MannKind Corporation (MNKD) Earnings Call Transcript & Summary

Good morning, and welcome to the MannKind Corporation Conference Call regarding the royalty sale agreement announced yesterday, January 2, 2024. As a reminder, this call is being recorded on January 3, 2024, and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call until January 17, 2024. 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 recent 10-Q report filed with the Securities and Exchange Commission and the slides prepared for this presentation. Joining us this morning from MannKind are Chief Executive Officer, Michael Castagna; and Chief Financial Officer, Steven Binder. We will not be taking any questions after Mr. Castagna and Mr. Binder have completed their remarks. I would now like to turn the conference over to Mr. Castagna. Please go ahead, sir.

Thank you, and good morning, everyone. Just some background, next slide, Slide 3. I want to give everyone a background on the MannKind license agreement that was signed with the United Therapeutics back in 2018. If you recall, we licensed our dry powder technology and manufacturing know-how to UniTher for use with treprostinil only, and that's an exclusive license for PAH. MannKind received $105 million in milestones over subsequent years from that agreement as well as a 10% royalty on Tyvaso DPI net revenue, which we're discussing today. As you know, Tyvaso DPI was approved by the U.S. FDA in May 2022 and has been off to a very strong start in conversion. Next slide. One of the things we wanted to be able to highlight for investors was the potential that Tyvaso DPI has, not only in our stock price but in the future of MannKind. We felt when you look at the chart on the left, it shows you overall Tyvaso revenue and what it's on track for between now and '26, and the conversion of which portion of that on the right side should be Tyvaso DPI. And as you can see in '23, we probably hit a little bit ahead of that forecast when the final numbers come out. We know Tyvaso DPI has been off to a very strong start and has exceeded all expectations, and we're very happy with our partner United Therapeutics and their performance. It's really important that we help shareholders understand the value of the company, and we thought at this time, selling 1% of the royalty will allow us to bring in enough cash to pay down our debt to continue to operate and grow our pipeline and move the company continue towards independence. I'm now going to turn it over to Steve to give some details on the royalty deal.

Thanks. Next slide, please. The sale of royalty is valued at up to $200 million. Some of the details. We sold 1% of our 10% of the Tyvaso DPI royalty to Sagard Healthcare Partners. The upfront purchase price was $150 million; cash is in the bank. We have additional milestones of either $50 million or $45 million for attaining certain net revenue targets, specifically, the $50 million milestone we paid if the trailing 12 months net sales is greater than $1.9 billion by December 31, 2026, or $2.3 billion by September 30, 2027. If neither milestone is met, Sagard is limited to 1% royalty to a maximum of $3.5 billion in annual sales. And the reason this was structured that way is to protect the upside for MannKind if IPF is approved and approved at maybe a slightly later date than expected by United Therapeutics. This royalty deal does not impact our collaboration services revenue that comes from the manufacturing and other services that we provide to United Therapeutics at this time. This values the entire royalty stream at about $1.5 billion for the upfront payment and about $0.5 billion if the milestone is attained, which is more than our current market capitalization. Next slide, please. This is a slide we've shown on our quarterly earnings call but it shows the Tyvaso DPI royalty growth since launch. You recall that it was launched in late June 2022. We've had growth of $6 million to $9 million to $12 million to $19 million with $3 million of inventory build at specialty pharmacies and then up to $20 million in the third quarter of 2023. So it's been tremendous growth in our royalties and obviously, tremendous growth in the Tyvaso DPI net revenues achieved by United Therapeutics. Next slide, please. What are we going to do with the use of the $150 million? With this sale, we've ended 2023 with approximately $300 million in cash investments on our balance sheet. Our goal is to be free from convertible debt by March of 2026. And why that's important to us is we have $230 million of convertible debt outstanding that matures in March of 2026. So by putting the cash on the balance sheet and having cash flow from the operations of the business, we will be able to pay off this convertible debt if we need to by March of 2026. In addition, we had $8 million of Mann Group convertible debt at $2.50 a share. So that's been in the money for a long period of time. And then we've been paying down the mid-cap debt out of cash flow, current balance January of 2024 is approximately $33 million and this matures in August of 2025. So you can see how our goal here is to be a debt-free company from convertible debt and mid-cap by early 2026. And if you think about the $150 million that we put on the balance sheet at 5% interest rate, you bring in about $7.5 million of cash interest earned on that $150 million at this point in time, in addition to the other cash and investments that we have on the balance sheet. Next slide, please. The accounting treatment is kind of interesting. We would always have wanted to record this as a stand-alone financial asset and not have to put debt on our books. Unfortunately, U.S. GAAP says that we have to put debt on the balance sheet when we bring the cash in for $150 million. The debt balance is amortized between the fourth quarter of 2023 when we closed the deal through 2042, which is the time period that Sagard has for the 1% royalty. What will happen is we will book a noncash royalty revenue representing the 1% sold. So when you book the revenue, you actually reduced the debt balance. But then at the same time, you're booking a noncash interest expense right now of approximately $20 million a year. That interest expense is mostly offset by the royalty revenue. But if you think about the 1% -- I'm sorry, but the $150 million at 5% interest and the interest that we earn off of that cash is basically balanced on the P&L from a cash and expense perspective. And now I'm going to turn it back over to Mike to talk about an additional material contract that we changed over the last 10 days.

