MannKind Corporation

Good afternoon and welcome to the Mankind Corporation third quarter 2021 earnings call. As a reminder, this call is being recorded on November 9, 2021 and will be available for playback on the Mankind Corporation website shortly after the conclusion of this call until November 23, 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 the stated expectations. For further information on the company's risk factors, please see their 10-key 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 are Chief Executive Officer Michael Castagna and Chief Financial Officer Stephen Binder. I would now like to turn the conference over to Mr. Castagna. Please go ahead, sir.

Good afternoon, everyone, and I apologize for that delay. We were having a problem with the audio and couldn't quite figure out whose end it was. So I do apologize, but we'll jump right in, and I'll try not to speak faster to catch up. So quickly, I'm going to talk about our operational highlights, where we've been, and where we're going. First, I want to thank our shareholders for the support and feedback over the last few months. Obviously, the news we received a few weeks ago was not something we expected, but we do think it's something manageable that we'll get through that I'll talk about. I also want to thank our employees who worked so hard during Q3 to ensure we are executing on all our three key priorities, Iveso, DPI production and scale, progress of our pipeline, and driving the present growth in the U.S. As you look at our revenue, we're really, really happy to see that in Q3 2021, we had $22 million in revenue, which was 45% over last year. And we look at Afrezza, we grew 34% to $9.8 million over last year. An overall year to date, 35% total revenue growth and 25% on Afrezza. We're really proud of those results and look forward to continuing to drive future growth as we go forward. In the orphan lung area, I want to talk about a couple of things. Number one, our units are collaboration. I'll talk about the CR on the next slide, but I want to let you know that we've begun commercial manufacturing and we continue to hire and expand our facility there in Danbury to handle the expected future demand coming to the base of the DCI. On the pipeline, I'm going to share some new data with you today. We had some really positive data come out in our pre-IND tox studies for inhaled clopazamine, and we plan to start phase one here in Q4. Additionally, we're just wrapping up formulation work on our TGF beta for IPF, and we're also almost near done clofazamine DPI dosing in terms of inhalation. On the endocrine area, a president experienced 16% growth year-over-year on paid prescriptions. As you may recall, we ended our free goods program in January of this year. We launched our pediatric trial in Q3. We currently are enrolling patients, and we have five sites up and running as of today. In Q3, as we ended the quarter, we weren't happy with the direction we were going, and we decided to refocus our resources here in the U.S. as we came into Q4 by removing any distractions related to that venue. Number one, we exited AMSL in Australia, and we ceased to co-promote cyclidity effective in Q4. We believe our resources are best focused on these top three priorities, which is driving U.S. to the pipeline and UT collaborations. We will continue to look for potentially global partners for helping our ex-U.S. strategy going forward, but our best short-term impact is to drive faster growth here in the U.S., which will ensure our success worldwide. On the liquidity front, we're really happy today to close the sale leaseback for $102 million in proceeds, on top of the $181 million we had at the end of September. I think as you see towards the end of my discussion today, we are well positioned for future growth, and that capital will be used for great purposes. On tibetanol DPI, we do expect to be approved, hopefully at the United Therapeutics, by the summer of 2022 or earlier. A complete response was received noting a single deficiency on an open-inspective tissue at a third-party facility that performs analytical testing on a triposomal drug substance. This deficiency had absolutely nothing to do with triposomal or our tibetanol DPI product. The great news is we did get direct labeling, and we could see that we have the same indications as tibetanol inhalation solution, for PH and ILD, and we didn't have any contraindications or box warnings in the label that we've seen. The citizen's petition was not completed, but it was not cited as a deficiency in the CRL. Users focused on resolving this issue and getting approval of ASAP, which no later than the summer of 22 or earlier. Mankind, we are focused on manufacturing pre-launch products and scaling up our factories for future indications. As we look at President in the U.S., we had a very strong Q2, but we met with some headwinds early in Q3 as we focused on Delta cars and COVID to shut down offices again. We also had a distraction trying to get by liquidity off the ground, which wasn't going the direction everyone wanted. That caused us to refocus our energy in Q4 as we got ready to end the quarter. Number one, the President's pediatric study is scaling for enrollment as we now get more cycling boards. Number two, we've hired a primary care pilot in the southeast. That will be about 30 FTEs between the sales force and the commercial team running it, and that's on track for a January launch. The third focus is launching a consignment model with the top three pharmacy chains, and what this means is instead of having middlemen involved in our inventory chain of command, we will now have inventory stockpiled with the third-party chain, which will improve patient access and ultimately decrease the cost along the value chain. Fourth, we'll be launching a pilot to improve patient retention during the first 12 weeks of treatment. We expect this to kick off in December. And we just launched something called the new Afreza Challenge with CGM called Seeing is Believing. And this has, first focus is about 160 doctors who've never written Afreza. And we can see in the first 10 days, we've had about 30% of these doctors write their first prescription for Afreza. And we can see in Afreza Assist, our reimbursement hub, our new prescriptions come in at around 45% in the latest four weeks versus the Q3 average. So we see early signs of Q4 continue to turn momentum from what we saw as we exited Q3. One thing I want to share with you is a new data set that just got presented this past week, and it will be an oral presentation on Thursday with Dr. Kevin Kiserman. We're really focused on driving to be the mealtime control company and have been discussing with the FDA how to best update our label to better reflect the dosing upfront with the presence. We were recently informed by the FDA and accepted into their MIDD pilot program, which is a model-informed drug development program. And what we hope that does is potentially help us understand how we can potentially change the label so that the conversion chart on our label better reflects enough front dose that will give better glycemic control. That's the data you can see in this trial here. This is the dosing we're using in kids, which is basically a 2X injectable dose rounded down to the nearest to present cartridge. We're trying to really streamline and simplify the effective dose conversion for new patient starts on Afrezza. And what you can see in this chart on the left is dose one is what's on our label. And we know from history, we hear a lot of people say they didn't get adequate control when they switched from injectable insulin. And what you can see is when you use our new formula of 2X round down from the nearest dose on Afrezza, for example, if you run five, you multiply by two, that would be 10, round it down to the nearest cartridge of T. And that's what you see here. is a 2X round-down dose is almost a 50 milligram per deciliter by the end of two hours. That would translate to about a 1% to 2% A1C reduction if you're able to maintain that for 24 hours. And this is consistent with the newest data we generate on a present where we show switching from sub-Q to a present does improve A1C and just changing nothing else at all besides your insulin. Now I'm going to turn it over to Steve, and I'll close off talking about the pipelines.

