MannKind Corporation

Good afternoon, and welcome to the Mankind Corporation 2022 fourth quarter and full year financial results earnings call. As a reminder, this call is being recorded on February 23, 2023, and will be available for playback on the Mankind Corporation website shortly after the conclusion of this call until March 9, 2023. 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 those stated expectations. For further information on the company's risk factors, please see their 10-K 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 Casanza, and Chief Financial Officer, Steven Binder. I would now like to turn the call over to Mr. Casanza. Please go ahead, sir.

Thank you, Lisa, and thank you, everyone, for joining us today. As we kick off, it was seven years ago this weekend that I decided to join Mankind, and unfortunately, seven years after Alam picked away. It's been an amazing journey and one that was harder than anyone could have imagined. 2023 is special because it's the beginning of our new future growth plan. We have overcome every obstacle that has thrown our way despite the laws against us. We are now capitalized and prepared to enter into our next phase of growth, and I want to personally thank all of our employees, our stock and debt holders, the Mann Foundation trustees, and other stakeholders who support us through this journey. Our best years are in front of us. I'm very excited to kick off our Q4 earnings call today. To remind people that our mission is to give people control of their health and the freedom to live life, and we refer to this as life for human. This is never more true as we get ready to enter NTM or the patient stories we hear from Tabeza DPI's launch or the incredible feedback we get from Vigo as well as the president. Every day, we are making people's lives more human and easier to live. 2022 was a revolutionary year for mankind. If you look back at this time last year, we had one marketed product. We were facing a delay in FDA approval for Tyvesa BVI, one compound in clinical trials, which was Afreza for inhale one that just started, and a commercial revenue stream with just Afreza. As we end the year, we technically have three marketed products. two we market and one that's marketed by United Therapeutics, two compounds and clinical trials with a Fresno Inhale one being halfway rolled out, and Mankind 101 kicking off to completing phase one, and four commercial revenue streams. As we look, this is a revolutionary milestone in the history of the company as we are approaching $100 million exiting 2022. Steve will talk about how that translates to the run rate as we go into 2023 and beyond. When we take a step back, our collaboration royalties are up 20% versus last year. Our endocrine business is up 44% versus last year. These three new revenue sources are going to generate the capital required to continue to fund our growth and drive a difference for patients across the disease states that we're servicing. It's really exciting to look at Tavezo GPIs. We're living in the very early stages of one of the United Therapies. If you look back over a quarter of last year, this has continued to be revolutionary. as we go through those phases of launch. So in the first quarter of early 3Q, we're just getting some of the SKUs off the market, just getting this off the ground with United Therapeutics. And in Q4, you can see collaboration services revenue is relatively flat, but the royalty revenue continues to grow. And the reason that's important is the collaboration services revenue is relatively fixed as we continue to increase volume and productivity out of the factory, but the royalty should continue to grow. So that's something to keep in mind As we look, it'll fluctuate minor from quarter to quarter, but not dramatically different as we go forward. The EBU business and gross profit accelerated in 2022. When you look at our net revenue, it grew 44%, and that dropped to the bottom line with almost 80% growth here from $22 million to $40 million in gross profit on the endocrine business unit. The reason this is important, we did this without any increase in COGS, despite adding BGO into our company and the costs associated with BGO. We've been able to keep COGS relatively flat, and every incremental dollar starts to drop to the bottom line. We'll continue to look for efficiency as we look at combining this business and driving future revenue growth. Additionally, we had a small primary care pilot last year, which didn't go as planned, and we exited that business, and that money we spent last year is being repurposed this year to drive future growth of our resident BGO. Let me focus a little bit more on Q4 highlights. When you look at CPI, we had strong patient demand, which is to bring our manufacturing revenue now into the future. Our royalty revenue grew 50% versus Q3, and our manufacturing capacity