MannKind Corporation

Good afternoon, and welcome to Mankind Corporation 2023 Fourth Quarter and Full Year Financial Results Earnings Call. As a reminder, this call is being recorded on February 27, 2024, and will be available for playback on the Mankind Corporation website shortly after the conclusion of the call until March 12, 2024. 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 for those stated expectations. For further information on the company's risk factors, please see the 10K report filed with the Security and Exchange Commission this afternoon, the earning release, and the slides prepared for this presentation. Joining us today from Mankind are Chief Executive Officer Michael Constagna and Chief Financial Officer Steve Binder. I will now turn the conference over to Mr. Constagna. Please go ahead, sir.

Thank you, Valerie. We have never seen a better time for mankind than we do today. As we look at our future, it's extremely exciting, and I'm every more motivated to ensure we deliver on all key operational opportunities in front of us. As we think about today, Steve and I will go over the operational pipeline highlights, the financial review, and I'm also here today with Lauren Sabella, our Chief Operating Officer for Q&A. We will drive shareholder value by making a difference in the lives of the patients we serve. we will make over 25 million doses and devices in 2024 and help roughly 25,000 patients take a mankind-produced product in 2023, the most in our history. In Q4, we had record revenue for Tyvesa on both royalty and collaboration manufacturing, along with record production on Tyvesa cartridges. We advanced our pipeline in both the orphan business as well as endocrine business, And our endocrine business had its second consecutive profitable quarter. We finished the year in the strongest position we had been in, in terms of financial ability, as well as by selling the 1% of our Tevesa royalty for $150 million upfront and $50 million in revenue milestones. Many of you asked, could we have sold more? Why didn't we sell more? And the reality is we didn't need to sell more. We wanted to make sure we were comfortable with carrying the level of debt and cash on the balance sheet to control our future. We're very excited about Tyveso DPI and what it's going to bring to patients and anticipate hopefully positive milestones for Tyveso in the future and therefore want to preserve 90% of that value for our shareholders. At the same time, we want to deep risk on the debt side of our company. We've also restructured our insulin purchase commitment and reduced our near-term cash outlays by $50 million. The EBU will be the foundation for our future launches and currently makes up about 37% of our revenue in 2023. As I presented at JP Morgan in January, our ability to grow double digits for the foreseeable future looks bright when you see in 2023 our total revenue approach $200 million, almost 100% growth year over year. I'm going to spend a few minutes on Afrezza and the EBU because we are at a pivotal inflection point with our future. Innovation takes time and disruption is even harder. When you think about the weight loss craze today, GLPs were 20 years in the making to what you see today. The pods in type 1 diabetes, 10 years in the making. And PANS took a huge time to convert from vials back in the early 2000s. I believe we can make this business a core pillar of our growth story. When you look at the endocrine business that grew 32% year over year, or $70 million in 23, and greater than 20 million in Q4, the second quarter in a row of profit contribution, as well as on a run rate of $80 million. We've made a lot of changes in 2023 and delivered despite those changes to set us up for a transformation once we see the new data from NHEL 1 and NHEL 3 this year. As I look at the revenue, a Fresno net revenue grew $12 million, or 27% year over year. This is our largest jump in seven years and is the most we've seen driven by volume alone as opposed to price balanced by historical standards. Several clinical readouts in 2024 may expand our market potentials, and I'll talk about those in a minute. One of the questions I get is what is different this year than prior years? Our focus this year is incredibly different. We've been waiting for this moment where we have people, money, and data. Many times we had two out of three, but not all three. So number one, we've got to maintain our persistence in Medicare and commercial to grow our base business and leverage the $35 insulin copay that currently exists for Medicare and commercial insured. So coverage we know is the number one objection. Number two, we optimized our Salesforce footprint here in January to build capabilities for the future growth. And what that means is we were able to reallocate some accounts to create key account managers, reimbursement specialists, as well as virtual and in-person training across the country. We also have new insights from market research, which I'll share with you shortly, that suggest by executing effectively, we can increase prescriber adoption. And finally, is around data and education. We want to focus on K-Well development, education at conferences, and publications to elevate the support and awareness, especially among academic centers. Here's some new market research as we go forward called the Emotional Engagement Mindset Model, which is done by a company we've leveraged for market research. This