MannKind Corporation (MNKD) Earnings Call Transcript & Summary

All right. Perfect. Thanks, everyone, for joining us. I'm Tiago Fauth, I'm a biotech analyst here at Wells Fargo. We're hosting a fireside chat with MannKind today. So I have Michael and Chris. Let's kind of walk through a lot of moving parts here and the story just got a little bit more noise from this Monday, right? And we'll get there, but. Perhaps, say, you can start with the business.

Like, it's funny like we still get some investors that we talk about MannKind. So we go, the Afrezza company or just all the Tyvaso DPI royalty play like a lot has changed. So let's give you a couple of minutes to kind of run down to what the business actually is today?

Yes. I think when you look back in time, it was a diabetes company, right? And really, the drug device was a lot of challenges, I think, for the company. But I think when you fast forward, one of the things we've tried to do over the last 6, 7 years is differentiate us on the clinical development side. Applying the technology to rare disease and specifically orphan lung. The UT partnership has continued to blossom nicely. And the last thing you've seen is how do we diversify even faster? How do we get more catalysts. When we look at Wall Street, a lot of momentum investing, a lot of catalysts investing. And so if you look out, we wanted to make sure we had enough positive things happening, and that gives investors things to look forward to and lots of shots on goal. So when we look at -- you got an in-line brand, you've got royalty and you got a pipeline. So you've really got a lot of different things to look at.

Yes. No, fair enough. And I guess we can probably start with my last question, which was going to be the scPharmaceutical acquisition. So you talked about diversification. To be fair, like some investors just didn't understand like all the strategic fit. This feels a little less orphan lung, which is where the core of areas of expertise had been in the past. So again, how -- can you make the business case with the acquisition, how much operational leverage? Could there be synergies? How are you thinking about that as a part of MannKind?

Yes. I think, number one, when you take a step back, what do these companies have in common, right? Drug device combinations, build on an injectable platform experience in terms of these guys had CRLs. They've learned through those on-body injectors and subcu. The second part is, does it have a large enough scale. We've been looking for something for a couple of years, and it just didn't work out the ones we were looking at. And obviously, like to have some of that just fits nicely with orphan lung but there's not a lot out there and not a lot that you want to pay for that you're going to take on clinical risk. We don't need to take on any massive risk at this point. The company is profitable, we're growing, we're diversified. And so we're really looking for something that had revenue in the $100-plus million range that had an opportunity to scale. And there's not a lot of those types of opportunities out there. And so we looked at -- sc came along. We felt that the team has done a really nice job. They're right in the beginning stages of their launch. And when you take a step back and you look at -- take insulin pumps, it's a $5 billion market. And all we're doing is taking a 100-year-old product trying to manipulate the profile we get in the body. You take Remodulin, we're getting treprostinil in the body, you take Neulasta, we're preventing hospitalizations. These are multibillion-dollar opportunities. And this thing has that opportunity right in front of you. Heart failure is a huge market. Lasix has been around for 60 years, being able -- this is I would love, right, being able to take a device and challenge with the formulation and put them together, it just fits really nicely. And we think it wasn't obvious on the surface around the synergies or the bolt-ons in terms of when you think about cardiometabolic heart failure, chronic kidney disease, large overlap in diabetes, large overlap in where we're targeting. And a lot of these patients are also on insulin. So when we think about long-term business, we're kind of all in this cardiometabolic space. And so it kind of fits nicely that way.

Just from a revenue perspective, it's not immaterial relative to your current top line, right? So the mix is going to look fairly diversified over even the near term. Is that fair?

Yes. I think when you look out, we're trying to get to like a 50-50 ratio, roughly royalties, manufacturing versus in-line commercialization products.

Got it. No, perfect. That makes sense. Perhaps pivoting to, I guess, I won't call it the legacy business, but prior to sc, again, you were developing your own internal pipeline in rare lung, a nebulized product, the DPI product. To your point, you have expertise in Afrezza, with Tyvaso DPI, display book of inhaled formulations or drug device combos again, some companies have been less successful in developing good formulations, good devices that deliver reliable PK what's kind of the secret sauce? And how are you applying that to 101, 201, how should we think about from a technology perspective for both INHALE and DPI?

