MannKind Corporation

Good afternoon and welcome to the Mankind Corporation second quarter 2021 earnings call. As a reminder, this call is being recorded on August 11, 2021 and will be available for playback on the Mankind Corporation website shortly after the conclusion of this call until August 25, 2021. This call will contain forward-looking statements. Such forward-looking statements are subject to risk and uncertainty, which could cause actual results to differ materially from these stated expectations. For further information on the company's risk factors, please see their 10Q report filed with the Securities and Exchange Commission this afternoon, the earnings release, and the slides prepared for this presentation. Joining us today from Mankind, our Chief Executive Officer, Michael Castaña, and Chief Financial Officer, Stephen Binder. I would now like to turn the conference over to Mr. Castaña. Please go ahead, sir.

Hello, and thank you, everybody, for listening in today, and thank you for the introduction. Today, Stephen and I will give you an update on Q2 Financial Review. along with some of the insights on how the United Territories Collaboration will come together in future quarters. And then I'll close out by a quick update on the pipeline and the Q&A. So in Q2, I'm really excited and want to thank everyone at Mankind. We're very excited about the quarter and all the work we've done during Q2 and third quarter year to date. Let me start by highlighting our total revenue is up 54% year-over-year, and our Fresno revenue jumped 43% year-over-year last year. from pre-COVID levels back in the second quarter of 2020. Our orphan lung disease and partnerships are growing rapidly. As we all know about our United Therapeutics collaboration, the end date was submitted in April, accepted by the FDA in June, and we're on track for an October PDUFA date. Our onsite pre-approval inspection was complete as of last Friday, and we expect their report within 30 days. On the pipeline, we signed an NCE, a new chemical entity for IPS with a company from Verona, where we plan to do some development work over the next 15 months, which can result into an in-license collaboration. We also made a small investment in the Throna because we need them to be successful in the dermatology indication, and a lot of the work they're doing on the API and the drug-drug interaction studies, et cetera, will pave the way for this asset in terms of an inhaled version. And second, we've been working on several formulations with new collaborations that are currently moving forward. Some are up on stability, some are working through the process, including the one announced last week with NRX. On the endocrine disease front, Afreza had strong growth quarter over quarter with 6% TRX. And one of the things we're going to share with you today is some clarity and transparency around the free drug program we created and some of the changes we made back in Q1. Now that we have six months of data, we can start to show you what our cash free goods program looks like. Because when you add that in, we had 9% growth quarter over quarter, and that's our early indicator of future growth. As we know, CMS made a policy change on the use of Afrezza and CGM. And let me just clarify for a second, because I know there's some confusion on this one. This is separate from Medicare coverage of Afrezza, and it's really specific to patients on Afrezza being able to get CGM. The old rule stated to get CGM, you had to be on injectable insulin. Now patients on Afrezza on Medicare can get access to CGM, and we don't want patients having to feel like they have to stay on injectable insulin in order to get CGM or afraid to switch off of their injectable to get a Fresno. So that's now clear, and that's a great change, and we continue to work with CMS and Medicare insurance providers to ensure coverage for Medicare recipients. Our pediatric trial is on track to launch here in Q3. We filed it with the clinicaltrials.gov, and our investigator meeting is over the next few weeks. We presented new data at ADA and ACE, and we continue to want to drive the science behind mealtime control as one of the big initiatives you're going to start to see from Mankind is really starting to drive the information gap that exists in terms of really what we see as an unmet need in the science behind mealtime control and diabetes. We modified our insulin supply agreement with Amphistar, which has been a great partner. We were able to eliminate $10.5 million in purchases over the near term and try to get that purchase in line with our demand, and that's moved to 2027, and we're okay with that. We need a long-term supply, and Amphistar has been a great partner. And then other key topics here is we finalized the debt restructuring. We paid off some of the legacy debt. We have no major obligations due in front