This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk05: good afternoon and welcome to the mankind corporation second quarter 2022 earnings call as a reminder this call is being recorded in august 9 2022 and will be available for playback on the mankind corporation website shortly after the conclusion of this call until august 23rd 2022 this call will contain forward-looking statements such forward-looking statements are subject to risk and certainty which should cause actual results to differ materially from the stated expectations. For further information on the company's risk factors, you see their 10Q report filed with Securities and Exchange Commission this afternoon. The earnings released and the slides prepared for this presentation. Joining us today from Mankind, our Chief Executive Officer, Michael Castaña, and Chief Financial Officer, Steven Binder. I would now like to turn the conference over to Mr. Castaña. Please go ahead, sir.
spk07: Good afternoon, everyone, and thank you for listening in. Today, I'll give a quick update on our performance for the quarter. Steve will go through the financials, and then I'll close on the pipeline and company updates. As you can see, this is the quarter we've all been waiting for. We're super excited about Mankind and the growth story that it's becoming. Overall, we have 58% quarter-over-quarter growth, and we have several new sources of revenue. As you all know, we closed Vigo in May. We booked sales starting in June. That product is off to a great start. I'll give a little bit more details on that. We also were able to book a portion of the DPI commercial manufacturing revenue, which Steve will go into more at $4.7 million, and royalties, which will not be broken out as a percentage, but more as a dollar value as we go forward, about $300,000. And then you can see collaboration services other by $1.2 million. You may recall previous years and quarters, A lot of that was the amortization of the payments that we received from UT over the time period of that contract. So I think it's good to look quarter to quarter now as we look at the way the revenue is looking given that contract ended last October. Total revenues for the quarter were up 58% from Q1. And we think that as you continue to look out, we'll see more royalties, more manufacturing, more present, more ego. And so we really feel this is the foundation of the growth story that we've been working towards over the past several years. So a couple highlights here on the orphan lung side. As you all know by now, the FDA approved our Tyvesa DPI for PAH and ILD, and then we began manufacturing and commercial product sales with UP in June with royalties recognized. You will notice as Steve talks that some of that inventory that was built in June is hung up in the balance sheet and will carry over to the front next quarter. On the pipeline, clothazamine completed the SAD and MAD trials, single sending dose and multiple sending dose. I will have those top line results here shortly, and we'll release those publicly at the appropriate time. The other two pipeline assets are starting to move forward is the tentative Mankind 201, as well as Mankind 501, THF beta outside. And that development's progressing. I'll give a few updates on these at the end of this call today. On the endocrine side, we saw 7% growth in Afrezis from 2021. We saw TRX grow 12% from Q1 to Q2. Unfortunately, we did do a primary care pilot for the last six to nine months, And that did not produce the results we expected relative to the expense. And so we terminated that at the end of June. And so that expense will not be going forward much further than July. So that's some of what we'll see as we go forward in terms of expense reduction on the PCP pilot. On the inhaled lung pediatric trial, that's going as expected. We added a few new sites in the last quarter, as well as about 80 patients now. And we're on track to hit our goals between now and the end of the year. And we also have the Afrezza-Basal Combination Study, ABC. And that's the one looking at maintaining a pump, adding a Fresa to a pump, or switching off a pump to a Treceva Fresa. And that's on track to give us results in early Q4. It's a small study, but I think will be very important results to give us opportunities for 2023 and beyond. And on Vigo, we'll give a little more details there, but we had booked net revenue of $2.1 million just for the month. Zealand will book the revenue for April and May. And from a liquidity perspective, as we look at it in the future, you can see four sources of revenue. Additionally, man-to-man group converted $10 million in debt in Q2, so now we have $10 