MannKind Corporation
Q1 2009 Earnings Call Transcript

Published: 5 May 2009

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation first quarter 2009 conference call. At this time, all participants are in listen-only mode. Later instructions will be given for the question-and-answer session. (Operator Instructions) As a reminder, this call is being recorded today, May 4, 2009. Joining us today from MannKind are Chairman and CEO, Alfred Mann; President and COO, Hakan Edstrom; and Chief Financial Officer, Matthew Pfeffer; and Chief Scientific Officer, Peter Richardson. Now I would like to turn the call over to Mr. Matthew Pfeffer, Chief Financial Officer of MannKind Corporation. Please go ahead.

[Matthew J. Pfeffer:]

Good afternoon and thank you for participating in today’s call. Obviously, it is Matt Pfeffer for those of you who know me and I will be summarizing our financial results for the first quarter of 2009 as reported earlier today. Next Hakan will provide an update on key accomplishments during the first quarter of 2009 and Peter will provide an update on clinical developments. Finally, Al will comment on the current situation and our outlook going forward. We will then open up the call to your questions. Before we proceed further, please note that comments made during this call will include forward-looking statements within the meaning of the Federal Securities Law. It is possible the actual results could differ from these stated expectations. For factors, which could cause actual results to differ from expectations, please refer to the reports filed by the Company with the Securities and Exchange Commission under the Securities Exchange Act of 1934. This conference call contains time sensitive information that is accurate only as of the date of this live broadcast, May 4, 2009. MannKind's management undertakes no obligation to revise or update any statements to reflect events and circumstances after the date of this call. Let us start with the financials. For the first quarter of 2009, total operating expenses were $57.8 million, compared to $74.1 million for the first quarter of 2008 and $81.8 million for the last quarter of 2008. Research and development expenses were $42.9 million for the first quarter of 2009, compared to $58.4 million for the first quarter of 2009 and $68.8 million for the last quarter of 2008. The decrease in research and development expenses from the first quarter of 2008 was primarily due to decreased costs associated with the clinical development of AFRESA and decreased manufacturing cost associated with raw materials purchases. General and administrative expenses were $14.9 million for the first quarter of 2009, compared to $15.6 million for the first quarter of 2008 and $13 million for the fourth quarter of 2008. The net loss applicable to common stockholders for the first quarter of 2009 was $59.4 million or $0.58 per share, compared to a net loss applicable to common stockholders of $71.4 million or $0.70 per share for the first quarter of 2008. Our cash, cash equivalents and marketable securities at the end of the first quarter totaled $30.2 million which compares to $46.5 million at December 31, 2008 and $269.1 million at March 31, 2008. Our cash burn for the first quarter of 2009 was $76.3 million Q1 compared to $78.7 million in Q4 of 2008. With our cash on hand and availability of the remaining credit facility from Al of $260 million as of March 31, 2009, we believe we will be able to fund our operations through at least the first quarter of 2010. I would like to now turn the call over to Hakan Edstrom, our President and COO, who will provide an overview of our accomplishments during the first quarter of 2009. Hakan?

[Hakan S. Edstrom:]

Thank you, Matt and good afternoon. We are now well underway with our NDA submission and would expect to receive an official word of the FDA accepting our NDA file in the near future. Our efforts to prepare for PAI inspection are also progressing well and we will be ready to receive FDA in our facilities upon their request and we are also working very closely with our supply chain partners ensuring that they would be ready for an FDA's inspection in due course. During the past quarter, we reached an agreement with Pfizer regarding the sale of Pfizer's large insulin plant in Frankfurt, Germany. This transaction was actually comprised of two asset purchase agreements; one, for the plant itself and one for the quantity of bulk insulin and manufacturing license and extensive intellectual property. We discussed the transaction this manner because the trends of the real estate require the consent of Infraserv, the operator of the industrial part and also gave rise to a right of first refusal regarding the facility itself in favor of Sanofi-Aventis. The transfer of other episodes is not incumbent with this third party right so we dealt with those efforts in the separate agreements. And on April 8, we obtained Infraserv consent to the transfer of the real estate so we are proceeding with the plan for sale of the insulin plant to MannKind. Infraserv's consent also started the 60 day clock for the right of the first refusal of Sanofi-Aventis. We are unable to comment and do not want to speculate about whether Sanofi-Aventis will or will not exercise their right of first refusal. For now, we are working through the details of the two possible scenarios that we will face upon the closing of this transaction, of sale of the entire insulin manufacturing operation in Frankfurt with the work force of approximately 80 employees or only a sale of some bulk insulin, a license and fact to details and set lines to enable the manufacture insulin in a new factory at the later time. We do have the organizational flexibility to accommodate either outcome and we are making plans accordingly and we will update you on the status of this transaction later on this quarter. Having completed our pivotal Phase III trials and submitted the NDA, we undertook an organizational reduction in April to align the resources with our current needs. This action will help to further reduce our burn rate and extend our runway into the first half of 2010 and also offset some of the additional burn rate that would result from the acquisition of the Frankfurt insulin facility and I know that you will have questions regarding partnership discussion. Discussions are now actively underway with the number of big pharma potential partners. The ranges of discussions go all the way from early capability presentations through in-depth due diligence to emerging deal term discussion. Our schedules for any deal is still too early to obtain and to reiterate Al's comment from our last meeting, a third quarter target maybe a reasonable goal and with that, I would now like to turn the call over to Dr. Peter Richardson. Peter?