of us. And our PPP loan was 100% forgiven in July as we did the right thing by keeping people employed during the worst pandemic we've seen. And we're really happy because that really set up mankind to come out of the pandemic and continue to maintain our business continuity and keep our teams focused on what's doing right and helping patients. As I bring you over to type 8, so we're right here on the Magenta box here in Q3. As I said, we completed our pre-approval inspection, and now Danbury is starting to begin commercialization efforts in terms of product launch. We are in the process of hiring about 100 people in Danbury, which is on track despite the difficult job market. We know it's very hard to hire people right now. The FDA inspection is complete. We are focused on building commercial supply in anticipation of the October launch. and also staffing up Danbury to go 24-7 as we get into 2022. We need that staff to get that team ready and train them here in Q4. Steve will give an update on the financials related specifically to the supply agreement. Let me talk a little more about Afrezza. In Q2, we had 9% overall of our TRX growth, and this is due to a lot of efforts of the team. We're trying to increase education, increase awareness, and really increase Salesforce effectiveness and execution. One of the things we talked about in Q1, but I think now we have six months you'll start to see, is we made a fundamental business change in terms of our free goods program. We heard from doctors, access to La Fresa, and what we created was a copay card program that you could go directly to the pharmacy, and there was no friction in the process. And what we saw is that program cost mankind a lot of money and our shareholders, but the docs just weren't doing the PAs. And in order to get formulary coverage, you need demand showing up into the payers. And so we made a fundamental shift. We built a reimbursement hub over the end of last year. We launched it in Q1. It's called a President Assist. And now you can see here in Q1, we had 641 claims come into our pharmacy, which does not show up in Symphony. That's the blue bars on the right side. And that's our cash program and our free goods. We're combining the two because in the grant scheme, some patients pay cash for $100, $200 a month, but some patients get free drugs. We just want to show transparency of what's happening In this channel, because you can see Q1 to Q2, that grew 50%. So even though our overall sales grew 6% in the Symphony reported data, we're seeing significant early indicators of new patients coming in, getting started on the product, and this went from about 49 scripts a week in Q1 to 74 scripts a week in Q2. And that base will continue to build as we build up demand, even though patients should come off, go into paid prescriptions. This becomes our feeder pool in terms of new prescriptions. And what you really see on the magenta on the left is really that base, refill-based business. And on the right is what we see as new patients coming into the future. So really excited about that. And just some early indicators of this is in Q1, we had six of nine districts having positive quarter-over-quarter growth. And now we looked at Q2, we had eight out of nine going quarter-over-quarter. So we look at this on totality, and the early indicators are there. And this is what's going to propel our future demand. We are fully focused on accelerating Afrezza growth. And you'll see that in Steve's investments as we look at year over year. And our free goods now are starting to show up in our e-hub. This has meant to streamline the process and bring transparency. And now we can see over 1,000 new prescriptions this year come in and how the doctors are writing them, what types of justifications they're using. I'd love to get rid of PAs completely, but we know that's more difficult given the PBM model that exists today. But we can see almost two out of three patients get approved for a Fresno when they come into our hub. And then the remaining 30, they're going free goods or they pay cash. And we continue to cover them, hopefully, until we can get that through the system and they either see they're getting effectiveness and satisfaction or not. Also in the quarter, we ramped up our digital advertising and our retargeting on YouTube and social media platforms. We sponsored Conor Daly in the IndyCar race, and he's on two regional car events with kids as we want to start to think about how do we prepare ourselves for pediatrics in the future. And we've also got a product dealer virtual booth at ADA and ACE, and we have various webinars as we progress throughout the quarter and really looking to see how do we accelerate growth here in Q3 and beyond. I'll turn it over to Steve to talk about the financials, and I'll close out on the pipeline. Thanks, Mike, and good afternoon.