million less in debt, and we'll capitalize as we go forward. That does include some accrued interest that will be taken off the principal. As we head to DPI, you can see here the final packaging, the FedEx truck leaving our Denver facility. We are at 24-7 manufacturing. We continue to look for ways to drive more efficiency in the manufacturing process to get more cartridges per hour as we can. And we are also broke ground on the expansion, as you all may or may not know. UT is pursuing two studies called the TETON and the PERFECT study, which are much larger patient populations than PH and ILD. And so we had built the original plan a couple years ago. That was to handle the first two indications at launch. We always knew we'd have to expand. So that broke ground here in the last quarter in Danbury. One of the big shifts we made for Mankind and Afrezza in the first quarter, specifically February, was really starting to look at market share, and in particular, new prescription market share relative to the ultra-acting class. And the reason is that class consists of Lumgev, C-Ops, and Afrezza. It's been growing, and more and more doctors continue to adopt ultra-acting insulins. While I don't necessarily believe Lungesic will be able to qualify, the reason doctors are writing those is because they believe they're faster, and I think their clinical data would say otherwise. The fact is that Fresa is competing indirectly or directly against those two launches, and we felt it was good to start measuring our market share and incentivizing our corporate executive management team, all of our employees, as well as the frontline sales reps. And you can see that that had a direct impact on our market share growth over the last four or five months here, as we've closed out the quarter. So we did hit a low of 12, and we continued to grow through March all the way to June. And additionally, on the right side here, you can also see these are prescriptions that don't show up in Symphony, but we have a free goods program, a cash pay program, and it tries to assist with your referrals coming in, which ultimately become the funnel for new patients. And you can see on an average quarterly basis and weekly basis that those have gone up from 122 to 223 over the last couple quarters here. So that's also exciting. That kind of gives us the bonus of what as we go forward. When you look at new prescriptions, we delivered 14% sequential NRX growth, which will lead you to the 12% TRX growth. So we need our NRXs to grow faster than TRXs in order to feel good about the next quarter as we look out. We also amplified our clinical message with healthcare providers. We had a major presence at ADA, ACE, and ENDO. I was pretty impressive when I attended ADA. Typically, you'd walk in and AstraZeneca and Novo Nordisk and Lilly had the biggest booths you couldn't get in without walking through them. And this year, Mankind was right up front and one of the bigger booths. And the large people who've generally been committed to diabetes are some of the smaller or no booths. And it was really a technology conference. And that's what ADA was focused on. So I think the team really tried to showcase Mankind here because it's the first conference that people can come back to live. back in June with ADA. So we'll continue to see, focus on the remaining impact from the conferences and the investments that the marketing team made there. I want to talk a little bit about Vigo because we haven't had the chance since we closed that deal to have a deep dialogue on it. We really want to strengthen our commitment to mealtime solutions when it comes to running our endocrine business. We have about 60 sales reps, and when they go in, if the doctor doesn't want to write a Fresa, of which we see a large majority of our customers after six years still not writing in a Fresa prescription, it's not efficient. And so Vigo is a device we've watched many years, and they were doing at one time almost 2,500 prescriptions a week. And, you know, that was a lot more prescriptions than Afreza at that time. And when we look at it now, it's been on a decline, but they had a lot of utilization and a lot of prescribers that loved the product. Those aren't necessarily prescribers who prescribed Afreza or tried Afreza. And so we thought, you know, being able to build more efficiency in our sales force, being able to make mankind more committed to real-time solutions is really something that can differentiate us as a company. There really is no diabetes company today focused on mealtime solutions. They're all focused on cranial control or devices and trying to get insulin on the go. So we felt this was