Thank you, Steve, and thank you again for everyone. As Steve suggested, now our goal is to not have the convertible debt be an overhang on our stock. That is something we've seen happen in the marketplace, and we want to get well ahead of that milestone. The next thing I want to talk about is Amphastar. Some of you may have caught that we filed an 8-K at the end of last year on modification of our current insulin purchase commitment. I'll repeat just to give some clarity here is we mutually agreed with Amphastar to extend the time frame of the contract to 2034 and adjust our yearly purchase commitment to be in line through the end of pretty much 2040 on the insulin inventory. This resulted in a $50 million net savings over the next 4 years, as you can see here, and allows us time to secure FDA approval of an updated manufacturing process that the Amphastar implemented. We have adequate inventory of our current insulin, expect no supply impact to patients, and you can see significant impact in '24 and '25 specifically as we start to fund the pipeline and what we do with our current expenses and cash on hand. As we look at the future, we're very excited about MannKind's future growth potential. We look at our peers, we look at other products coming in for NTM, we believe our market cap continues to be severely undervalued. Hopefully, this royalty deal will bring some of that value to shareholders and let people clearly see how successful Tyvaso DPI is as well as the other individual parts of the company. Number one, our pipeline on the MannKind 101. I'll give further clarity next week at JPMorgan. But just to know we had really positive FDA meetings in Q4 and we're looking to start this trial in the second -- in the first half of 2024 and that for every 1,000 patients it's $100 million in revenue. And I'll just remind you, there's over 100,000 patients in the U.S. alone, let alone Japan and another 100,000 patients. There is significant potential here for patients, and we know this molecule works in this population. On MannKind 201, again, I'll give further details next week, but we're also excited about oral inhaled nintedanib what that can mean for patients in enhancing their life. This will be dosed in the first half of 2024 in healthy volunteers, and we expect to wrap that up in 2024 to go into the next phase of development. On Tyvaso DPI, we've previously said every 10,000 covered patients with $250 million to $300 million in revenue to MannKind and a significant upside if UT was successful in the TETON studies for IPF. In the pediatrics, we're wrapping up the peds trial here in Q1. We'll be waiting 6 months for the last end point there, so roughly Q3 and for every 10% share in kids, there will be roughly $150 million in revenue to our company. That is not a [indiscernible] goal in terms of what's potential for peds in diabetes. And then we've invested in INHALE-3, which enrolled 2 months ahead of schedule, and we'll have those results in March. We'll be planning to present those at ADA as well as the first dose patients at ATTD. We're excited about our partner Cipla and International and continue to stabilize and grow V-Go. And overall in Q4, [indiscernible] being reported through Bloomberg. We can tell you Q4 finished nicely on the endocrine franchise. I'm going to stop there and just say thank you, again. I hope you can see what 1% of royalty was worth. We now have optionality on our company to pay down our debt and continue to grow our company for success. Thank you again for your time and patience. I'm sorry, we can have this call yesterday, but we do look forward to continue to engage you specifically next week at JPMorgan in our Q4 earnings call. Thank you.

Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.