expansion is in progress, as I was just in Danbury last week taking a tour. The pipeline's moving forward as we have one more FDA meeting here on 101, and we expect to move this asset into a Phase 2-3 trial design in the second half of 2023. and we'll share more details sometime during Q2 and Q3. We filed a pre-IND meeting request for Mankind 201, and we expect to see a feedback here shortly as we progress the tentative into a phase one study. As I look at our guidance, Afrezza-Garutira has a 9% versus 21, and 4% sequential quarter-to-quarter. As I said, inhale ones will track, and you just saw yesterday we announced the Afrezza with nasal combination study showed favorable results in the first dose in office on a meal challenge test, and the full results of this will be presented later this year. But the results we've seen and the analysis we've seen so far have given us the confidence to want to kick off a larger Phase IV study as we really think about how do we capitalize and win on the investments we've already made historically in Afrezza, but really position us to be a leader in Type I diabetes. Vigo had Q4 net revenue of $5.4 million, as I'll show you shortly. We stabilized that in this. Looking forward to it. We had $173 million in cash and cash equivalents at the end of last year. With the purchase of Vigo and as the competition continues to step away, Mankind is really the mealtime solutions company. Several other insulins have tried to launch over the last seven years, and they failed to capitalize on their innovation and drive meaningful patient differences. Insulin pump companies have continued to try to drive innovation, and what really happens is patients go from one pump to another pump to a pod, but they're all still struggling with mealtime control. At some point, we believe this product has been on the market long enough to test the time on safety, and the new data we have coming out over the next 12 months, we believe sets this up in terms of Fresa as really helping solve the mealtime solution challenge that we have. And Vigo will really allow us to help those type 2 patients that much better, as that has also demonstrated improvements in A1C and quality of life. Some of the highlights we have for last year is, number one, we bolstered up our scientific understanding of a president. The results of these really came out last year or put into last year's work, which they're really being built over the last five years. And so the dosing that we're using in inhale one around the 2x round down was put into our pediatric trial, and we believe that's paying off as we look at the first dose ADC results that were just released yesterday. What we showed you in the first two hours, when you really care about time control, Afrezza does something amazing versus injectable insulin. And we think that hopefully will translate now to dosing over and over and over for each meal as you look at three, six, and 12 months. The ABC trial will come out. Hopefully we've submitted additional analysis at future conferences. And we've already published the DOS study, which was doubling of our package insert dose. Our pediatric study remains on progress and we'll continue to show you hopefully data showing how people can safely switch from an insulin pump to Afrezza And we've also shown that adding Afrezza to a pump is great, but there's no additional benefit, despite people that adding it will help improve mealtime control. On Afrezza, we've enhanced our patient support services. We continue to find ways to for patient reimbursement support, and closing that gap around prior authorization happens in the marketplace. We've worked several years with CS and key stakeholders to ensure that inhaled insulin was included in the Inflation Protection Act. And I'm probably one of the few drug company executives who were supportive of this act because it really did help patients around insulin and Medicare coverage. And we also improved our product dating, which people may not realize, to 36 months from 24 months. And the reason that's important is a good percentage of our gross net are related to product returns. And we believe over time as demand picks up and data can be sent, that allows that return to come down. And that will happen over time. On Vigo, we purchased this asset in the second quarter. We really just focused the team and kept it separate for 2022 as we integrated it into Mayheim. And finally, within Q1 of this year, we prepared for that integration, and this is now being launched through our entire, the Fresno Salesforce. One of our key focuses last year was driving market share of new prescriptions. And you can see our NRX growth quarter over quarter continued to grow from Q1 through Q4, where we exited with 17% growth year-over-year on NRXs. As I look at just Q1 today, our 24% growth over the first six weeks, Q4 versus Q1 of this year. We