shows a significant shift in perception by the various groups we tested with our new data. And you can see at baseline, just unaided awareness of the present, what people's perceptions were in terms of unattractive, apathetic, attracted, or passionate. And by exposing them to our core visual aid, as well as some expectations of what inhale-free data could read out, you can see we ship almost two-thirds of our key target audiences are attracted or passionate about our future. is really important because the first time we can see this big of a shift from where we started to where we end up with the new data coming people don't want slow acting influence in a world that moves as fast as we do when i look at the future here on our studies inhale three and inhale one i'll talk a few minutes about these we have 60 u.s sites in kol sites like the mayo clinic the jobs and clinics some of the foundations of diabetes treatment in this country Earl Hirsch is our top-tier thought leader here on INHALE-3 as a principal investigator, and he's done a great job ensuring this trial is dosing properly and enrolling quickly. We have over 300 patients in both of these trials, and both of them are on track to read out this year. On the left side of the slide, type 1 diabetes INHALE-3 is the largest switch study away from AID pumps. There will be about 120-some patients in this trial. Half of them will be on MDI. Half of them will be likely on AID pumps as we look at the data. The reason this data set's important is it's utilizing a new dosing conversion up front to ensure proper efficacy is maintained or improved. We are also doing meal tolerance tests at baseline in week 17, so we can see how people's dosing may have changed over this timeframe. Another thing to remember about this trial, the first time we're enrolling, almost 25% of the patients are a level 7 A1C when they enter. So we're also showing you, hopefully, that tight control can remain by switching to Traceebo plus Afrezit, or Degledec is the generic name. So a lot of people ask me, what is the goal of INHALE-3? Our goal is equal efficacy to what is perceived to be the standard of care, including an AID system. No mealtime insulin or AID system has ever beat another system head-to-head. We think this is an important metric that is successful, and if we see a clinical advantage on highs or lows, that's upside to our expectations. We also plan to use this data to hopefully update conversion figure one in our FRES label. We've been in discussions with the FDA since the start of the PEDS program, around how do we update that initial dose conversion. We hope that INHALE-3 will be part of that data set. On the right side of the slide, and you can see, sorry, on the bottom of the slide, the different data readouts, first dose will be at ATDD in March, the 17-week data we expect to present at ADA in June, and the 30-week data will be complete in third quarter and will be presented at a future conference. On the right side of this slide is INHALE-1. This is a pediatric study, and we think this is a watershed moment in order to transform the infection of Afrezza will be through pediatrics. When we look at diabetes innovation today, whether it's CGM, insulin pumps, this started with children and worked their way into adults because the patients are more on social media, the parents are more progressive, and the doctors are more progressive. This will be the largest study done on Afrezza in over 10 years. And so far, we don't have the data, but I can tell you the conversion dose has appeared to cause less dropouts relative to our original trials on Afrezza. There's also a meal tolerance test at baseline using CGM, and hopefully this study will be used to secure pediatric approval in 2025 and beyond. This is how we believe we will accelerate rapid growth of Afrezza, and this will ultimately spill over into adults. The one hangover is still the lungs, and we think it's time to move forward beyond this. When we look at the data today, we've been on the market 10 years. We've helped tens of thousands of patients. We are building up USKOL support, and we have this new data coming out. We would not be going to the children if we were worried about the safety of our product. So when I look at the future and the growth opportunity, we look at four segments of our future. Number one, we're already approved for type 1 and type 2 adults. Inhale 3 will be using a new dosing with CGM and an upfront conversion. We're super excited about this data set, as it will also include the head-to-head data I just mentioned. GLPs will continue to be the bolster of the units there in type 2 diabetes. However, those patients will still need mealtime insulin And we'll continue to promote Afrezza and Vigo in that segment, as are millions of people who require mealtime insulin over the coming years. However, in order to be a leader in type 1, we need the data from inhale 3 to set us up for inhale 1, which is the pediatric segment. Because when we do finally get that data, we know insulin pumps will be the indirect competition of when it comes to a doctor, a patient, or a CDE making an educational decision for a patient. They will want to know what Afrezza looks like against insulin pumps. So we started that study with inhale 3. We're excited to hopefully wrap up inhale one in a few months here. And once we see that data, we will have a one-two punch this year as we wrap up 2024. And