MannKind Corporation (MNKD) Earnings Call Transcript & Summary

Welcome to the MannKind Corporation Corporate Update Call. As a reminder, this call is being recorded on April 15, 2020, and will be available for playback on the Mannkind Corporation website shortly after the conclusion of this call until April 29, 2020. This call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainty, which could cause actual results to differ materially from the stated expectations. For further information on the company's risk factors, please see their 10-K report filed with the Securities and Exchange Commission and the corresponding press release. Joining us today from MannKind are Chief Executive Officer, Michael Castagna; and Chief Financial Officer, Steven Binder. I would now like to turn the conference over to Mr. Castagna. Please go ahead, sir.

Thank you. And before I get started, I just want to say our thoughts are with the 17 million unemployed people currently in America and the challenges we're all facing in a new norm of working from home, dealing with our children, our loved ones, our elderly parents and our animals who are probably wondering when we're going to go back to work. Steve and I are here today, 12 feet apart, along with Stuart Tross, our Chief People Officer, to answer any questions towards the end of the call that may come in. I wanted to hit a few topics I thought were important, given all the questions we've been getting from the investors that wanted to get a quick update, and we were waiting on the answer for the PPP loan before we spoke about what Mannkind is doing during the crisis, what we're doing currently with COVID and any impact it could have on us in the near term as we look out. Number one, our employees are first. We want to keep everybody safe. We're trying to keep Afrezza production running as planned. We currently have a batch in production that will carry us through 2020 into 2021 from a continuous supply. We are currently making TreT support -- products for their clinical trials and providing that support as well as making sure we hit our milestones that are going as planned. I'll just comment a little bit further about the TreT in a minute. We are working on 4 different COVID-19 formulations/opportunities, 2 antiviral, 2 anti-infectives. Again, I'll mention that in a few minutes to talk a little bit further. And all of our employees are working from home with our field force being now remote and working to achieve impact on sales with HCPs electronically and in person where appropriate, but very infrequent. In uncertain times, as we all know, cash is king. And if we were sitting here last July prior to our recapitalization, we'll be thinking about things very differently. Fortunately, we were able to restructure all of our near-term obligations last year, and we ended the year with $50 million -- or started this year with $50 million in cash and short-term investments. And this, plus the changes we've made internally as well as the expected Unither milestones of $25 million and our Afrezza sales, we comfortably feel getting through 2020 should not be a huge challenge. We expect a $12.5 million payment in Q2 from United and a fourth quarter $12.5 million payment as well for a total of $25 million. We're currently bringing -- and when you think about the TreT program, we currently had 3 parts of that. We have the BREEZE study, the PK study and the human factor study. The 2 things that were put on hold in the short term -- or all 3 of these were put on hold. One had started with the PK and the BREEZE. We do not believe these are on the right limiting time line right now, and so we don't expect any impact to the TreT filing time lines as we exist today. In fact, UT has taken this downtime to update key things around the trial so that when we come out of the COVID-19 pandemic, that we can accelerate enrollment and finish up the trial and be ready for filing in late this year. As for the CARES Act, as you saw today, we qualified for the Payroll Protection Loan Program. We applied to receive $4.9 million, and this loan definitely saved jobs. We worked really hard to build this company up and the capabilities up over the last 3 years, and reducing our jobs or furloughing employees would be the least thing that we preferred but an option we had to consider given everything we were facing. The terms of the loan are 1% interest rate with a 2-year maturity, 6-month interest deferral, and we expect over 90% of this loan to be forgiven after the 8-week time period is up. Obviously, we're all going through the PPP program together, and we understand what the government requires to get the loan forgiven. MidCap has consented as well as our other debt holders are very supportive in acquiring this loan and giving us the capital we need to offset any downside risk to the company as we foresee it in 2020. Additionally to this, there's 2 other expense reductions we had. One, you saw publicly announced an employee salary reduction of 20% basically on anybody making over $100,000, and we had expense reductions throughout the company that saved an additional 3 -- $4 million to $5 million. These 2 combined between the salary reduction, expense reductions and the PPP Act will save almost $10 million in 2020 and allow us to continue to execute our business plan as we laid out earlier this year. Cutting our staff will be a last resort because that would only make us weaker and decrease our ability to come out of this stronger. We believe diabetes control will be a front and center topic more than ever as we focus our opportunity in type 1 diabetes and beyond. We are very optimistic. When you think about in the type 1 market, insulin pumps are the indirect main competitor. They're going to be very expensive for people who worry about their income and their employment. They're also very time-consuming in terms of office visits and face-to-face that it takes to get someone started on an insulin pump. So we believe our continued emphasis and focus in the type 1 community will be really important in our ability to accelerate growth, hopefully, coming out of COVID-19. I talked about TreT, and I will answer any additional questions on there, but again, we'll refer to UT for general questions, but we don't expect any impact on MannKind