Yes. I think when you take a step back, again, you got 34 years of the company existing around inhalation formulation technology and scale. And in that time frame, the team has probably formulated close to 50 products, some have gotten to Phase I, some Phase II, some approved. And so a lot of that magic is around, can this be scaled? Can you get the right dose in and does it work? And even once you get there, will the payers pay for it? And is there a population unmet need. And so many times, things got killed because they were a great drugs, they'd have a fast onset of action, but we don't think the payers would actually reimburse the proper reimbursement. And I can name multiple things that we didn't do in that space. But when you take a step back, we try to say, how do we best apply our technology to make the biggest impact on human life. And we felt IPF is an unmet need. NTM is an unmet need. We have our dry powder in development as much as a nebulizer. And then what's the core capability around these drug device combos and predicting that dose and calculating that dose. A lot of companies just have not survived dry powder products or nebulizers and they probably miscalculate a lot of their animal models or see through it. And so I think it's a little bit more art and science sometimes and people unfortunately mistakes that we're devastating. So far, our team has been right more than they've been wrong on the shots on goal.

There you go. And again, for 101 before we go into the actual clinical trial design and a more nuanced discussion. So again, NTM, MAC, there was a lot of skepticism back in the day for Insmed even for ARIKAYCE, right? And that turned out to be a sizable market. I think the story has moved on from that on their side, but still like a reasonable market, even on the relapsed/refractory setting, what is the unmet need, I guess, that, that remains, right? Because there's going to be some questions around competition versus ARIKAYCE? Why this specific product that you chose so on and so forth. So what was the unmet need that you guys are searching to close?

I think when we were looking at the time, we were looking for what else can we put on the platform that would be scalable, would be an orphan disease and lung and that's when NTM popped up on our screening. And so we were able to find something. And at the time we were looking for a license in the dry powder. That discussion turned into full acquisition, which is how we got clofazimine back in 2000. And then just had a lot of work to do on CMC and scale and FDA. So all that work got done we're now in Phase III. When you look at the unmet need in NTM, there's only 1 drug approved in the case of ARIKAYCE. It's only in refractory. Everything in front of us has failed and everything behind us has failed. So there is nothing else really in development. And I think Insmed has done a really nice job. They launched right in the middle of COVID, which is not easy. They bought it globally, which is not easy, and it's going to do $400 million or $500 million this year, right? And so thinking about an orphan disease, making a difference, challenging product, and it does have some safety and tolerability issues. And so when we look at clofazimine, it's a drug that's well known. We know it works in NTM in all the preclinical models and real-world evidence. But then how do you best position it? How do you best dose it? How do you minimize the toxicities that were known of clofazimine, which is skin discoloration, organ accumulation, QT prolongation. So really narrowing that dose down, hopefully getting to the most effective lung-delivered dose. And to your earlier question, one of the things we did was we tested low, medium, high and all of them looked safe and tolerable. And when we saw AN2 had a problem, and Aerovate, we actually decided to go up a dose higher just to make sure they have a little bit of safety margin because as much as we like the team and all the work they've done, you just don't know until you put in patients what happens. And so we actually went to the middle dose and said, "if people can't tolerate that, they can down dose." So far, in 90 patients, nobody is down dosed yet. So we feel pretty good about the tolerability profile so far, but we'll continue to watch it.

Yes. But just from a conceptual perspective, this looks a lot more like ARIKAYCE and some of the other alternatives. So some of them are novel anti-infective mechanisms, some of them were kind of repurposed the whole liposomal amikacin like you're basically just going again, nebulize clofazimine, which is a drug that you know should work in this indication and just limited by some of the aspects you mentioned, correct?