now as people are starting to see the first dose data, we're getting questions on gestational diabetes. We think there's an unmet need there that we want to fulfill over time because there's only two drugs that can be used today, metformin, which crosses the placenta, and slow-acting injectable insulin. And for anyone that knows anyone who's suffered from gestational diabetes, keeping your time and range really tight is critically important. I'm going to bridge over to the pipeline very quickly. NTM, non-tuberculomycobacterium, with our clofazamine suspension. So some of you may or may not be aware, but one of the competing products in phase three had a pause last week in enrollment. And people ask me, why am I excited about our program and why am I confident? Well, the reason we are excited is, one, when we purchased the product, there was preclinical data showing an improvement in bacterial recovery in the lung model that they used. Number two, there's world-world data. The product is approved today indirectly through a market access program by the FDA and Novartis. So we see world-world data being generated from patients taking clofazine here in the U.S. as well as Japan. Third, there's KOL support for this, along with guidelines potentially. And finally, there's no near-term competition for trials now for patients. So as we look forward, we have 100 sites we're going to target across the world. And we see no other option really for these patients to enroll besides the current drug that's on the market, Paracase. So here is the design of our phase three study called the ICON1 study, which was designed post our FDA feedback along with the Quality Light Group there at the FDA. We've taken their feedback, we've incorporated that into this design, and it's 120 patients on the active arm and 60 on the placebo arm. We'll do an interim analysis at 50% and we'll continue to watch enrollment as we saw that the competing program enrolled relatively quickly over the last six months of the year, last year into this year, and that gave us even more excitement for the speed of enrollment that could happen with this trial. We're excited to get this trial going, and we expect to file the IND here in March and kick off the trial in June, as we've had a lot of dialogue with the FDA on the trial design, and we expect quite quick approval on the central IRB. What's exciting to us is this will be over a billion-dollar market with only two players in the next five to ten years. We have the potential to be the second approved NTM product, and the market research indicates we will be a potentially preferred option for patients, whether it's because of our favorable safety profile relative to oral clofazamine that's utilized, or the toxicities and tolerability challenges that some people face with Herakase. We also know that we'll have convenient dosing. What does that mean? 28 days of treatment, followed by two months off, followed by 28 days of treatment. So if you're doing well, you'll potentially be treated for four cycles a year. That gives patients a large burden back from what they did every single day to where they are. We also know that current treatments are not highly efficacious and that patients need more options in order to keep this disease in control. It may be a disease that goes away and comes back over time, but it's one that they'll probably live with chronically for a long time. We have an opportunity to expand a brand within a brand as we think about clofazamine in the future. The next quick pipeline highlight I want to talk about is idiopathic pulmonary fibrosis, 201. This is going to be known as the tetanus DPI as we go forward. The reason I'm excited about this program is our 28-day tox data was very clean. We know 80% of these patients die in five years. There's a huge unmet need in this disease state. And OFEV is the market leader, marketed by Bernd Engelheim. And we have decreased risk relative to the landscape that has failed in IPS development because we already know this molecule works in IPS. What we do also know is that there's severe GI toxicities, which limits patients' acceptance and uptake and prescriber adoption. There's roughly 15,000 active patients in treatment in this country, and we believe bringing a more tolerable product that could potentially be dosed higher would be maximized in value for this population relative to what's out there today. Additionally, our rat gliomycin study on 201 appeared to mitigate the inflammation of fibrosis comparable to oral detentive at substantially lower doses. As we go forward and our IND will be filed, we'll be studying this in 201 in our next slide. We'll be studying this in our part one, a single ascending dose, as well as our multiple ascending dose to show can we tolerate higher doses over seven days. This will be an important study that gets done here in Q2 with data expected to read out in Q3. Our goal is to show lower GI side effects in safety and healthy volunteers. I want to acknowledge As we go forward, the hard work that Steve has done in landing our royalty financing deal, as we worked on this for over six months. We're in a great position because of Steve's vision and leadership over the last seven years. And before I turn it over, I just want to acknowledge all the hard work Steve has done for us and our shareholders and our employees. With that said, I'll turn it over to Steve to go over the financials for the quarter.