Thanks, Mike, and good afternoon. We're pleased to review select third quarter and year-to-date 2021 financial results. Please supplement this call by reading the condensed consolidated financial statement and DNA container of 10Q, which was filed with the SEC this afternoon. Let's start out by looking at revenues for the third quarter of 2021. The net revenue was $9.8 million versus $7.3 million in 2020, a growth rate of 34%. The components of growth include a demand increase consisting of Symphony reported paid TRX growth of 16% and price, including a more favorable growth to net percentage of 40% versus 41% in 2020. TRX for the third quarter of 2021 and 2020 were both adversely impacted by the COVID pandemic. Year-to-date growth at 25% was driven by Symphony reported paid TRX growth of 11%, a more favorable mix of present cartridges, and price, including a 2% or favorable close to net percentage. Moving to collaboration services, revenue for the second quarter was $12.5 million versus $8.1 million for 2020, representing a 54% increase. The increase was mainly due to additional contracted activities associated with our UT collaboration, and a decrease in the recognition period used for the RMD services and license performance obligation. The year-to-date revenue from collaborations and services goes 44% to $35.1 million and consists mainly of revenue from our collaboration with United Therapeutics in the amount of $33.5 million. The graph on our next slide shows the quarterly and September year-to-date of Fresno Growth's margin on a gap basis and on a non-GAAP basis for September year-to-date, which is adjusted to exclude the expense recorded in the second quarter for the insulin supply agreement amendment fee of $2 million. Our gross margin has been increasing each quarter during 2021 and stands at 55% year-to-date on a GAAP basis and 62% on a non-GAAP basis, which excludes the amendment fee. We continue to have excess manufacturing capacity for AFREZA, which impacts the cost of goods recognized, and our gross margin can fluctuate significantly quarter to quarter, depending on the timing of the manufacturing of bulk and finished product. So I believe looking at the year-to-date numbers provides a better perspective on tracking where our margin is running for current and present performance. Looking to the future, we expect to have favorable impacts to our gross margin as you start to manufacture commercial-scale Tybeso DPI's which absorbs overhead costs and makes our plant more efficient, as well as anticipate margin expansion from growing of further revenues. This slide is an update to the information presented during the second quarter earnings fall and outlines the different performance obligations with United Therapeutics and how we are recognizing revenue associated with each performance obligation as of September 2021. Starting with the R&D services, We have been recognizing revenue on a ratable basis over the expected clinical development time period for Travesa DPI, which started in 2018 through the PDUFA date in October 2021, when our performance obligation was substantially completed. We recognize $9.9 million in the third quarter and $28.4 million year-to-date. There is about $1.5 million of deferred revenue associated with this performance obligation on our balance sheet on September 30th, that we anticipate being recognized in the fourth quarter. The technology license relates to royalty revenue, which we expect to recognize on net sales of Pibeso DPI once approved by the FDA and sold by United Therapeutics. As previously disclosed, the royalty rate is in the low single digits, I'm sorry, low double digits, and we plan to be more specific once Pibeso DPI is approved by the FDA. The next performance obligation is manufacturing services, which is associated with the commercial supply agreement signed in August and then amended in October, which extended the agreement from five to ten years. Revenue will be recognized as we sell commercial products to United Therapeutics. As of September 30th, we had begun manufacturing commercial product but had not begun to sell product to UT. We expect to begin selling product to UT in the fourth quarter. The next performance obligation is pre-commercialization services, which were recognized between the second and third quarter of 2021 in the amount of $0.8 million year-to-date. The revenue does not have a profit margin and represents costs incurred by mankind when delivering the agreed-upon services. And lastly, the performance obligation for Tybeso DPI Next Generation R&D, which is being recognized on a percentage completion method, in the second quarter of 2021 and the first quarter of 2022. This revenue also does not have a profit margin and represents costs incurred by mankind when delivering the agreed upon activities. We recognize $2.4 million and $4.3 million in the third quarter and September year-to-date periods respectively. The accounting associated with our United Therapies collaboration is certainly confusing and I hope I was able to shed some light and to help you understand this area a little better. If you strip away the technical accounting mumbo-jumbo, our collaboration with UT yielded over $100 million in upfront and milestone revenues, which we recognized over a three-year period. We have agreed to perform additional work associated with Tyvesa DPI, for which we are being compensated by UT, and our commercial manufacturing effort has started producing product for which we expect to begin selling to UT in the fourth quarter. Let me conclude with some final comments on our financial resources and liquidity. Today, we are a financially stronger company than we have been over the past five plus years. We ended third quarter with approximately $180 million in cash and investments and added approximately $100 million to our cash and investments balance with the closing of the non-dilutive sale leaseback of our Danbury manufacturing facility yesterday. We are now in good shape to fund our growing pipeline, which Mike will update you momentarily. make targeted investments behind Afreza, and look for business development deals that are complementary to our business, which can provide higher rates of return for our shareholders. With this, I'll turn it back over to Mike for some additional comments.