continue to see positive momentum on NRXs, which translates to TRXs over time, but this is our leading indicator of how we expect our business to perform. As we look at Vigo, again, back to NRXs. You can look, Vigo's been on a real long decline. We purchased this asset in Q2, got it ready in Q3, and stabilized it in Q4 on an NRX, and we look to expect NRXs to grow here in Q1. But most importantly, that will now translate to TRX stabilizing and ultimately growing as we look forward to the rest of this year. How we segment these two products is critical to our success. We've really positioned the present for Q1, younger population, commercial insurance, Even though we now have Medicare, that's great because 20% of our sales are Medicare and 40% is Medicare. But at the end of the day, we want to make sure we continue to win and lead in type 1 diabetes. Additionally, we continue to find ways to improve our gross to net by shifting our sales to specialty pharmacies through direct purchase agreements and making sure that patients have a better service when they receive our product. On the Vigo side, it's definitely a type 2 product, older population. which is about 60% Medicare in the case of Vigo. And in 2023, we've now put this in a P2 position for Afreza, and there's an additional 14 Vigo territories selling this asset. As we look over the next 12 to 15 months, there's several key milestones coming out. Number one, we have the kickoff of In-Hell 3, which really just occurred this week at ATTD. We have a Blue Hell launch, which is really integrating CGM into a technology platform that can access the Afreza device. and that will start to read CGM along with dosing and be our first kind of platform as we start to think about how do you incorporate AI into our future predictive dosing. This is 1.0 version, which will continue to grow as we invest in technology behind that diabetes care. We expect simply to read out a phase two trial, which we're calling inhale two, type two diabetes, and then assuming blue hail, a little bit of launch goes well, we should start with a full launch here in the second half of the year. We expect the inhale one pediatric study to be fully enrolled by the end of this year, and inhale three to be fully enrolled sometime in the end of the year or early next year, with the readouts that should follow about three months later. Now I'd like to turn it over to Steve, who's been a phenomenal partner with me over the last six years, and thank you, Steve.

Thanks, Mike, and good afternoon. Please review select fourth quarter and full year 2022 financial results. Please supplement this call by reading the consolidated financial statements MD&A contained in our 10-K, which was filed with the FDC this afternoon. We're very proud of hitting the $100 million mark in total revenues for 2022. As it shows, our transition from a company with one source of commercial revenue to a company with multiple sources of commercial revenue. Let's start with the fourth quarter and then we'll come back to the full year results. For the net revenue with $12 million, versus 11.3 million in 2021, a growth rate of 6%. The growth is mainly driven by higher patient demand with underlying PTRX growth of 9% year-over-year. In previous quarters, I have been discussing the adverse impact of the lowering of wholesaler inventory levels, which impacted our revenues for the first three quarters of 2022. We can now confirm that we saw the bottom-out of this in the third quarter as expected. Year-to-date Afrezza growth came in at 11%, which is mainly due to favorable price, higher product demand, and a more favorable cartridge mix. Our growth to net held steady at 39% year-to-year. Next is our net revenue for PGO, where we had $5.4 million in net revenue for the fourth quarter and $12.9 million for year-to-date, which represents the seven months of June through December. We continue to see Vigo net revenue tracking a high end of our forecast range of $18 to $22 million for this 12 months post-acquisition. Moving to collaboration services, revenue in the fourth quarter was $9.5 million versus $1.2 million for 2021. The main driver of the fourth quarter 2022 collaboration revenue is associated with the manufacturing of DPI United Therapeutics, while the 2021 revenue was impacted by the end of the amortization of having ACPI R&D milestones and delaying the FDA approval for the drug, which meant that we had to defer revenue until we could manufacture commercial products and sell to UT. The full-year revenue of $27.9 million largely reflects manufacturing revenue, a recommendation that began in the second quarter and has been lowered in 2022 versus 2021 because of the prior-year UT milestone amortization and the first half of 2022 deferral of revenue associated with the delay in the start of commercial manufacturing. In addition to UT-related revenue recognized