in regards to our milestones in 2020. On COVID-19 production that we announced a few weeks ago, we are currently working on 2 antivirals, 2 anti-infectives, and one of those, we can tell you, will probably not make it just due to the powder load required to get to any efficacy. We believe that program will be killed at appropriate time. And the other 3 opportunities we're currently working on, we're getting into API in one of them. The other 2, the R&D team is already working several formulations, and we're very excited to hopefully have some opportunities to help support a solution that is pandemic that we're all facing. We've been in discussions with BARDA, and we'll continue to look for opportunities to look for external funding to help support our COVID-19 opportunity that we're working on as well as potential partners. We won't have much else to say. Our earnings call is in 3 weeks, and we can update you again at that time. In terms of planning for success, today, when you look at Q1, we finished very strongly in both TRxs and shipments to retail and specialty pharmacies. We had record scripts at the end of the quarter, and it's likely that some patients filled an extra prescription to ensure that therapy is not interrupted along with the toilet paper and likely that some prescriptions are pulled forward from Q2 into Q1. So at the end of Q2, we expect a little bit of softness just given that extra demand we saw and as well as new orders allowing 90-day fills in certain cases. So far, when we look at Q2 and we look at our -- we look at scripts daily in terms of co-pay card redemptions, our bridge program, our wholesale outflows and our wholesale orders, and we see that things look to be stabilizing from here on out. Now the next few weeks will really drive that more than ever, but as far as we can look at last week and this week, it seems like we've hit a plateau. And hopefully, we can start to grow from here. But time will tell whether that's true or there will be a continued decline. As we plan for coming out of the shutdown, we're doing several things over the next few weeks. Number one, we've been conducting webinars with our health care providers. We're actually looking to conduct a few advisory boards to continue the insights from customer on how we can grow faster. We've had great thought leaders like Dr. Kendall, Dr. Peters, Bruce Bode and others being able to talk to their peers around Afrezza as well as the impact COVID-19 has on people living with diabetes. We've been interviewing for a new Chief Commercial Officer position, and I would expect us to be able to announce something in the coming quarter around replacement for our Chief Commercial Officer. We've also been exploring a virtual care model as an opportunity to help continue to get new patient starts -- sorry. I was being told you can't hear me that well. So hopefully, that's better. We're also looking at partnering with people to build a virtual care model that will help get new patient starts in the world that we expect where people will be coming in and out of lockdowns in the near future, and we need to come up with a new way to market our products and our opportunity to help patients. We'll continue to fill openings now more than ever as it's been a great opportunity to fill new jobs with -- or existing jobs with new talent. As we look at the marketplace, it's been very hard and difficult to get great people in a 0 unemployment environment for most college graduates. And today, we find that the opportunity to get great talent has actually significantly improved over the last month, and we look forward to filling some of our openings that we have existing today. These people will allow us to come out stronger than ever as we continue to look to build capabilities and expand our sales force impact. We are transitioning to a new patient hub in, hopefully, Q3. We're looking to move more of our free good bridge program into either co-pay patients or to a different program that will be less costly to MannKind. Additionally, you'll have seen that we launched a new Afrezza website this week, and we'll be launching a new Mannkind website tomorrow morning, Thursday. Final thoughts here before we open it up for Q&A. We will manage through this. This company has overcome many obstacles, including multiple CRLs, a huge debt burden, multiple CE turnover -- CEO turnover, and we will continue to thrive and succeed in the future as we look out. With your help and understanding, we feel very strongly we'll be here to help serve Afrezza as well as trepostinil patients well into the future. We will continue to support the medical community who write Afrezza and work with our Afrezza patients in teaching them every single day. We'll continue to support our employees through this very difficult time emotionally, professionally and financially this is having on them. And we appreciate the graciousness of all of our employees who've taken a pay cut to see us through these difficult times. All of us are shareholders in this company. All of us want to see us succeed. And we're all aligned to one goal, which is continuing to improve patient outcomes and drive shareholder value. We additionally appreciate the U.S. government for working so fast and supporting our employees with the Payroll Protection Program. Without them, the outcome would have been very differently. And ultimately, we do appreciate our shareholders for all their trust and support into us as I'm really proud of the management team we have here as, from my perspective, we're one of the first public companies to announce support of COVID -- support of funds from the Payroll Protection Act and really came through great preparation and execution with the management team and through a lot of long hours and late nights, but we got it done and we got it done in record time, considering that we believe the payroll funds that were available, the $350 billion, are almost out. We look forward to our earnings call in a few weeks, and we'll continue to operate the company as best we can in this virtual work environment. And I wish everyone continued success, luck and health in what we're dealing with over the next 4 to 6 weeks as we start to come out of this. I'm going to stop there and open up for questions for the analysts.