Very pleased to review the select second quarter and year-to-date 2021 financial results. Please supplement this call by reading the condensed consolidated financial statement, the MDMA, contained in our 10Q, which is filed with the SEC this afternoon. Let's start out by looking at revenues for the second quarter of 2021. Our present net revenue was $10 million versus $7 million in 2020, a growth rate of 43%. The components of growth include a demand increase consisting of simply reported TRX growth of 14%, as well as wholesalers increasing inventory levels in the second quarter, which favorably impacted net revenue by approximately a half million dollars. A more favorable mix of AFREZA cartridges, price, including a more favorable growth to net percentage at 40% versus 41% in 2020, and the negative impact of the onset of the COVID-19 pandemic in the prior year period when patients and wholesalers stocked up in the first quarter of 2020 only to reduce demand by about a half million dollars in the second quarter. A more normalized view of Afrezza growth is demonstrated by looking at the year-to-date growth of 21%, which normalizes the prior year COVID stocking issue, but still shows strong demand growth with Symphony reported TRX up 9%, a more favorable mix of Afrezza cartridges and price, including a 2% more favorable growth to net percentage. Please note that the change we made to our free goods program as of January 1, 2021, is paying off and helping lower our growth to net, as we do not pay wholesale fees and discounts on free product, which is now distributed directly from mankind, instead of going to the wholesale and retail channels. This will also have a beneficial impact to future product returns, as less product is sold into the distribution channel that can be returned unused. Moving to collaborations and services, revenue for the second quarter was $13.3 million versus $8.1 million for 2020, representing a 64% increase. The increase was mainly due to a change in the period for recognition of the license agreement revenue, which is now estimated to end in October of this year, the expected PDUFA date, as well as additional Tyveso DPI pre-commercialization activities agreed to with United Therapeutics in the fourth quarter of 2020 and the second quarter of 2021. In addition, when comparing to the prior year, we are recognizing revenue from our co-promotion agreement for diquidity, as well as new collaborations for technosphere formulation work. The table on our next slide shows the first and second quarters of 2021, plus June year-to-date of present gross profit and gross margin on a gap basis, and on a non-GAAP basis adjusted for the expense recorded in the second quarter for the insulin supply agreement amendment fee of $2 million. As Mike mentioned earlier, we've amended our insulin supply agreement during the second quarter of 2021 by moving approximately $10.5 million of insulin purchases out of the 21 to 23 time period to 2027 when it's better aligned with demand. Unfortunately, we had to pay a fee to accomplish this. Focusing on the second quarter, which is the first column on the left, you will see that AFRESA GAAP gross margin was 56%. But when adjusted to exclude the one-time amendment fee of $2 million, the non-GAAP AFRESA gross margin was 76%. During our first quarter earnings call, I mentioned that the first quarter GAAP AFRESA gross margin of 47%, seen in the second column, was lower than the previous quarter in 2020 because of the low amount of a Fresno manufacturing activity in that quarter, which negatively impacted the expense recognition, meaning that there was less manufacturing cost capitalized inventory on the balance sheet and more that were recognized as cost of goods sold in the income statement. With a pickup in manufacturing activity in the second quarter, which was expected, the non-GAAP of Fresno gross margin improved to 76%. It may be best to look at the last column of the table which shows the year-to-date non-GAAP gross margin of 63% to see a more normalized representation of current Afrezza gross margin, as this adjusts for the one-time amendment fee and for fluctuations in the level of manufacturing by quarter. Looking to the future, as we start to manufacture commercial-scale Tyveso DPI, we expect the Afrezza gross margin to be favorably impacted. Reviewing select second quarter expenses, let's start with R&D expense, which increased by $0.9 million, or 59%, in the second quarter of 2020, which is attributable to increased development activity related to the product pipeline, including MNKD-101, clofazamine, increased formulation activities with collaboration partners, the AFREZA dosing study completed in the second quarter, and increased AFREZA medical science liaison headcount. To help analyze the increased expenses year-over-year included in SG&A, we broke out an increase into two buckets as depicted in the pie chart on the right side of the slide. One bucket includes the impact on spending in 2020 and the onset of the COVID impact. For example, we implemented reductions in compensation, and there were lower T&E expenses due to the inability of the field force to visit physician offices. There was also increased non-cash stock compensation expense, and an increased bonus expense for expected payment of 2021 corporate objectives. The other bucket includes our increased investment behind our aggressive commercial efforts, such as marketing spend with an accelerated digital focus and our new patient