in 2022, we have $37.9 million of deferred revenue on the year-round balance sheet associated with UT activities, which will be recognized to income through 2031, which is the remainder of the commercial supply agreement with UT. I will review this in further detail in a few minutes. Lastly, we recorded royalties on net sales of Tyvesa DPI by United Therapeutics to their customers. The $9.1 million in royalties recognized for the quarter is almost 50% higher than the third quarter and demonstrates strong demand for the product. We have recognized $15.6 million in royalty revenues for the product sponsored by UT in June. The next slide shows 2022 growth on a quarter-to-quarter basis. This graphic really shows the change in our company this past year, growing total revenue 200% from first quarter to fourth quarter. The second quarter of 2022 marked the change to multiple sources of commercial revenue when we began to benefit from commercial production of Tyvesa DPI, the launch of Tyvesa DPI by UT, for which we are in low double-digit royalties, and the purchase of Vigo. As we exited 2022 and leaned forward to 2023, Our fourth quarter run rate of $36 million puts us almost halfway to $200 million in total revenues. Now let's look at the profitability of our endocrine products, Afreza and Vigo. Afreza's gross margin increased from 62% in the fourth quarter of 2021 to 92% in the fourth quarter of 2022, and the gross profit associated with Afreza increased to $11.1 million in the quarter. The increase in the fourth quarter gross margin versus 2021 was due to a decrease in cost of goods sold, mainly from lower inventory write-offs, lower cost per unit, lower excess manufacturing capacity costs, and a high level of manufacturing activity in the fourth quarter of 2022, which capitalized a higher amount of cost to inventory, plus an increase in impressive net revenue. When looking at the profitability for the full year of 2022, Fresa had a gross margin of 80% and gross profit of $34.6 million, which were both markedly improved in 2021. The main drivers of the improvement were a lower cost of goods sold, mainly from a decrease in excess manufacturing capacity costs, which is a benefit from Tyveza DPI production absorption, lower cost per unit, a $2 million fee incurred for an amendment of our insulin supply agreement in the second quarter of 2021, and lower inventory write-offs, plus increased net revenue. Please note that there will always be some variability in the Fresno gross margin between quarters due to the timing of manufacturing spend and activities, as we are not yet at maximum production capacity. The far right table shows Vigo year-to-date gross margin of 43%, which has remained consistent quarter-to-quarter since we acquired the product. 2022 was the year focused on the commercial manufacture of Tyveso DPI at our facility in Danbury, Connecticut. But we were also focused on increasing the efficiency of our current manufacturing lines as well as building out increased manufacturing capacity. These activities led to both Tyveso DPI revenue being recognized as well as being deferred in 2022. The left-hand side of the table shows our revenue recognized for the year. Revenues mainly associated with the manufacturing of Tybaso DPI and activities for the next-gen R&D services totaled $27 million, while royalties accumulated $16 million in revenue for a total of $43 million in Tybaso DPI-related revenues for 2022. Moving to the right side of the table, we started the year with a deferred revenue balance of $19 million and added another $19 million in revenue deferrals mainly associated with the Tyvesa DPI facility expansion, manufacturing process improvements, and pre-commercial activities. We expect additional revenue deferrals in 2023 while conducting activities paid for by UT related to the facility expansion and further manufacturing process improvements. Please note that UT is paying Mankind promptly for all activities, whether revenue is recognized or deferred, so cash flow is not adversely impacted by any of these activities. Let me conclude with some final comments around their liquidity. We ended the fourth quarter with $173 million in cash, cash equivalents and investments, a decrease of $5 million from September 30th. We achieved this low-level cash burn because of the fourth quarter collection of monies owed to us from UT and Zeeland that were outstanding at September 30th. Looking ahead to 2023, We expect to reduce our cash burn as we benefit from the impact of increased cash flows from our collaboration with UT and reduce cash burn associated with our endocrine commercial business unit as we move that unit towards profitability. But also note that we'll be increasing investment behind the development of our product pipeline, which is quickly becoming our next lever of shareholder value. Thank you, and I'll turn it back over to Mike.