I think some of the differences is clofazimine is very lipophilic. So when it gets into the lung tissue, it gets absorbed pretty deep. And then the macrophages heated up and they crystallize and they break it down. Clofazimine has about 70-day half-life, so you load up the lung for 28 days and then you stop taking it, and then you're off for 2 months and then you retake it again. So you've got this unique dosing regimen that removes the burden off the patient, solves some of the co-pay issues. And really, they don't depend on the nebulizer every day, and we have a dry powder coming. So we hopefully, we'll make that easier and the dry powder may have a different dosing regimen. We might dose it every day at a smaller dose. You might load up the lung, take 1 week on, 1 week off. We have some flexibility. We'll get the animal model shortly, and then we'll start to look at the dosing regimen for that.

Interesting. And let's talk about the Phase III design. I guess, so we went from a Phase I directly to a Phase III with an interim readout in the middle, right? I guess just from a time line perspective, I don't think you thought it made sense to run a proof-of-concept small Phase II and then see from the -- like what gives you confidence, I guess, to move? And can you talk about Phase III design?

Yes. I think we don't have any questions that clofazimine works, right? And I think if you did, you'd want to do a Phase II to kind of get to a tighter size. I think at the end, we were up against competition, number one. We were up against watching 2 companies take forever to enroll the trials. And we were very fearful that what if Phase II took 3 years, you wind up killing the drug probably. So we kind of felt let's get to the endpoint. If it fails, it fails, if it works, it works but there's not a question it can work. And so all that energy for the Phase II to really not -- we didn't think the dosing was going to show a difference whether you use IV or low dose. And so then, what are you wasting 2 years of a Phase II study for? So we took a little bit of risk. We actually had originally 2 doses in the Phase III trial. And then we looked at ARIKAYCE, they only had 1 dose, and we kind of asked ourselves do we really need 2 doses? FDA agreed we can go down to 1 dose. And it was definitely a negotiation with the regulatory authorities in Japan and other places, but they all -- once they saw the data and how we got to our dose calculations and lung concentrations, everybody agreed that it was a sufficient level. And so there's no reason to do a Phase II, to be honest with you.

Got it. And you do have an interim readout, right? So what are you powering that for? What are the actual outcomes of that? Are you actually going to see the data? Is it mostly going to be a sample size reestimate? Like what -- how should the Street think about that?

It's mostly a sample size reestimates. So as you -- one of the things to getting back to the companies that were out there were taking forever to enroll 50, 60, 70 patients. So we wanted to get this to be as small as possible, but also statistically possible, right? And so that got to you about 180 is the smallest you could go, so 120 on active 60 on placebo. And then at 6 months, the 60 placebo can roll over to the active. So we'll get 180 patients for a minimum of 6 months and then 120 for 12 months, hopefully. So that will give you a long enough duration of effect. It will show you any relapse breakthrough. We'll also see some people that enrolled in the trial who may have had a negative sputum and we'll confirm that it was negative. And then today, we maintain negativity in how do people kind of progress. So we're going to get a lot of information out here. But in terms of the size of reestimation, the #1 thing is we'll let the trial keep enrolling until we get to that data point. It's powered a little bit more on the sputum than it is the PRO because we feel like the PRO is not sensitive enough. You could find yourself with a large variability. And honestly, if you need 500 patients, you'll never finish the trial. But the PRO so far looked positive with ARIKAYCE, we're using the same one. We're probably using it a little bit differently, but I think that should predict the sputum. And then we're powering it for a 20% delta from placebo. So as long as we meet that threshold, then we'll be good. And you could see it go from 180 to 210, 230. It's all predefined in the statistical plan. And there's also a futility as well. So we'll know if the drug works or not.

Fair enough. But -- and there was a lot of discussion with Insmed and ARIKAYCE back in the day about sputum being enough. I recall there was a lot of discussion around that. So you have both sputum and the PROs [indiscernible] that seems to be a little stricter, I guess, than the precedent that was set before. Is that -- like how should we -- is that concerning at all? Do you think it's reasonable? Do you think if you actually just see a very strong signal on sputum and a trend on the PRO that might be fileable? How should we think about the scenarios?