reimbursement hub. During the second quarter of 2021, we restructured our debt, including renegotiating more favorable terms on the mid-cap and manned convertible debt. When terms are amended, the accounting literature makes you determine whether there has been a debt modification or a debt extinguishment. The outcome of this exercise is that the changes to the mid-cap debt were a modification, while the changes for the manned convertible note were considered a debt extinguishment for accounting purposes only. You may recall that we amended the manned convertible note to lower the interest rate from 7% to 2.5%, saving the company over $800,000 annually. When debt is extinguished for accounting purposes but still exists, like the manned convertible note, the accounting literature says that we have to record the new debt at the fair value, which was significantly higher than the face value of $18.4 million, because the convergent feature of the note was in the money. This is very complicated, and I hope that I haven't lost anybody at this point. I'll keep going. Fair value of the debt was approximately $40 million at the time of the extinguishment in April, which means that Mankind records a non-cash loss on extinguishment of debt of $22.1 million and recognizes additional paid-in capital on the balance sheet for the debt premium in the same amount. The loss on the extinguishment of debt is a non-cash loss which results in no change in the financial position of the company. We feel that this is a real head-scratcher because we restructured the debt with more favorable terms to mankind, but had to record a loss because of the increased value of the debt to the holder of the debt, not to mankind. This non-cash charge significantly impacted our net loss and net loss per share for the second quarter. On the bottom half of the slide, we have adjusted our net loss and net loss per share to show what these would have looked like without this non-cash charge. Our GAAP net loss of $35.5 million for the second quarter of 2021 becomes $13.4 million on a non-GAAP basis. And our non-GAAP loss was $0.05 per share. Now that that's confused everybody, let's go a little deeper into GAAP accounting. Last quarter I promised to shed some light on how we would be accounting for the expected manufacturing and royalty revenues associated with Tybesa DPI. This slide outlines the different revenue streams from our collaboration with United Therapeutics. Starting with the license agreement, we have been recognizing revenue on a radical basis over the expected clinical development time period, which started at contract signing in 2018, and went through the date of the expected FDA approval, which estimated date was changed from December 2021 to October 2021 this past quarter, with the acceptance of the Tyveso DPI-NDA filing by the FDA under an expedited review process. In May, we updated the development plan associated with the license agreement, and there is approximately $13 million of deferred revenue remaining as of June 30th that will be recognized as collaboration revenue in the period July through October 2021. Next on the slide, and also included in the original license agreement, is royalty revenue, which we expect to recognize on net sales of PIVASA DPI once approved by the FDA and sold by United Therapeutics. As previously disclosed, the royalty rate is in the low double digits. In May of this year, we agreed with United Therapeutics on an updated development plan, which included additional pre-commercialization activities and an expansion of our manufacturing capacity. Revenue for the pre-commercial activities will be recognized as costs are incurred between May 2021 and 2023. The revenue associated with the manufacturing expansion, which is a pass-through of costs to United Therapeutics, will be recognized once commercial product manufacturing begins and we sell product to United Therapeutics. Next on the slide is the research agreement signed in 2018, which whose associated revenues were fully recognized as of the second quarter of 2020. And finally, the commercial supply agreement, which is expected to be signed shortly, will allow mankind to recognize revenue under two different revenue streams. For product produced by United Therapeutics, we'll recognize revenue on a cost-plus basis as product is released by quality assurance to United Therapeutics. There is expected to be certain other costs which will be incurred by mankind and allowed to be invoiced to United Therapeutics as a pass-through cost with no additional margin. I know that this was a lot to digest for the quarter. With the unusual accounting for the loss and extinguishment of debt, the insulin supply agreement amendments being included in COGS, and the different revenue streams associated with the United Therapeutics Collaboration Agreement. focusing on the drivers of our business in the first half of 2021. We grew up by the net revenue 21%, revenue from collaboration and services by 38%, and total revenue by 30%, all while executing during the continuing pandemic. Our non-GAAP net loss and loss per share of adjusting for the loss on extinguishing a debt was $13.4 million, five cents per share, which were pretty much in alignment with analysts' expectations. In summer, we're executing our plan, preparing for the commercial manufacturing of Tyvesa DPI, investing in and moving our pipeline forward, and accelerating our present growth. Thank you, and I'll turn it back over to Mike for additional comments.