a very nice synergy with our portfolio. And when you look at the purchase price below, $15 million, that included all the IP, $11 million of inventory, and $3 million of equipment. So if you add up those two lines, we basically got Vivo for a net $1 million. So this was a good investment of shareholder money. we will return we will get our return on that investment and hopefully grow and provide more solutions to the diabetes space than we ever had and we expect first year revenue to be 18 to 22 million and accretive in 2023 and that's 12 months a year not necessarily the rest of this year uh commercial infrastructure we've hired an additional 15 sales force as well as a leader to lead the vivo business and a medical person uh in addition to the manufacturing people so this did increase our headcount but all that is in our expectations And overall, we have the former Zeeland employees who joined us up in Boston. We're outside Boston Marvell, who are continuing to run the supply chain and manufacturing network. So we're very excited about Vigo. I think you can see in the first quarter it looks very good. When you look at the next slide here, the big thing was about stabilization. This has been on a 15-month decline, mainly because they stopped promoting it back in March of 21. We were very happy to be able to get the people on board and start to stabilize that decline in Q2. Hopefully, as we look in Q3, we can start to turn that from negative to a positive growth. I would say the leading indicator of NRXs and the NRX ratio over TRXs is indicating that we are starting to make impact. We know the prescribers are excited to have Beagle in Mankind and really can't wait to get it in the hands of the rest of our sales force. Right now, we're only promoting it through those 15 reps. Those are the top reps in the top centers that probably cover 50% of the units. And to my earlier comment on prescriptions and coverage, you can see now in a given month we have almost 9,000 patients filling a prescription for a Mankind product. And that gives us about 2% market share of all rapid-acting scripts. And so that's not just ultra-acting, that's all rapid-acting, including Novolog, Humalog. And that gives us a reason to show up to the doctor's offices and be expected to continue to grow that share over the coming years and also reach nurse practitioners and PAs who are heavy users of BeGo and also heavy prescribers of insulin. So we feel like this is a really good opportunity to increase our share of voice, increase our commitment to diabetes and the endocrinogenesis, and give our sales force another tool to help provide solutions to patients who aren't in control for the most part. I'm going to stop there and turn it over to Steve. Thank you for listening.
spk00: Thanks, Mike, and good afternoon. I'm pleased to review select second quarter and June year-to-date financial results. Please supplement this call by reading the condensed consolidated financial statements in MD&A contained in our 10Q, which was filed with the SEC this afternoon. As Mike pointed out, this is the first quarter for three new sources of revenue for mankind. With the approval of Tyveso DPI in May and the subsequent launch by United Therapeutics, we have begun to recognize manufacturing revenue and royalties in our second quarter P&L. In addition, with the purchase of Vigo effective May 31st, we've recorded net revenue for the month of June. This slide shows revenue for the second quarter in the left table and June year-to-date revenues in the right table. Looking at revenues for the second quarter of 2022, Afrezza net revenue was $10.6 million versus $10 million in 2021, a growth rate of 7%. The increase was mainly driven by price, including a more favorable gross-to-net percentage. Growth in underlying paid TRX demand of plus 8% was substantially offset by a decrease in channel inventory. Year-to-date of Fresa growth came in at plus 13%, which was mainly due to favorable price, including a more favorable growth to net percentage, higher underlying patient demand, and favorable cartridge mix. Next is our net revenue for Vigo. the newly acquired wearable insulin delivery device, where we had $2.1 million in net revenue for the month of June. We expect Vigo net revenue for the 12 months post-acquisition to be in the range of $18 to $22 million. Moving to collaboration and services, revenue for the second quarter was $5.9 million versus $13.3 million for 2021. The second quarter includes the sale of Tyveso DPI commercial product to UT. The decrease in revenue from the second quarter of 2021 was mainly due to the recognition in the prior year of amortization of United