[Peter C. Richardson:]

Thanks Hakan and good afternoon. As you are aware, we submitted the AFRESA on the FDA agency on May 16 and it was taken into the review process shortly thereafter. We anticipate an acceptance reply of the review by FDA for the next weeks and have to date have no indication of any reasons to believe that this will probably be the case. The decision to send a few extra days on additional policy control and hyperlinking has resulted in dossier that it is easy to navigate for the reviewers and despite being one of the largest electronic files that were received by the agency, the process of downloading our data seems to go without any problems. Our regulatory team and the others who worked around the clock to achieve this can be found at the high quality NDA. We now move forward to preparing the deal to come clean effectively with the questions the agency may have about our data as well as exploring further the rich and extensive data set that has resulted from the clinical program. We look forward to the upcoming meeting of the American Diabetes Association but we and several of our own investigators will have the opportunity to provide further details of the data supporting both the efficacy and safety of AFRESA in patients with Type 1 and Type 2 Diabetes. These presentations will provide further insights into the unique characteristics of this product which lead to the ultra rapid action profile and resultant reductions in the occurrence of hyperglycemia and weight gain compared to the state-of-the-art insulin measurements while also maintaining the benefits and control of HbA1c. We will be presenting further details on our extensive pulmonary function testing and some basic pharmacological studies to characterize the mechanism of action of AFRESA and other products delivered using the Technosphere platform. In total, all 14 abstracts that were submitted were accepted. These papers report on various aspects of MannKind sponsored studies and reflection of the degree of interest that is regarding the scientific platform on which we will build a truly differentiated product. We closed something new with our Phase 3B studies investigating further aspects to refine the use of AFRESA in patients with diabetes. I would also like to take this opportunity to remind you of the progress we had made in our cancer immunotherapy program, MKC1106, management PP in solid tumors and MT in melanoma. This unique approach using intra-lymph node delivery is specific immunogenic plasmids DNA fragments supplying the immune system to attract specific cancer cells and then using small [tests] to boost immune response to target the same cancers that regress well. Our Phase I trials have completed patients enrolments and the number of patients still undergoing treatments. Preliminary immune safety and clinical data from 1106-PP trial were presented at the recent American Association for Cancer Research in Denver, Colorado. Those studies met the timely goals in immune response and the safety and objective clinical responses have been observed in both trials. The list of the final data of the MKC1106-PP will take place in the second half of 2009 and for MKC1106-MT in the first half of 2010. Plans on moving into Phase II are underway with the potential start of the Phase II [Melan-A] trial towards the end of 2009. MannKind it is now very much on ensuring rapid approval of AFRESA and expanding our knowledge of how best to use this unique product in diabetes just continuing selecting to early phase studies with better opportunities to the Technosphere platform to deliver products of benefits from the unique effects of rapid delivery via the pulmonary route. I would now like to turn the call over to Al. Al?

[Alfred E. Mann:]

Thank you, Peter and good afternoon ladies and gentlemen. Peter has described in some more detail and Peter and Hakan both noted the submission of the NDA. This is an extraordinary compilation of an enormous amount of data with the extensive pre-clinical studies and 49 clinical trials. We believe the data clearly support the safety and efficacy of AFRESA. All of primary endpoints in the clinical program were achieved. There is extensive evidence to superiority in many areas and there were no worrying safety signals. On the basis of the data, we believe we present a compelling case for approval of the NDA for AFRESA. The FDA review process is underway with FIDUFA date next January and the official acceptance expected shortly. Yet with all the positive factors, some sell side analysts are still skeptical of AFRESA so let me try to address some specific questions and comments that had been raised. First, FDA guidelines

[Operator:]

(Operator's instruction) Your first question comes from the line of Thomas Wie - Piper Jaffray.

