MannKind Corporation

Good afternoon and welcome to the Mankind Corporation 2023 Third Quarter Financial Results Earnings Call. As a reminder, this call is being recorded on November 7, 2023 and will be available for playback on the Mankind Corporation website shortly after the conclusion of this call until November 21, 2023. This call will contain forward-looking statements. Such forward-looking statements are subject to risks 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 10-Q 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, Steven Binder. I would now like to turn the conference over to Mr. Castagna. Please go ahead, sir.

Thank you, DeeDee. Thank you everyone for joining us today. It's been six years since Steve and I became CEO and CFO. We've turned this company from losing well over $100 million a year to our first profitable quarter in our history. We've helped over 20,000 people on a Mankind manufactured product last quarter, and our pipeline is moving faster than ever to help more as we continue to live our mission to help patients live a better life. As you think about our highlights this quarter, we've made great progress on the clinical and financial aspects of our company. In New York and lung space, we've seen Tyvesial royalty revenue of over $20 million and manufacturing of $13 million. On the pipeline, Mankind 101 cannot be in a better position. We came from our last earnings call when we just had learned of a fire in our facility, our partnership in Germany, to successfully moving CMC here in Danbury, and we've manufactured our first clinical batch in record time. On Mankind 201, our inhaled and sentient program has continued to progress towards filing an R&D and starting our phase one trial in the first half of 24. Feedback from our thought leaders has been very positive on this program, and we're excited to get this into humans as quickly as possible. On the endocrine business, we've achieved our first quarterly positive contribution. This is one quarter ahead of our expected Q4 goal. We made a half a million dollars in Q3 of this year. And that was driven by our FREZA 24% growth year over year. As we think about inhale one and inhale three, we were super excited on the clinical progress these two trials have made, as they are pivotal for our future in the diabetes business. On inhale one, we achieved our pre-specified interim analysis, which was run when we hit 50% enrollment to determine the size of the trial was appropriate or not. We now expect to finish up enrollment and continue to progress this trial for filing hopefully in 2025. As we look at NHL 3, this was an incredibly exciting trial. We'll talk a little bit more about it, but we were two months ahead of plan enrollment. And on the financial income, net income of $2 million, we've also began paying down our mid-cap debt. We are continuing to deleverage our company so we can drive greater shareholder value. This way, we continue to free up cash flow to drive future growth by reducing our interest expense. As we look at Tyveso, many of you may recall from the last quarter when there were some questions around what happened at the end of Q2 in the inventory and the $30 million number we heard from Unither. And so what we plotted here was a continued quarter over quarter, including that $30 million now that it's transparent of what our royalty rate is. We can show you the breakdown between what $30 million would mean to mankind in terms of our royalty rate on those $30 million in sales. And when you look, patient demand continues to be very strong. quarter over quarter since launch of last year. The next question I often get is around manufacturing, and I would like to hopefully put this to bed as we go forward for shareholders. As we exit 2023, we expect our new fill finish to come online for 2024, improving our ability to build inventory and supply the market growth for many years to come. As you look out, we expect new bulk capacity to come on in the second half of next year, continuing to bring more efficiency and more upside production as UT gets ready to wrap up their IPF trial, hopefully showing the positive impact for patients. As we look out, you'll see mankind can make 25,000 to 35,000 patients a year we can serve with our manufacturing capacity, and we can build that up to 35,000 to 50,000 through additional efficiencies without any additional manufacturing