[Operator Instructions] We'll take our first question now from Brandon Folkes from Cantor Fitzgerald.

Can you just remind us of the conditions to receiving the 2 $12.5 million payments from United this year? Anything additionally you can say around the 4 products which are being developed for COVID-19? And then lastly, how much incremental spend should we think about with these products?

Brandon, I'm sorry. What was that last question? I got the first one on...

Spend on the products.

Okay. Sure. Sorry. Got it. So on UT, we've not disclosed what those $12.5 million are tied to, but we have disclosed they're in our control. And so the good news about that is that there is a delay in BREEZE, for whatever reason. There is a delay in PK. These things are not in our control, and therefore, they don't impact our ability to receive our funds. The things in our control are really preparing for the FDA filing, getting our stability straight, making sure we can scale up production commercially. Those are all things in our control, and our team is working diligently in really tough conditions right now to make those happen. So Danbury is functioning with a little over 70 people. Our essential personnel there are working through really tough conditions. But it's really critical that we maintain TreT on track as well as Afrezza for the U.S. and the result of supply we just need. So that's -- so we don't see risk today on receiving those $12.5 million here in Q2 or Q4 at this point. [ COVID-19 ] opportunities, they are not costing us any money per se, and I'm sure there's a couple of thousand dollars here and there on buying certain supplies or ingredients, but there's no substantial amount of money going through these. It's a lot of it's our people and our resources and just a delay in working on some of the pipeline opportunities. So I'll give you 1 example. The procurement that we announced a few weeks ago, that opportunity has not only an OTC product because it's a natural substance. So you think about the fish oil market, it could qualify for a prescription-based product if you run the appropriate studies and stability. So something like that, you could see an OTC and a prescription version. And the next product we worked on was an opportunity from Europe. That one has some very interesting properties directly into the lungs in reducing the acute respiratory distress syndrome. However, the amount of drug that you need to deliver in an inhaled version is probably too high to get the right impact. And then the other 2 we're working on are very interesting products. Probably, our technology is suited well for them, being able to deliver drug into lungs will be great, especially as it comes to reducing side effects of drugs. We think that the pulmonary delivery and using lower doses could have a tremendous impact. So that's about all I'll say. We'd like to get those ones further along and make sure we know we can make the powders and things like that before we say too much. We're really trying to make sure we set expectations. These are high-risk areas and a lot of lack of clarity on how to get to market. A lot of people are focused on vaccines, and we're focused on therapeutic treatments, either reduce the viral replication or reduce the inflammation cascade with the acute respiratory distress. And so that's where we are focused on. Once someone has a vaccine, we'd love for our technology to be considered for an inhaled vaccine, if that's possible. Given you see things like FluMist out there in the flu vaccine, we do have the ability to scale up millions of doses of our products. So we'll keep a close eye on the vaccine market, but our main focus right now with our team are on the treatment side. So hopefully, that helps bring some clarity to that.

We'll take the next question from Oren Livnat from H.C. Wainwright.

I had a trouble hearing you, and you were talking quite quickly when you described what was being put on hold in the TreT program. If you could just go over that again and remind us what's on hold, what's remaining in that. And also just -- did I hear you say you think it's still going to be filed, the NDA, theoretically by end 2020? And I have a follow-up there.