Therapeutics milestone payments. I will dive more deeply into the UT manufacturing revenue and deferred revenue on our next slide. The June year-to-date revenue of $8 million is mainly lower because of the prior year UT milestone amortization as well. Also new for mankind, we recognize $300,000 of royalty is associated with the sale of Tyveso DPI by United Therapeutics in the second quarter based on a low double-digit royalty. We had previously communicated that we would provide the exact royalty rate upon approval of Tyveso DPI, but we have agreed with United Therapeutics to keep the royalty rate confidential for competitive reasons. The next slide breaks down the collaboration services revenue that was discussed on the prior slide, but we also added the associated deferred revenue, which sits on the balance sheet. The UT associated revenue includes manufacturing services and, additionally, next-gen R&D services, which are mostly pass-through costs. For the second quarter, we recorded collaboration services revenue associated with UT of $5.4 million, including manufacturing services revenue of 4.7 million, and we deferred 4.1 million of revenue to the balance sheet in the second quarter, of which approximately half is associated with inventory that sits on our balance sheet and is expected to be sold to UT in the third quarter when we will recognize the associated deferred revenue to income. Beginning in the second quarter, we have started to recognize prior period deferred revenue for manufacturing services and expect to do so throughout the life of the manufacturing contract with UT, which runs through 2031. There was a total of $29.8 million of deferred revenue associated with UT on our balance sheet as of June 30th, 2022. Now let's look at the profitability of Afreza and Vigo. Afreza's gross margin increased from 56% in the second quarter of 2021 to 68% in the second quarter of 2022, and the gross profit associated with AFREZA increased 31% to $7.3 million. The increase in the second quarter gross margin versus 2021 was due to an increase in AFREZA sales, coupled with a decrease in cost of goods sold, mainly due to a $2 million fee incurred from the amendment over insulin supply agreement in the second quarter of 2021. When looking at the profitability for the first half of 2022, AFREZA had a gross margin of 72%, and gross profit of $14.8 million, driven by higher sales and lower cost of goods sold. There will always be some variability in a Fresno gross margin between quarters due to the timing of manufacturing spend and activity, as we are not at maximum production capacity for the product. The far right table shows Vigo gross margin of 40%, which is about where we expected the margin for this medical device to be, based on a review of the seller's financial information. Perspectively, we will focus on improving the margin for this product. Let me conclude with some final comments about liquidity and performance. We continue to transform the balance sheet. In the second quarter, there was a reduction of $10 million of debt that was converted to equity by the man group, resulting in reduced debt and interest expense. We spent $15 million to purchase Vigo, including inventory and equipment valued at approximately $14 million, which infers that we got a bargain purchase price. With rising interest rates, we are well-positioned with very little interest rate risk due to the low fixed rate for most of our debt. For our one floating rate loan with mid-cap, we anticipated rising interest rates and negotiated an interest rate cap with a maximum exposure of less than 1% above the current rate. Also associated with the mid-cap loan, we did not exercise our right to borrow up to $60 million under tranche three which was accessible to us once Tyveso DPI was approved by the FDA and was available until June 30th. Operationally, we are showing continued progress in generating sales growth and gross profit for Afreza, which turned Afreza into a money-making brand. We have added Vigo to the endocrine business unit, which will expand our footprint with insulin-prescribing physicians, as well as help synergize our cost base and infrastructure. Our collaboration with UT is strong and has a ton of potential. We are producing tight base of DPI at a 24 by 7 basis and are seeing increased efficiency in our manufacturing output while recognizing manufacturing revenue and royalties for the first time during the second quarter. We are excited about our future as we now have four growing sources of revenue in addition to an early stage but established product pipeline. Thank you, and I'll turn it back over to Mike for additional comments.