Thank you, Mike, and good afternoon. I'm pleased to review select fourth quarter and full year 2023 financial results. Please supplement this call by reading the consolidated financial statements in MD&A contained in our 10-K. 2023 was a year of substantial revenue growth for the company in terms of both percentage and dollar growth. Total revenues doubled versus 2022 and reached nearly $200 million. Let's break this down by starting with the fourth quarter total revenues at the bottom of the table. Our total revenues grew about 62% versus fourth quarter 2022, and 99% for the 2023 full-year period, primarily due to the growth in our Tyveso DPI-related revenues. Going back to the top of the table, you will see that Tyveso DPI royalty revenue for the fourth quarter was $21 million, which is a 132% increase versus 2022, and the result of continued growth in use of Tyveso DPI for patients suffering from PAH and PHILDs. Please note that $2.1 million of the fourth quarter royalty revenue was sold to a third party, and I will review the accounting for the royalty sale in a few slides. Collaboration and Services' fourth quarter revenue was $17 million, which was an 81% increase over 2022, and was primarily representative of strong Tyveso DPI production volumes in the fourth quarter. For the full year 2023, Tyveso DPI royalty revenue was $72 million, an increase of 361% versus 2022, which is primarily due to the increase in patient demand for the product and the start of commercial sales by United Therapeutics late in the second quarter of 2022. Royalty revenue has now become our largest single source of revenue, which allows us to fund and progress our clinical development and product pipeline. Collaboration and services revenue for the 2023 full-year period was $53 million, an increase of 90% versus 2022, which is primarily due to the start of commercial manufacturing in the second quarter of 2022 and the increase in production and sales of Tyvesa DPI semi-finished product to United Therapeutics in 2023. Moving down the table to our endocrine business, total endocrine revenues were $20 million for the fourth quarter and $74 million for the full year. For the fourth quarter, a further net revenue of $15 million compared to $12 million in 2022, a growth rate of 29%, which was mainly driven by a higher patient demand with underlying paid TRX growth of 29% year over year, a lower gross to net deduction as a percentage of gross revenue and price. Compared to the third quarter of 2023, there was a $2 million increase, which represents half patient demand and half increased channel inventory due to wholesalers purchasing an extra week of product in late December. This additional wholesaler purchase in late December would likely impact our net revenues for the first quarter of 2024. For the full year 2023 period, the 27% increase in the present net revenue was mainly related to increased volume from higher patient demand with underlying paid TRX growth of 25%, price, and a more favorable growth net adjustment as a percentage of gross revenues. Net revenue for Vigo was $5 million for the fourth quarter of 2023. Revenues were 13% lower versus 2022, primarily due to lower patient demand and higher growth to nets as a percentage of gross revenues, partially offset by price. Vigo net revenue improved versus the third quarter of 2023 by $0.2 million, mainly due to improved growth to nets. For the full year period, the 48% increase is primarily related to the purchase of Vigo, on May 31st of 2022, reflecting a seven-month versus 12-month comparative. The next slide shows our revenue growth by source and basic earnings per share on a quarter-by-quarter basis from the first quarter of 2022 through the fourth quarter of 2023. I like to show this graph because it highlights how dramatically our business has changed in two years and how we're executing against expectations. For the fourth quarter of 2023, total revenues increased 14% sequentially versus the third quarter of 23 and are up 62% versus the fourth quarter of 2022. Fourth quarter 2023 total revenue of $58 million was almost 5x the total revenues recorded in the first quarter of 2022. Below the graph were our quarterly basic earnings and loss per share. The fourth quarter was the second straight quarter with net income and positive earnings per share. As I stated during the third quarter earnings call, we are in a period where we expect to bounce back and forth between earnings and loss per share as our revenues increase. But we will also be increasing our spending on our pipeline as we move MNKD 101 into a Phase III global clinical trial and MNKD 201 into a Phase I clinical trial. In addition, we will wait to see the results from the INHALE III and INHALE I clinical trials for Fresa before deciding whether to increase promotional spend behind that product. For now, we will continue to focus on growing the profitability of the endocrine business unit, which has had a positive contribution for two straight quarters. Moving on to our GAAP to non-GAAP reconciliation, I will first focus on the fourth quarter, which is on the left-hand side of the table. We had GAAP net income of $1 million, which went adjusted for select non-cash items for stock compensation, gain or loss on foreign currency transactions, which is related to our insulin purchase commitment, loss unavailable for sale securities, a sole portion of the royalty revenue, and the interest expense on the liability for sale of future revenues, which I'll discuss in more details in a minute, provide for a non-GAAP net income of $7 million versus a 2022 fourth quarter non-GAAP net loss of $11 million. For the full year 2023 period, we ended with a net loss of $12 million. but when adjusted for the select non-cash items, becomes non-GAAP net income of $6 million, which is compared to a non-GAAP net loss of $78 million