One for Japan for sputum, and dual primary for the US or co-primary. So that’ll be an important aspect that we did struggle with the FDA saying, why are you the only country in the world that wants this sputum plus PRO, where we don’t have the same demand yet in other countries around the world. So that’s why I think sputum is still got to kill the bug at the end of the day, and I think that becomes king in this disease. And can we do that really well, is the question. The PROs will work out, but when you look at the label of PROs, they’re not really strong claims at the end of the day. So I still think efficacy is going to matter in terms of sputum conversion.
Oren Livnat: Okay. And I look forward to talking to Steve some more about this accounting.
Michael Castagna: I’ll stay out of that conversation.
Operator: Thank you. One moment, please.
Michael Castagna: Thank you, Oren.
Operator: 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 all the progress. Just a couple on our end, I guess, first, on MNKD-201, the inhaled nintedanib program. Just walk us through your expectations for the Phase 1 data in Q3? And how quickly you think you could turn this around and advance it into a Phase 2 trial on IPF patients? And then just remind us how you’re planning for clinical supply and scale on 201.
Michael Castagna: Sure. On the Phase 1 study, because it’s a pretty quick study, we’re actually going to IPF patients. It was the FDA, who pushed us to consider healthy volunteers. So we actually switched from, I’ll say, IPF patients to healthies, which saved us a lot of time and money. So that’s number one. So that turnaround time should be pretty quick in terms of wrapping up Phase 1 and filing an end-of-Phase 1 meeting with FDA, hopefully, by the end of the year. And then we’re having good discussions internally. We just hired a new gentleman, Dr. Wasim, who will be pivotal in leading our development program beyond Phase 1 for 201. And we’re having good discussions internally, for example, do we do a 1b study to get data sooner in parallel, while we continue to wait to kick off the trial for the next phase?
Is it a two-study going into Phase 3? So that work is happening as we speak. And I don’t want to prematurely guess where we land. But just like clofazimine, where we push to not do a Phase 2 trial, one could argue that’s a little risky. At the same time, we know these drugs work. We know the approximate dose we’re trying to go after, and we know that that dose has produced a signaling effect that we expect. So in the case of 201, we actually want to dose higher, and that’s where we need the chronic toxic data in Q4 to help support that higher dosing, assuming a patient can tolerate that higher dose, we think that’s going to be one of our clinical differentiators for 201. So that’ll be the things we look for in the trials. Can we dose higher?
Is it tolerable? And do you have any of the GI side effects that we see with the oral formulation?
Thomas Smith: Got it. That’s helpful. And then just on the pipeline strategy and the priorities here, obviously, you have a lot on your plate across the INHALE studies for Afrezza and the clofazimine and the 201 program. But now that you have the financial flexibility. I’m just wondering if you could talk about how you’re thinking about balancing external business development opportunities versus advancing sort of the internally derived candidates out of your platform.
Michael Castagna: Yeah, no, that’s a great question. I think the team is bursting at the seams on everything we’re doing today. And the good news is we have a great team, who’s working extremely hard to make sure we get these INDs in to get the INHALE-1 and INHALE-3 study wrapped up. And so, you know, from a financial flexibility, people don’t realize we probably spent, don’t quote me exact numbers, but over $30 million between INHALE-1 and INHALE-3 between people and trial costs. So those trials are wrapping up this year going into next year. As you think about clofazimine, there’ll be a little bit of overlap with the 101, but these other trials wrap up and so you kind of see that phased in. People also miss that. We have been funding tox trials and other data sets in R&D over the last couple of years on 101 and 201 as well as 501.
So there’s been other investments in our idea that aren’t as transparent because we don’t talk about them as much. But again, some of those are wrapping up and those extra funds will be used to fund the Phase 3 trial. So I think we have the financial flexibility to ensure, yeah, if we can’t fund it out of cash flow generation that we are today that we have the cash on the balance sheet if we needed to. But our goal is to continue to run the Company lean like we have been and not get too far ahead of our skis until we continue to show consistent delivery as we go forward. Steve, I don’t know if there’s anything you want to add there.
Steven Binder: No, Mike, I think the other original question was also around BD versus Internal. I think you’re exactly right. We’re going to focus in on the internal priorities that we have, and if opportunities come along, we’ll certainly assess them, but the focus will be internally first.
Michael Castagna: Yeah. And on the BD side you know, we get lots of inbounds these days. We’re just busy. And so if we see something compelling, we’ll look at it. But we’re not actively trying to pursue anything. We want to work with what we have and maximize the value what we have on our plates right now.
Thomas Smith: Got it. That makes sense. All right, guys. Thanks for taking the questions.
Michael Castagna: Thank you.
Operator: Thank you. One moment, please. Our next question comes from the line of Anthony Petrone of Mizuho Group. Your line is open.
Anthony Petrone: Thanks for squeezing me in here, and congrats on strong results. Also, condolences on Alfred Mann passing to the team. Maybe, Steve, a couple on Tyvaso, just the royalty agreement, just high level. Why was 1% sort of the right number? Oren’s point there’s potential competition. So what was the calculus on settling on 1%? And can you — is there an option to further monetize Tyvaso royalty under a scenario maybe where you want to fast-track 101 and 201? Or even add to the portfolio for future growth investments? Would you consider monetizing the royalty further as a source of funds? And then I’ll have a couple of follow-ups on diabetes for Mike.