I think yes. I think as long as the sputum -- the efficacy on sputum has to be there, right? And so then you get into the PRO and which direction is the PRO, what are you measuring and what do you see? And I think some of the devil will be in the details on how it reads out. We're picking the most bothersome symptoms and then does the patient improve and they're able to measure against their own self. So I think the way it's being calculated derisks it a little bit. But to your point, ARIKAYCE got approved with no PRO. So we think that's the baseline opportunity because as long as you have better dosing, better tolerability, good safety profile. That's going to be hard for the FDA to say this shouldn't be an option for patients because without this, there is nothing else. And so we feel good about that. The rest of the world only needs a sputum and only needs 180 patients. And so we feel as long as we hit that 180 mark, we're good to file rest of the world.

Got it. Okay. And then just thinking about actual commercial positioning here and this -- I don't know exactly why, but this concern that because of ARIKAYCE there might not be room for additional players like I say, in fact, that there's always going to be some degree of resistance in some patients. The sputum conversion rates are not -- they're high, but they're not 100%, right? So what is the commercial opportunity here initially?

I mean there's 100,000 plus patients in the U.S. and 100-plus in Japan. The enrollment in Japan has been off the charts. So when ARIKAYCE has launched there, we can see that there's a large unmet need, a lot of excitement. In the U.S., it's a little bit harder to enroll because people don't want to be in a placebo trial. People want to try ARIKAYCE first and you got to be clean out ARIKAYCE for a little while to get our trial. But there's a scenario where you'll add this to ARIKAYCE because they're probably synergistic together. There's a world where you probably use it before ARIKAYCE and there's a world you use it after ARIKAYCE, but there's more than enough patients to build a sustainable business around. And to your point, a lot of people stop ARIKAYCE after a month or 2, right? And so that population is looking for something else. But then you got this huge early treatment population that we think a dry powder is going to do nicely. And so that's really one of our goals is to get to dry powder to a point next year where we can move that in the humans and that'll be exciting because that really opens up to us the major market.

Got it. Anything that we didn't cover for 101 before I move on to?

I think we got it all.

Okay. So let's talk about 201, I guess, nintedanib. So again, kind of a similar playbook. You know nintedanib has systemic tolerability issues likely driven by systemic exposure. Theoretically, if you drive -- if you deliver a DPI, you could reduce that. But what does the data suggest that efficacy is driven perhaps by the positioning in lung tissue? I'm curious if you're not going to perhaps miss some of the efficacy if you don't have the systemic exposure that was one concern with Aerovate and some other players back in the day?

I mean I think that is a little bit of a debate out there. I'm actually really excited about the Tyvaso data that came out yesterday because they showed you can deliver prostacyclin directly into the lung and see a lung effect size, right? We didn't have any data on delivering a target to the lung and showing effect size till yesterday. So to me, that just derisks 201 a little bit. That question will always be there until we get the data readout. But I think we feel good. I mean I think when you take a look at the other competing program in nebulizer, 2 companies independently calculated a dose very comparable. And so we feel very good about the dose calculation. I'm sure the other company feels good. The part we feel better about back to your earlier question is how do we have confidence? We know our FDKP, we know our delivery platform. We know where the drug goes. We know how much gets delivered. That's pretty consistent from API to API because FDKP is the magic ingredient. And so when you think about -- we haven't released our PK/PD data yet, but if you like the other company's data, you're going to like our data better. We really have good deep lung concentration penetration. We haven't -- we'll put a publication out next year. We just released our target dose on the Phase II of the last earnings call. So I think you're seeing -- we're targeting a 6 to 8-milligram dose. We're looking at a TID and BID because to your point, is it the frequency of the target? Is it Cmax? Is it AUC? So we want to make sure we're covering those things. So that's an example where would I love to skip Phase II? Sure. But I'd be running a large Phase III with a lot of risk. And so in this case Phase II...