Sure. I apologize, Oren. Yes, I went a little fast through TreT, and I didn't mean to. So there's 3 components of TreT that are currently ongoing. There's a PK study, of which we got some of that started pre-COVID. The other 2 parts will be finished right after we can get on -- after the lockdown. We don't anticipate or expect any impact on the PK study in terms of timing or impact on filing. The next study is around a human factor study. That, again, we've done plenty of those. They're very fast. They're very easy. We don't expect any risks around getting that done in time for filing, and that will be started and ended very quickly. And then the third one is the BREEZE study, which was almost halfway enrolled or about halfway enrolled right before shutdown. And right now that's one that's on hold for new patients. I believe -- I don't know if it's on hold officially or just they don't expect people to enroll. But we will -- I'll defer to United on any comments directly around BREEZE. But we're continuing to make supplies to help patients stay on the product on the extension phase of BREEZE, and we expect UT is working on accelerating enrollment coming out of COVID by adding new sites, et cetera. So again, I'll defer to UT for final comments. It's really their responsibility. But all those activities do not impact our ability to receive our milestones. They could impact the filing time lines, but at this point, sitting here today, we don't see that as a likely scenario. And if I recall back in February or March earnings call, we said it's 12 months from filing, so that will put you roughly between now and Q1 of next year is when we would expect TreT to be filed. So could it happen as early as end of the year? Possibly. Could it happen early in Q1 next year? Possibly. I don't want to give a clear commitment without UT's support and direction. And honestly, we got to finish up the BREEZE study to really drive that. But the things that we're responsible for, we will wrap up this year in that Q4 payment of $12.5 million. So that's where -- I hope that answers your questions.

Well, if you could just remind me, and sorry, it's my brain, it's a little frazzled, like everyone's these days. Is BREEZE in healthy subjects or is that in patients?

That's in patients, so they're switches from Tyvaso.

Okay. Great. Right. And could you remind me or can you speculate -- maybe you won't. Given they had data that was positive in the WHO Group 3 PH, ILD patients with Tyvaso, should we suspect that it's possible that will include some of those patients in that study or that maybe is being amended to protocol?

I don't know that answer, to be honest with you, because I don't know if UT has modified a protocol during this downtime to incorporate those types of patients. I know we are looking to make sure those types of patients are in our human factor study, so that those patients will be included, and we'll have some data there. So I don't want to speak for UT on that particular comment. But because of the way the development program is working, and I've worked on other 505(b)s this way, I would expect us to get the ILD indication with UT, and that will be part of our filing one way or another. So there was a little bit of a sequence issue, I'm sure, that people got to work through. But given that UT is the owner of that indication and the branded product, I believe that we should hope that this will come through if that gets approval, because it should get approval before we get our approval.

And if I may be greedy, you mentioned to an earlier question that your milestones are not dependent -- or dependent only on things in your control. Human factor is something that you are responsible for [ a UR ] running, correct?

Yes.

Okay. And maybe I could speculate that, that is one of the factors in one of your milestones potentially.

No comment.

We'll take the next question from Dylan Dupuis from SVB Leerink.

Two questions for you real quick. First of all, has there been any discussion around change in the time lines related to the MidCap finance facility due to COVID-19? And then second, can you please give us an update on the pediatric study?

I mean at this point, we don't have any reason to adjust anything with MidCap. I think they've been very supportive of the management team, supportive of the company. I think when I look at what they're dealing with as a portfolio of companies, I think we're holding our own very strongly. We've been in very close contact with them throughout the COVID crisis as well as the funding we received. So I find it to be just a great partnership, and there's no need to update anything right now with MidCap. If we cross that bridge, we'll cross that bridge when we get there, but there's nothing that I see that's right now at risk or anything that we're worried about sitting here today. But things change. We'll be able to -- again, this company has been through more trauma. COVID to me is a speed bump relative to the things we've been having to deal with for the last 3 years. So I'm not too worried yet. I think on MidCap, I think the team there has been a great team and a true partner throughout this, so I got no -- not much to say on that one. Your second question, I'm sorry?

Ped study.

Ped study, yes. The ped study, fortunately, isn't -- wasn't enrolling, whether it's the first part or part 2. And so during this time, the team is working on the protocol. We're working on getting some advisory feedback. We're actually working on interviewing pediatric endocrinologists to join the company. So from our perspective, we're taking this downtime to fine-tune the ped program and ultimately go back to the FDA. I'm sure the FDA is just hammered with tons of things right now. And probably our peds wouldn't be the #1 priority if we were in the queue. But I do expect, as we come out of this, we'll be ready to get this protocol moving through the FDA, ultimately getting their approval to get that trial started at the appropriate time. One of the things we'll watch for just in terms of cash flow in the company is we're not going to kick off the ped unless we feel like we're financially secure enough to do that in the right time. So right now money is not the laying piece, and we think there's partners who would help us fund it if we got to that point. But today, we're just working on getting the right protocol and the right studies, the right investigators and getting the right feedback ultimately where this has to go. So we still got a lot of work to do on ped this year, but no impact in the short term on peds, but this is a big priority for the company.

We'll take the next question. It comes from Bert Hazlett from BTIG.

