is the number one most critical thing we have to do, which is really about deleveraging the company, investing in our growth drivers and improving shareholder value.

Here are many shots on goal to think about as we close up today’s call and get ready for Q&A. Number one, pipeline is 101, nintedanib is a real unmet need. And just to put some context here, for every 1,000 patients we get, it’s approximately $100 million in revenue. MannKind-201 has huge upside until we get this through Phase 1, I don’t want to guess how big this could be, but it could be a nice huge inflection for our company and our patients. Tyvaso DPI, we can’t always guess where that will be, but as you know, UT has a goal for 25,000 patients in ’25 and shareholders can guess it’s at 10,000, 20,000, what that means for Tyvaso. What does mean is $250 million to $300 million in revenue for every 10,000 covered patients. We’re super excited and anxious to await the UT TETON study readouts for IPF.

And as we get really excited now about our pediatric INHALE-1, continued V-Go stabilization and hopefully growth, and our pump-sparing trial on INHALE-3, as well as an opportunity to bring a fresh set of patients around the world. Thank you again for your patience. It’s been a long quarter and apologize about our stock price. Not anything we can see what caused a decline the last day or so, but we’ll continue to progress and everything we can to make this a great company and a great investment for shareholders. Thank you. We’ll now take Q&A.

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Q&A Session

Operator: Thank you. [Operator Instructions] And one moment for our first question. Our first question comes from Gregory Renza of RBC Capital Markets.

Gregory Renza: Great. Good evening, Michael. Congrats on the progress to date, and thanks for taking my question. As you certainly have that commitment to the manufacturing on DPI and kind of get that in the right place. I just wanted to ask a little bit on Afrezza, and while you’re guiding to sort of the INHALE series of trials, just curious if you can articulate just a little bit about how you see that actually shaping the trajectory of Afrezza? And depending on the outcomes of one and three, you know, how will that kind of shape your commitment to the endocrine business and to Afrezza itself?

Michael Castagna: Hey, Greg. Great questions. And I think the data is going to drive some of these decisions, right. The good news of MannKind, we have the capital to place bets if we see opportunities to grow faster. We — our goal is to run the business to profitability. But if we can see a way to cause a major inflection into that growth curve after all this time, I think we’d be more than excited to place that bet to show shareholders what can really happen with Afrezza. The INHALE-3 trial is a ground breaking trial in our mind. It’s one of the largest switch trials done, and it’s got the new dosing regimen, and I didn’t talk about that. But one of the things we got the FDA to agree to is we could basically double the dose up front, and we’re testing the first dose in the office to ensure patients’ safety and comfort.

And we’re hopefully able to see, and we’ve already run those presentations that we are crushing the first two hours of postprandial control. Now, if that carries out through a trial over 12 to 14 weeks or six months, that should provide opportunity for improved time and range, lower hypoglycemia, as well as hopefully better overall efficacy and tolerability and sustainability on the product. So the trial results are going to drive a big part of that outcome. But we’ve done everything we can after all these years. These are the pivotal trials I would have loved to do years ago. But it’s a stepwise way to work with the FDA to get the dosing right, to get the thought leaders right and these are US trials. When you think about it, we have 60 trials, top centers in the US, many academic centers.

These people have never had real exposure with inhaled insulin. So it’s a real opportunity to change our future. And I think we need good data to support that. I think we’ve done everything we can to make sure the data is the best outcome we can possibly hope for. And we’ll be ready to cause that inflection if we get good supporting data behind it.

Gregory Renza: Got it. Now that makes sense. And maybe just one more, maybe even for Steve, perhaps. But just remind us on the economics on DPI, just for our own modeling purposes, so we kind of get that right. To what extent are the royalties fixed dynamic, and just how that flows through? Thanks again, guys, and congrats on the progress.

Michael Castagna: Thank you, Greg. I’ll turn it over to Steven.

Steven Binder: Thanks, Greg. We have two pieces to our contract with United Therapeutics that show up in our P&L. The first, under collaboration services revenue is the revenue associated with the manufacturing of the Tyvaso DPI product. That is on a cost-plus basis. If you look in the P&L, you’ll see revenues and the costs associated, and you’ll see a margin a little over 20% for collaboration services this quarter. That fluctuates up and down depending upon our revenue recognition with United Therapeutics and some other areas outside of the actual manufacturing of the product. And the other is royalties. Our royalty rate is 10% on net sales, and that’s the net sales for United Therapeutics of Tyvaso DPI to their customers.

Michael Castagna: And does not vary by sales threshold.

Gregory Renza: That’s great. Thank again guys.

Steven Binder: Thanks, Greg.

Michael Castagna: Thank you, Greg.

Operator: Thank you. One moment for our next question. And our next question comes from Ron Feiner of Oppenheimer.

Ron Feiner: Hi, guys. This is Ron on for Steve. Congrats on the quarter. I just wanted to ask about gross margin. It was really strong again this quarter. Maybe you guys can give us a little bit about your outlook for margins sequentially and in ’24. Thanks.

Michael Castagna: Thanks, Ron. The margin this quarter for our commercial products was 78%. There was up sequentially from previous quarters, mainly around two things happening. One is we’re getting a better handle on our margin for the V-Go product. And the second is, we’re getting increased efficiencies in Afrezza as the factory is producing both Afrezza and Tyvaso DPI. So we don’t give forward-looking statements, but I think that the 78% feels in the right territory for right now. So I think it’s a good number if you’re thinking about modeling going forward.

Ron Feiner: Thanks. And then maybe one more. Do you guys — are you guys modeling in any impact from GLP-1s on your diabetes business? And you know, now and for the future, are you seeing any impact? And maybe on any of the products in the pipeline are you thinking about something like that? Thanks.

Michael Castagna: So when you look at Afrezza, about 55% of our business is Type 2 and 45% is Type 1. That fluctuates from time to time. But in general, our focus since last year has been growing the Type 1 market and our clinical Trials around Type 1. The reason that’s important is GLPs are not going to change a Type 1s patient need for insulin in a meaningful way. And so as you think about the Type 2 market, eventually most patients are still going to need mealtime control. So even if they go on GLPs, we already knew there was a seven to ten-year delay from the time somebody needs mealtime control to when they get it. And my guess is GLPs are just going to push that off a year or two. But as you can see, the insulin market and the diabetes market is continuing to grow.

It’s a pandemic in this country, and I don’t see a need for insulin going away. Will the growth slow because of GLPs? Absolutely. But will that impact Afrezza? Absolutely not. I don’t see that as a major impact given that we have less than 1% of the share where we target doctors in 0.2% of the whole country. So we’ve been able to increase our market share significantly where we put reps versus when we don’t. But the GLPs are used much earlier and our population is much sicker. So we just have a very different segmentation of where Afrezza plays and we don’t expect much impact there.

Ron Feiner: Great. That’s very helpful. Thank you, guys.

Michael Castagna: Thank you.

Operator: Thank you. One moment for your next question. And our next question comes from Oren Livnat from H.C. Wainwright.

Oren Livnat: Thanks, guys. I have a few questions. It is an exciting time indeed for someone who’s covered the name after the tough times. First, just to clarify quickly on the discussion around the transitional period, this breakeven period you talked about sort of fluctuating back and forth. Is that for non-GAAP as well or is that just a GAAP number? And is that just a function of R&D investment timing or is potentially even just gross profit going to be lumpy around here?