spk07: Thank you, Steve, and more importantly, thank you for keeping track of all the complexities we've established over the last few years here. So I'm super excited about the pipeline. This is something that, you know, these are decisions we've made years ago, and every year they take a little bit of time, but they get closer and closer to fruition. And so just like Savisa, we made that decision in 2017. We did the partnership with UT in 2018 and expected an approval almost three years later. It took a little longer, but still got approved. And now that's going to be a major road driver for mankind as we go forward in value creator. And I'm not going to go through the top half. That's the Fresa, and I'll talk about some of the Fresa stuff in a second. But I want to focus really on the bottom half, which is really around Mankind 101. That wrapped up, and that's going to quickly go into Phase 2.3 after meeting with the FDA. And then the Tetanib is early, but that will move very quickly, too, once we get through the FDA. And so you start to see an emerging pipeline of that can drive value for years to come. And this is not something that we currently see a lot of value on when we talk to investors, because the first milestone for a lot of people who invested in our stock over the last two years has been getting Tyveso DPI across the finish line. So as we continue to grow, as we continue to grow Vigo, we continue to see Tyveso contribute to mankind, I think you're going to see a lot more activity around the pipeline and readouts around the pipeline on safety and some of the animal models we're doing. And that's going to be a very exciting emerging story from this point forward. And then finally, we've got these two other programs, the cannabidiol and the small molecule from Tocin. The cannabidiol dosed their first patients, I think, last quarter, and so that's another exciting one that's now progressing there at Receptive Life Sciences, which after many years took a long time to get there, but now they're finally on track to move forward with the FDA support. On the pipeline side, I've already talked about the pediatric and the prezabasal. Those are both in mind. We will have that basal combo study results here probably early in Q4, I guess. And then on the pipeline, clofazamine completed this. We expect that data readout. And then the tetanib, we have completed the animal PKPD. I don't know if we'll put a release out on that, but obviously we feel good about what we saw. And then this program will continue to progress here in Q3 and beyond. And the last one, which is a sleeper program, TGF-beta is a known pathway that works. This class of drugs has had multiple toxicities over 20 years. But we believe this molecule is unique in that it has a short half-life, and we're able to dose it through our inhaled platform at roughly one-tenth the dose that it was previously dosed with when it was at Pfizer. And so that animal PK we got in Q2, we're doing probably dynamic work here in Q3, and we'll continue to progress the TGS beta program and endotoxic studies, which will be really important at some point in the near future. So overall, this is probably an emerging pipeline because most companies our size did not have the breadth of revenue streams coming in, as well as the robust pipeline that we are continuing to develop and hire for around our teams. When you look at the milestones we laid out back in Q1, we continue to hit all those milestones that we put out at the beginning of the year. Some were anticipated, like the Beagle acquisition. And in Q2, we also completed enrollment in ABC studies, so that we can see the study will be completed in Q4. Here in Q3, we'll have the phase one readout next month. and the animal PKPD completed, so Q3 is relatively on track. And by the end of the year, we have a lot of FDA activity happening, and the teams are working really, really hard to hit all those milestones, but there's a lot coming all at once. So overall, the company is in great shape. You can see, as we go forward, I think the real question at the end of the day is, are we on the path to profitability? And by the fact, as Steve stated, we did not take the $60 million Toronto loan because we don't see a need for additional capital. We can manage our expense base You can see Tyveso growing. We can see how the pipeline is going to come in and when those expenses build. And we also see where expenses are coming down, such as the PCP pilot or the pediatric study finishing up in the near future. So overall, we feel very good about where the company is from a cash maintenance perspective. And when you look over these milestones on the left side, what's investing, what's income generating, and then you look at the next five-year plan from 25 to 30, you can see a company that really does have multiple revenue streams growing at significant rates for the next eight years. That doesn't mean we die in 2030, but there's other things we'll be doing right now to keep us going beyond 2030. But at this point, you can see a nice, bright future, multiple levers, pipeline coming together, and a very, very exciting future where we're pretty much near 400 employees now and growing. And so that just creates a whole new company, a whole new culture, and also a new shareholder base. And so we continue to see new shareholders come in. Our institutional investors continue to increase. We continue to take new tours of Danbury and introduce people to the company. So overall, the company is in great shape, and I just want to say thank you to everyone's support. We're super excited to finally get Tyveso across the finish line, and that really enables the rest of the company to continue to function in an optimal way. So thank you to UT, who has been an incredible partner throughout this journey and a huge supporter of mankind, and all of our shareholders have been with us for some time. So I'm going to stop there and open up to questions.
spk05: Thank you so much. Ladies and gentlemen, to ask a question, you will need to press star one, one on your telephone keypad. And please stand by while we compile the Q&A roster. And our first question comes from the line of Gregory Renza from RBC Capital Markets. Please go ahead.