Yes. I may have missed it. I know you gave a little bit of an update on some of the commercial impact and how Afrezza is doing. Could you give just a little bit more texture about how the sales force interaction and how that's evolving in the circumstance, and maybe if you can, when you might see some restrictions lifting? Again, I know that's a challenge across the board here, but just interested in how you're adapting to the circumstance.

Yes, Bert. Thank you. Great question. Obviously, every pharmaceutical and device manufacturer is dealing with this right now. There's a report that comes out every week on -- from IQVIA, I don't know if you've seen that, but that's been really helpful just keeping a pulse on the market. You can see diabetes visits are down. You could see labs are down. So therefore, new patient starts are down. And fortunately, we have a good base of patients on our product now that will carry us through the downturn very -- I'll call it, roughly 10%, 15% of our weekly scripts are new starts, and not every office is closed. There are offices open, and patients are showing up still. It's just decreased. And I think some of our doctors are worried about just staying in business, to be honest with you. So part of this will be -- come out of this is who's still going to be employed, who's going to have to consolidate in doctors' offices, not just worried about MannKind and Afrezza. Our sales force was moved virtually very quickly. The marketing and sales leadership team came together, have moved to e-mail templates to communicate with customers, have moved to webinars. We already had some virtual programs in place that we could repurpose for this particular movement. We've moved sampling down to the local sales force as opposed to some mail and shipping to minimize any disruption there. And we have education going on with our reps, really sharpening their skills and going through some key training, kind of improved training that we wanted to get out to the field and now in the downtime we're taking. And there are things we were going to have like a sales meeting in Q2 that got postponed. So we were going to be out of the field a little bit in the second quarter anyway. And so now we're just trying to start to put together the plan for coming out of COVID, and obviously, we're going to adjust that week to week. Our expectation is that certain parts of the country are going to open up before others. I was just looking at some data last night. I can't reveal the source, but it was really looking at online activity in sales in different parts of the country, and you can clearly see 39% of GDP is California and New York. And those markets have been tremendously impacted in terms of just overall consumption of things, I'll say, society, where other markets -- even Washington is back up in terms of online purchases, some of the midwest, some of the south. So I think you're going to see certain sectors of the country open up before others. And the question is going to be travel restrictions and things like that, I think, are still TBD. But I also see certain parts of the country getting hit. My buddy just texted me just an hour ago. Surges that are happening in South Jersey right now and hospitals are getting overflowed. And so we still see rising infections in certain markets. And so there are going to be later markets to come on board than other markets. So we kind of see it as a staggered approach and not a one type fits all. We've talked to people that are dealing with friends and colleagues in China and Hong Kong and Singapore. And we know the work environments there are spatial. Just to give you some example. People in China are doing QR codes when they sit for lunch so that everyone's got to know everybody was. So if anyone does get impacted with COVID, they now have a way to notify others. So I think we're going to have to get a new normal around wearing face masks to work and most environments and walking into doctors' offices. But we do know that doctors will open back up their office. They will see sales reps as soon as the quarantines are lifted, and we are excited that we'll get back out there. And I think our team is energized to get back out there and excited, but they're working -- they're doing virtual patient trainings as another example. And so we do our -- we still are getting new patient starts and still doing everything we can to help patients get started and doctors to maintain consistency during this time frame. And one of the biggest rate limiting factors is our FEV1 device and making sure patients have access to that, and we're putting programs in place right now to ship those directly to patients if required. So we're doing everything we can to make sure we maintain our business and come out of this growing better and faster than ever. So that's all we can do is, hopefully, retain our employees through this, so that when we come out, we're not hiring from scratch and building back up what we've built over the last couple of years. So hoping it gives a little bit of flavor for the types of activities and are thinking about what's going to come out of this, but we don't see it as all one big terminal switch at the end.

There are no further questions at this time. Thank you.

Okay. Thank you all for dialing in. I hope you found this update informative and helpful. We have our earnings call in about 3 weeks, and so we look forward to updating you on continued progress throughout Q2, on our COVID-19 treatment and anything for TreT. So thank you, everyone, again, for your patience. Obviously, we're doing the best we can as a leadership team to get MannKind through this. We anticipate the choices we made here in Q2 will offset any downside risk for the full year of 2020, and that's the direction we're moving in. So we plan -- we're planning for success and planning for what could be some softening in Q2, but we expect to be able to come out of this and hopefully get things back on track as soon as all these travel restrictions and quarantines are lifted. So thank you, again, everybody. Obviously, a tough day for everyone, so hang in there.

This concludes today's conference call. Thank you for your participation. You may now disconnect.