Steven Binder: Anthony, it’s Steve. So what we did is we looked at what the value was for the Tyvaso royalty in a very competitive environment. We had originally over 25 different purchasers come to the table. And we wanted to keep a vast majority of the royalty to MannKind. So we thought 1% was right to get to about $300 million on our balance sheet, which would fund not only our pipeline, but put us in a good position to fund the convertible debt when it matures in 2026. So, yes, we can further monetize the royalty if there was a need for it, but we don’t expect there to be a need for it at this point in time.
Michael Castagna: Steve, I’ll just add two things, Anthony, to your question. The thing that drives royalty valuation is interest rates and the calculation you’re using for expected interest rates. And so over time, if interest rates come back down, the overall value of this royalty may go up even further, even if the sales came off a little bit of trend for some reason. But we think that when we started this process, the royalty rate was not transparent to the public. When you look back in June, July of 2023. And we want to bring value to our company around what is 10% of this royalty worth because we thought we valued, and that 10% felt the right way to demonstrate that clearly to investors. In the meantime, and we’re midway through that process, UT disclosed the royalty so we didn’t have to kind of work around that issue, number one.
And then number two, the interest rates are high, and that does create a bigger discount factor into that future cash flow. So those are things going in our favor, hopefully, over the coming years. And the thing about a competitor coming, we know there’s about x percent converted from nebulizer to DPI. However, if there was another competing product out there, that may help drive more adoption and earlier adoption of DPI, which indirectly may help us as you think about the future. So we’re pretty bullish on DPI, and whether there’s one or two players out there, it only helps more patients that can hopefully use the product more in earlier lines of treatment as well. So that’s kind of how we looked at it. And we think MannKind indirectly benefits as more competition does come.
Anthony Petrone: Appreciate that. And just on INHALE-3 and INHALE-1, just from a combined outlook there for Afrezza, when you think about using Afrezza with automated insulin pump and then the pediatric indication. Just to kind of level set again from the MannKind standpoint, how it’s looking at those two opportunities from a market expansion standpoint for the product. And actually which of the two indications are you most excited about? Do you think you get faster traction, pediatrics, or would it be in the combination use? Thanks again and congratulations.
Michael Castagna: Yeah, no, thank you. I think the challenge with adding Afrezza on top of pumps besides the FDA, I’ll just put that out there, is really the need that a patient sees. And are they always going to carry all this extra supplies with them, and do they use it on special occasions? Do they use it when they get home? It’s not a full-time patient when you think about that value. And that’s one of the things I think I’ve seen when people used to criticize our refill rates. We knew roughly 20%, 30% of our Type 1s use Afrezza intermittently, which kind of hurts your refill rates, right? And then we know Type 2s are not as compliant as we want to be. So that’s why it’s so important to make sure that we are a front-end center choice for patients who have mealtime control or want to improve their A1C as we look out there, can we improve A1C?
Can we improve time and range? That’s what we’re hoping to see with these new trials versus when we got approval, it was just to show that the drug was as good as a standard of care. We think that’s good enough for PEDS approval. But to cause an inflection, right, we want to show that hopefully we’re improving something on the product. If you ask me, which is going to be more critical, I think INHALE-1 will be the study that causes Afrezza to become the next standard of care. And what I mean by that is, look, can we grow faster by putting more people out there, more marketing, more advertising? Absolutely. I think we can. Is it going to be an inflection point that looks like a rocket? I think it’s going to take another launch into a new market.
And the good news about kids is there’s only about 500 doctors in the country that are meaningful pedendos. And they’re mostly academic centers and they’re mostly about 40, 50 centers in the country. And when you think about the study, it’s only 40 centers in the US. We are covering the majority of the key academic centers in this trial, so they will have first-hand experience once the results are unveiled or finalized. So we kind of really made sure. Could we have gone faster by making it a global trial? Absolutely. We thought in order to have a major inflection, you better have the right experience with clinicians in the US. And that’s really what we’re doing. Unfortunately, we could not go against pumps in that trial. We wanted to, at the time, switch off insulin pumps and include them.
The FDA would not allow us. And that’s one of the reasons we kicked off INHALE-3, as we felt once we did the ABC trial, it was safe to switch people off insulin pumps. And even the FDA agreed at that point that we could add that to the trial. But we thought by the time we change INHALE-1 and get all that through the IRBS, it wasn’t worth the distraction. So we feel very good about where we are in a one-two punch with INHALE-1 and INHALE-3.
Anthony Petrone: Appreciate that.
Operator: Thank you. I’m showing no further questions at this time. I’d like to turn the call back over to Michael Castagna, CEO, for any closing remarks.
Michael Castagna: Thank you, Valerie. Thank you all for the analysts coming in. We look forward to seeing hopefully a couple of you at ATTD also will be on the non-deal road-show, hopefully in some key cities, meeting with our investors. And just want to say thank you to everyone. It’s been a great year so far. We’re super excited. Everything’s off to a great start. And we’re looking forward to making 2024 another record-setting year. So thank you again for everything. And Steve and Dave and everything else, thank you for all the work everyone’s doing. Have a great day.
Operator: Thank you. Ladies and gentlemen, this does conclude today’s conference. Thank you all participating. You may now disconnect. Have a great day.