in 2022, an $84 million year-on-year positive change. Now I'd like to take some time to explain the accounting that resulted from the sale of our 1% of our Tyveso DPI royalty. To set the stage, We sold 1% of our 10% royalty for $150 million, plus up to $50 million more if certain net revenue numbers are attained within a period of time ending in September 2027. This puts a third-party valuation on the 10% royalty of approximately $1.5 to $2 billion. After we announced the royalty sale in early January, I heard back from investors that we could have done a better job explaining how we recognized those transactions in our financial statements and how we got to our accounting conclusions. So let me try again. First, we looked at all of the GAAP guidance, reviewed all similar relevant transactions we could find in the last five years, and then consulted with our auditors. The conclusion we arrived at, amongst other things, is that mankind has a continuing involvement in the generation of Tyveso DPI revenue through activities to protect the intellectual property of Tyveso DPI, such as defending the patent estate, protecting the product, and a continuing involvement in the manufacturing of the product for United Therapeutics. Thus, the upfront proceeds recorded as a liability for future sales of royalties, not as revenue. The table on the slide reflects how the accounting works. We record the cash consideration received, net of issuance costs, and the related liability for the sale of future royalties on our balance sheet. To recognize interest expense related to the liabilities, we forecast the future royalties to be received through 2042 and calculate the return that would be needed when receiving a $150 million upfront payment for 1% of the royalty over this time period. This rate came to just over 11%. In future periods, we will continue to estimate the future royalty stream based on royalty trends, commercial success of Tyvasiv DPI, competition for the brand, and other meaningful inputs. The outcome of these future estimates may adjust the prospective interest rate using determining interest expense and amortization of the liability. Each quarter, we will charge our P&L for non-cash interest expense based on the interest rate and credit the liability. We also recognize 1% royalty as non-cash revenue and reduce the liability by this amount. In addition to the non-cash attributes of this transaction, we also earn cash interest income of approximately $7.5 million annually. The slide shows how the accounting should work for 2024 if nothing changes in our forecast of expected royalties. The balance sheet would end 2024 with 153 million in cash and 153 million of a liability for the sale of future royalties. The liability balance will increase as long as the non-cash interest expense is greater than the non-cash royalty revenue, which is likely to occur over the next few years. Once the non-cash royalty revenue becomes greater than the non-cash interest expense, assuming that sales of TIDESA DPI continue to grow, then the liability balance will begin to decrease. Focusing on the 2024 income statement on the right side of the table, we would record non-cash revenue of $10 million and cash interest income of $7 million offset by non-cash interest expense of $17 million. As discussed on a previous slide, we expect to isolate the non-cash aspects of this transaction in our quarterly gap to non-GAAP reconciliation of net income and loss. With over $300 million in cash and investments on our balance sheet as of December 31st, 2023, we want to share our near-term priorities for using the cash to increase shareholder value. First, focusing on our development pipeline, we expect to fund much of MNKD 101 and MNKD 201 clinical trial expense over the next few years through operating cash flow. As these assets advance through clinical trials, we will prioritize their funding. In addition to MNKD 101 and 201, we have two clinical trials for a present nearing data readouts. We will wait to see the results of these trials before deciding whether to invest more behind this asset to grow revenues. In addition, we plan to do the following with our debt. Our mid-cap senior secured debt has a balance of approximately $33 million as of December 31, 2023, and currently carries an interest rate of 8.25%. We expect to pay off this debt in the first half of 2024 to take advantage of the interest rate arbitrage between debt interest expense and cash investment returns and release our assets from MidCap's security interest. Man-convertible debt with a balance of approximately $9 million as of December 31st, 2023 is expected to be paid off early in cash or in a mix of cash and stock. By doing this, we would be reducing future shareholder dilution. Our senior convertible debt with a balance of $230 million as of December 31st, 2023, carries a low fixed interest rate of 2.5%. And we did not expect to buy back bonds prior to maturity in March 2026. When maturity arrives, we expect to reduce future dilution by paying off the debt with cash if our stock price is below the conversion price of $5.21. Additionally, we do not expect to access the ATM. To summarize a very successful 2023, we doubled our total revenues to almost $200 million versus the prior year. Fourth quarter was the second successive quarter for positive contribution from our endocrine business unit. Fourth quarter was the second successive quarter of net income for the company. We saw the 1% interest in our 10% Tyvesa DPI royalty, which values the royalty stream alone at between $1.5 and $2 billion. And we ended 2023 with $302 million in cash and investments. 2024 should be another stellar year for mankind as we are financially primed to drive our commercial and clinical priorities and deliver increased shareholder value. Thank you. And now I'll turn it back over to Mike.