spk04: I'm for Greg. Congrats on the quarter and thanks for taking our questions. Maybe just a couple on Tyveso GPI. Could you provide some clarity regarding the agreement with UT regarding the manufacturing margin? Understanding you have to keep the royalty rate confidential, but just wondering about the manufacturing margin there. And then secondly, just wondering, you know, how has the macro environment regarding inflation, labor, and supply shortages may have impacted your manufacturing capabilities? Thank you.
spk07: I think the first one on UT manufacturing margins, we're not going to provide that clarity yet. I think let's get full manufacturing for a full quarter or two and we'll continue to discuss internally whether or not we provide that particular markup on those manufacturing revenues that are coming in. It was too early in Q2 because it wasn't a full quarter and it was a partial quarter of production. So we don't want to create any confusion. That's why you'll see much there. The second question, Steve, I think you I didn't capture, but I think it's around inflation.
spk00: So let me touch on that. So this year, we are seeing a mix of some rising costs, in particular around energy. But we're also seeing some savings as we increase our volumes of purchases of certain supplies that go into making our products that drive the cost per unit down. So this year, we don't see a significant increase in costs. I think next year you probably will see a little bit of an increase, but so far nothing significant or material to our balance sheet or our P&L at this point in time.
spk04: Great. Thank you very much.
spk07: And closing on that, I think the only area we continue to see is the people side. We've been very fortunate to not have a lot of turnover in our company, a lot of excitement amongst our employees. They're all shareholders, so they're all committed to our journey and what we're doing. So I think that's probably the area that we see a lot of inflation across society, but we've kind of tried to manage that through efficiencies and delayed hiring and things like that to make sure we're not incurring additional expenses unanticipated this year.
spk05: All right. Thank you so much. Next question. And your next question comes from the random folks from Scantor 512. Please go ahead.
spk03: All right, thanks for the questions and congratulations on all the progress. Maybe two just from me. Maybe just, Steve, just any commentary on channel and inventory in the channel for a Fraser? Where does that sit now? Is it at a normalized level at the end of the second quarter? And then secondly, how should we think about product priority going forward just in terms of Fraser versus Vigo and kind of maybe where you can move revenue quite quickly. Just any commentary in terms of those two products and the REPS bags going forward? Thank you.
spk00: Sure. Let me take the mic. I'll take the channel and then I'll drop it off to you for the revenue. So, yeah, the channel inventory moves around as much as the half a million dollars quarter to quarter. It's not up to us. The wholesalers are the ones who are managing their own inventory levels. So we see it, it happens some quarters, not every quarter. Is it normalized now? It's in the right ballpark. I don't see material changes happening. Yeah, we had an offset this quarter that, I'll say offset our growth in patient TRX increase. It was unfortunate, but we did have an 8% growth in the prior year in paid TRXs, but I don't think, again, it's going to be material quarter-to-quarter, but it will fluctuate.
spk07: Another thing I'll add, Steve, is we did see a 13% decrease in days on hand, so they did drop a few days of inventory, so that did impact Q2 a little bit. If you normalize for inventory, there'd be a slight higher sales on a Fresa. I think your second question, Brandon, was how do we think about Vigo versus Fresa as we think about the future? Is that
spk03: Correct, yes.