planned. As you all know, the IPF market is well over 100,000 patients, and UT will be able to supply to the upside scenarios in addition to what we can manufacture. We're extremely grateful that United's investing over half a billion dollars in CapEx to duplicate our facility there in North Carolina. We look forward to supporting them on that transition. As we look to turn back to mankind, Mankind 101, we've made our first batch since the fire. This is amazing work by our team in Danbury, who did this in record time on top of the build-out of Taveso, on top of the progress of the pipeline getting ready for IND. We expect chronic tox data here this quarter. as well as FDA feedback on our final protocol design. And all this will put us on track to start our Phase 2-3 trial in the second quarter of next year. And here's a nice, beautiful picture of our first thousand vials coming off our production line. Thank you to the team in Danbury for incredible work. Now, if I bridge to Afrezza, we hear a lot of noise about GLPs and the impact they may or may not be having on various aspects of the healthcare system and or consumer. It's a lot of noise, but you can see Not much impact on Afrezza and the main change here in Q2 to Q3 was self-driven, but the overall insulin market in the gray line, you can see the insulin market year-over-year is relatively flat to a small single-digit decline. On Afrezza, year-over-year, we had growth, but in Q2 to Q3, we made significant changes to our infrastructure to drive our focus to profitability. Number one, we decreased our T&A. We changed our Salesforce bonus structure. We actually are in the process of moving our marketing team from California to Danbury. And we merged two sales forces into one that impacted over 30% of all territories. The new team is now in place. We put some incentives here in Q4 to close the year strong. But this impact has nothing to do with GLPs and has everything to do with internal change to set us up for 2024. The next slide you can see here. is our first nine months, year over year, comparing the first nine months of each year since we launched the product as Mankind in 2017. I'm really excited to see that we've doubled our growth over last year when you look at 21 to 22 versus 22 into 23. Significant growth driven by our Medicare Part D $35 insulin program that was part of the IRA with the government. As we've refocused back on inhale one, this is our pediatric trial We met the sample size we usually projected. One outcome could be we needed more patients and that would have dragged on the length of this trial. We now expect completion to happen and this is very positive as we can wrap up this trial next year and start to prepare for launch. As you may or may not realize, most type one diabetes innovation has happened in kids, whether it's been Omnipod with the Potters, Dexcom with CGM, or insulin pumps that our founder Alfred E. Mann built. As I bridge over to inhale three, Here we are, who would have thought, 20 years later, running one of the largest switch trials in type 1 diabetes away from the standard of care, which is including the AID automated insulin pumps, where half the patients in this trial are on an AID system and switching in record time. We're using the latest CGM technology with G7, and we're also including 20% of people whose A1C is less than 7. So this is going to show you whether you are at goal or above goal, how can you best use Afrezza and a daily traceba to show how you can maintain control or improve control, hopefully, with less hypoglycemia. These are top-tier sites, and we are well ahead of schedule and looking forward to releasing this data in Q1 and Q2 of next year. Flipping the card over here to Vigo, the decline in Vigo has been abated after a two-year decline. We are focused on improving the margin for 2024. As you will hear from Steve, Our gross to net went from 49% to 58%, mainly because of rebates. We've now started the process of changing these contracts and improving them, and we'll provide guidance on our next call as we're in the middle of negotiation. However, we've had some early wins with Kaiser and some of the DME suppliers and are now working on the PBMs. So we'll continue to watch this closely, but Vigo, we believe, we can continue to drive demand and improve the margins as we go forward. Now I'd like to turn it over to Steve. Thank you.