spk07: Yeah. So, you know, there's a very big difference in margin to the company as well as how many scripts it takes to break even on one versus the other product. And we knew that when we purchased it. But I think when you combine, you know, it's really about trying to get doctors to try something different because we know 80% of people on mealtime insulin are not a goal, and yet they're just not progressing these patients to better solutions. And so that's really our focus is how do we start to at least let the reps close those doctors. If they're not going to write a Fresno, they can write Beagle. If they're not going to write Beagle, they can write a Fresno. But we really need to do something different, number one. And more importantly, offer patient choice. I think after six years of us promoting this, we're just finishing up research right now. And what we're hearing is, you know, the patients are asking for a Fresno. The doctors aren't offering it. And I think we've got to really shift that mindset going into next year about patient choice. and giving the patient some right around that. And I think that'll be really important as we go forward when it comes to Afrezza and Vigo, for that matter, is that let the patient pick, especially type 2s, you know, there's so many of them. What do they want best to manage their lifestyle and their mealtime control? And so we'll continue to watch. We don't expect to cannibalize one product for the other. And that's why I want to remind you guys to see we don't have 98% of patients on a Mankind product. And that's really the focus of how do we bring more of those patients into our portfolio and our families. And so with Vigo now, for example, we can add a nurse trainer in certain markets because there's enough volume to support, you know, a nurse trainer keeps them busy enough. That's not always been the case when you add just a presence. So I think as we go into the end of this year, going into 23, we're just starting to talk about how do we best maximize that impact? How do we best support the sales force so they can maximize their effect? And I think we'll see always a dedicated Vigo sales force because these are the top accounts, top reps, top experience of Vigo. How do we integrate? What does that look like? And do we have overlapping accounts or separate accounts? And all that works just starting. So I wouldn't give you much guidance until we probably get to the next quarter. I think we'll have it locked down.
spk03: Great. Thanks very much. And congratulations again. Thank you.
spk05: Thank you so much. Your next question comes from the line of Thomas Smith from SVB Securities. Please go ahead and ask your question.
spk02: Hey, guys. Good afternoon. Thanks for taking the questions, and congrats on the progress. Just on Tyveso DPI, can you comment on kind of the early days supply chain as you guys manufactured the drug product? Any challenges you see on the supply chain side of things here as ET gets out there and launches DPI into the market?
spk07: Not right now. Fortunately, we had some time to build up some inventories while they were launching. I don't know how much you know about the pulmonary market, but basically it takes two to four weeks usually to start a patient between getting them started, getting the insurance done, getting the forms in, getting the patient trained properly. These are lifelong treatments usually, so that process is on UT's side. They could see every week the referrals coming in. I think they said on their earnings call, the initial launch was really about conversion. So those people on 48, 64 micrograms converting over one-to-one. And then the next part was the titration pack, which launched in July, and that's going after the naive patient population. So how do you start to see a naive bucket come in next? And then later in the fall will be the next packaging. So UT has a multi-view of the world of how they're launching this and what they're doing. So we don't expect any supply constraints because everything's past validation, everything's on track. And we don't see issues here. We've got enough inventory built that there shouldn't be any stock out or how fast it goes. We should be in a good spot. And then the second part, which you may not realize, is we're actually the distributor. So we also ship it to the pharmacies every week when those orders come in. And that process is going smoothly as well. That's another area we worry about. Hiccups is the first time we were doing something like that. But everything's built. We've got a big, large storage refrigerator. And trucks come every week. And we're very excited about it.
spk02: Okay, great. And just a couple on Vigo. Appreciate all the color on the acquisition and the strategy. Can you just help us understand how you're thinking about the longer-term revenue potential here? And then can you also help us understand how you're thinking about the cost structure a little bit? Are you planning to make additional investments here on manufacturing? And I guess help us think a little bit about the longer-term gross and operating margin profile and how that compares versus a Fresa.
spk07: Yeah. I'll say on the Vigo device, you know, they've lost half their volume roughly over the last two years. And that's obviously hurt the margins of that product. And so I think that's one of the things we'll be looking at is as volumes start increasing, how do those margins improve and to what extent And is there anything we can do to improve them even further? At this point, we don't have plans to add any additional cost. There's enough production there to handle a lot more volume. Now, if we decide to move production or make it more efficient or automated, that's a different story. But we just got the product less than 60 days ago, roughly. So I think there's still a lot to learn. But the team there is doing a great job managing the supply chain of Vigo. Think about they're making almost 3 million Vigos a year. So that's maybe more than that by now. So there's a lot of device production that happens when we go into the marketplace, and it's a pretty complex supply chain. So I think it's well managed. We'll continue to look at it. We want to be comfortable that it's at least stable in the short term, and then we'll look at ways that maybe volume drives it, maybe automation drives it. But we have a good team at Mankind, as well as a former Zillow team, that really understands device manufacturing, device scale-up. So I think that's something we'll look at. On the long-term expense-based overall revenue, I do think Vigo will show some growth in the near term. I think there's a lot of pent-up demand. There's a lot of people who thought that it was going away. So I think you'll see that come back a little bit faster than one would expect. We'll see in the coming months how that looks. The noise on the street, at least, is very positive. On the expense-based, we expect to pretty much manage our expense-based tightly. We're not looking to increase our cash burn as it comes to Fred's and Vigo combined. We're looking to build efficiencies as we go. We see ways to grow faster. We are welcoming those opportunities from the marketing and sales team to do that. But as you know, we've tried so many different things over the years. We really want to see productivity out of the existing investments we're making before we add more. So that's how we're thinking about it. But if we see something that's growing or an area that's growing and we can replicate that nationally, we'll do it in a heartbeat. But at this point, we're buying the brands to cash flow break even and ultimately cash flow positivity as we look at 23 and beyond.
spk01: Okay, got it. That makes sense. Great. Thanks, guys.
spk05: Thank you so much. And our last question comes from the line of Steve Vickman from Offenheimer and Company. Please go ahead and ask your question.
spk06: Hey, guys. Congrats on the quarter. This is Amiran for Steve. And I just had a question around the pump switch trial. And just to be clear, were you guys expecting to get the data in the second half of this year? And then can you remind, and as a follow up to that, can you just remind us what your goals are once you have the data on hand? Thank you.
spk07: Yeah. Yes, we always expect, it's a 12-week trial, it's only 28 patients that are randomized, so we actually went a couple above just to make sure we hit our end points of 25 patients. And so, you know, that randomized, you know, I think the surprise for us was how quickly that enrolled. Usually these things take a little longer, but it's a small trial, very manageable, two sites, and those two sites did an incredible job in about 45 to 60 days. They completed enrollment, and so therefore we'll get those results much faster as if everyone's enrolled just multiplied by three months and we should be able to get those results roughly in September October time frame and then we have not yet should we get the results and then do they come out in a late break or somewhere do we come out at ATTD or ADA next year but we'll decide at the appropriate time to put out information on those results when they come if you know this market the entire market is all about insulin pumps and type ones and And no one's really looking to run a switch strategy away from insulin pumps or adding a fred in a multitude of ways on top of insulin pumps. So this is a pretty groundbreaking study, albeit small. It's going to give us some really, really important insights to think about as we go into 2023 and beyond. That would really help shape our strategy to the previous question, what do you do from investments? If we get a superior result, then that's one thing. If you get an equal result, that's a different strategy. If you get a suboptimal result, that's another strategy. Our overall goal is change in A1C, and the working assumption is no difference between the control arm and the two other arms. So if we see an improvement in hypo, improvement in timing range, or improvement in A1C, then that would be the upside scenarios that we're looking for. But if we can demonstrate that people can maintain A1C control and safety by switching off a pump, I think the market does not believe that's possible, and so that's something we'll be looking at very closely.
spk01: Thank you. Thank you so much.
spk05: Yes, we don't have any questions right now.
spk07: Okay. Okay. And I see a couple other analysts. Okay. Well, we'll have one-on-one if people need any questions or comments to reach out to us. And otherwise, thank you for your time today. I look forward to really getting through here in Q3 and sharing with you further results and growth as we go forward. So thank you, everyone, for your time. Have a great weekend.
spk05: Thank you presenters and this concludes today's conference call. Thank you for participating and you may now disconnect. Have a good day.
spk01: We'll begin shortly.
spk05: To raise your hand during Q&A, you can dial star 1 1.
Disclaimer