Thanks, Mike, and good afternoon. I'm pleased to review select third quarter 2023 financial results. Please supplement this call by reading the condensed consolidated financial statements and MD&A contains our 10Q, which was filed with the SEC this afternoon. Let's start by looking at the total revenues at the bottom of the table. Our total revenues grew 56% versus third quarter 2022 and 121% for the nine months ended versus the same period in 2022. which highlights the second quarter 2022 launch and the subsequent revenue growth associated with Tyveso DPI, and to a lesser extent, our endocrine business, which included the results of the Vigo product acquisition from May 31st, 2022. Focusing on revenues from our collaboration with UT, revenues totaled $33 million in the third quarter of 2023, which consists of royalties of $20 million, and collaboration and services revenues of $13 million. Royalties earned in the net sales of Tyvesa DPI of $20 million was a result of continued strong patient demand for an innovative product. We recorded $13 million of collaboration and services revenue, which is primarily related to revenue associated with manufacturing Tyvesa DPI. This revenue grew 27% over the prior year as we sold more product at a higher price to United Therapeutics. For the September 2023 year-to-date period, total revenues from our collaboration with UT were $87 million, as compared to $25 million for the first nine months of 2022, representing strong patient demand for Tyveso DPI. Additionally, the 2022 nine-month period included the start of commercial manufacturing of Tyveso by Mankind midway through the second quarter and the commercial launch of the product by UT toward the end of the second quarter. Moving down the table to our endocrine business, total endocrine revenues were $18 million. Our present net revenue of $13 million compares to $11 million in 2022, a growth rate of 24%, which is fairly consistent with our first and second quarter 2023 growth rates. The growth was mainly driven by a higher patient demand, with underlying paid TRX growth of 12% year over year, a lower growth to net deduction, and price. For the nine-month period ending September 30th, 2023, the 26% increase was mainly related to increased volume from higher patient demand with underlying paid TRX growth of 18%, price, and a more favorable growth to net adjustment. Net revenue from Vigo was $4 million for the third quarter of 2023. Revenues were 18% lower versus 2022, primarily due to a lower level of patient demand However, we have stopped the downward trend as TRX has been about the same amount for each of the first three quarters of 2023. For the nine-month period ending September 30th, the 92% increase is primarily related to the purchase of Vigo on May 31st of 2022, so the increase over 2022 is mainly from a four-month versus nine-month comparative. The next slide shows our revenue growth by source on a quarter-by-quarter basis from the first quarter of 2022 through the third quarter of 2023. We'd like to show this graph because it highlights how dramatically our business has changed in the last two years and how we are executing against expectations. As Mike pointed out earlier, the royalties from Tyveso DPI have been growing steadily since launch and the fastest growing revenue source in our portfolio. United Therapeutics Management stated during their second quarter earnings call that approximately $30 million of Tyveso DPI sales in the second quarter related to specialty pharmacies purchasing product to enable them to get to the contractual inventory levels. And then the third quarter call held last week, UT stated that the Tyveso DPI revenues for the third quarter generally reflected patient demands. We have denoted the royalty associated with the specialty pharmacy inventory stocking on the chart in the second quarter 2023 bar, which allows for a clearer demonstration of the royalty-related demand growth by quarter. Based on our third quarter revenues, we have a current run rate of over $200 million, of which approximately 40% represents royalties, which do not have any offsetting expenses, therefore falling straight to the bottom line with the associated cash flow used to fund our pipeline and reduce debt. Below the graph, I have plotted the earnings or loss per share for each quarter, and you can see the impact from the increasing revenues. In the third quarter, we recognized earnings per share of one cent. This is not a typo. We have hit a significant financial milestone. We have now entered a period where we expect to bounce back and forth between earnings and loss per share. I'll call it a break-even period. And then we expect to grow earnings per share, assuming Tyveser DPI continues its upward trajectory, and the endocrine business unit increases its positive contribution. The following gap to net gap presentation was started in the second quarter of this year to better highlight the non-cash impacts of certain items to our P&L. In the third quarter of 2023, we reached the milestone of positive gap net income of $2 million, while a year ago, looking at the right column, we had a gap net loss of $14 million. When we adjust the 2023 third quarter gap net income for non-cash items of stock compensation and a gain on foreign currency, we had non-gap net income of $4 million for the third quarter 2023. As highlighted earlier, we expect to be plus or minus gap break-even for a number of quarters before we expect to see net income growing on a continuous basis. I will conclude with some additional comments. In the third quarter, we started to pay down our senior secured debt based on our contractual obligation to pay the loan over 24 months beginning in September, and we expect to be able to pay off this debt over the next two years out of operating cash flow. We continue to tightly manage our cash flows and had a reduction in cash and investments of only $2 million in the third quarter as we expect to progress towards achieving positive operating cash flow in the near future. Thank you, and I'll turn it back over to Mike.