[Thomas Wie:]

I wanted to get your sense given what you referred to as some of the controversies that people have been raising around the regulatory review. What do you think the primary points of debate are going to be on the AFRESA clinical package when it goes to an FDA panel? What are the primary points that the panel is going to be asked about?

[Peter C. Richardson:]

Thomas, I think that is predicting what will be the topic of an FDA review panel. It is actually quite complex at the present stage but I can say I think we would actually really look forward to the opportunity of presenting our case at such a panel. I think the discussion that I can see is one, in terms of the efficacy and how to actually translate some of the benefits that we have seen in terms of hypoglycemia. What the difference is between the Type 1 and Type 2 population because I think it is much clearer that the very strong data that we have in the Type 2 population showing reductions in hypoglycemia mild, moderate and severe are not actually clear in the Type 1 and I think that is partly because we have got further things to learn in terms of how to handle the AFRESA and the more importantly, the background basal insulin and I think there will be discussions in terms of pulmonary function testing. We presented a very robust package of pulmonary function data. Probably one of the largest that the agency have seen, certainly one of the largest that I know in terms of in passing an inhaled track, both data I think support very clearly no clinical indication using pulmonary function testing. In fact, when we talked about this and when we looked at the lack of outliers in our database and the lack of concerning changes in pulmonary function, we believe that the best tool for looking at this is to use a doctor's stethoscope and their own clinical acumen and deciding which patients are right for AFRESA. We said the patients with underlying lung disease will not be suitable. Those are the scenarios in terms of where I think we would anticipate most debate. As we have said, we have a robust set of data around the cardiovascular numbers. We have actually generated a relative risk and essentially one and compared to other programs in diabetes because of the need for the longer term pulmonary function data giving us two years of exposure in substantial body of the patients as well as the two one year studies that we have done. We actually have event rates and numbers which present quite a number of cardiovascular events and they show an absolutely no excess so I think that will be very important as well as the agencies dealing with that.

[Thomas Wie:]

And on the point that you raised about the Type 1 population, do you have any trials on going or any data that you could use to supplement your filings for Type 1?

[Peter C. Richardson:]

Yes, we have do not expect to have the supplemental filing but as you know during last year, we launched Study 117 which is really looking at optimizing the regimen in Type 1 giving a little more flexibility in terms of dosage timing and actually combining it with the basal insulin given once or twice a day as really is used widely now by expert diabetologist and as our data would point out, Lantus really does not last 24 hours in a Type 1 patients and we have, in that study in order to really focus on optimizing basal control and telling enhanced severely quite a small group of leading endocrinologist and using it to treat the target guideline so we can really drive the HbA1c numbers down. There, I think we will actually start seeing the saturation out in terms of hypoglycemia and with indeed, some of the things we are doing around that in terms of using continuous glucose monitoring, etc. Well, again, that would allow the physician to use what is really a novel tool in Type 1 patient to use AFRESA more effectively in managing patients with Type 1 diabetes better.

[Thomas Wie:]

And one last question just in any titles for the ADA meeting, what is the poster that is called Technosphere insulin dosage strength they are interchangeable? I did not quite understand what that study was [behind the shelf.]

[Peter C. Richardson:]

Well, I am not proposing to talk about the ADA presentations ahead of time but I think what you are talking about is the fact that one of the things in the program we are very keen to do is ensure that we achieve base linearity for AFRESA in whichever dose the patients have so at the moment we have two unit strengths of cartridges, one which normally has 15 units of insulin and the other one is 30 units of insulin. Our data show that two 15 unit cartridges are exactly the same as the 30 unit cartridge and as we move forward with our labeling, we will be giving better information how to use that clinically. That is important for clinicians and the patients in terms of being able to do something. It is really a problem with Exubera where three 1 mg blisters could not equal 3 mg and that is very confusing to prescribe this to patients and also I think in terms of when we answer for the product, we really want people there to use this very similarly so that if they had a 30 and a 15 together, that makes 45 or if they want to use two 15 cartridges, that is fine too.

[Operator:]

Your next question comes from the line of Cory Kasimov - J.P. Morgan.

[Cory Kasimov:]

I guess to start off with the partnership talks you are talking about, it sounds like you are making some pretty good progress there. I just wonder if you could characterize for us, in terms of a general structure, what you think of as the ideal structure of the collaboration at this juncture. I mean, how much input or how much of role will you play on the commercialization of the product?

[Hakan S. Edstrom:]

Well, we certainly will establish a number of say alliance groups that will address certainly commercialization, manufacturing and clinical regulatory aspect. Those are part of our discussions with potential partners. So, we believe that we have made significant progress and significant learnings during the course of developing the AFRESA offering. So, from that point of view, we certainly will be an active and participating partner in commercialization on both the domestic and the global basis.

[Cory Kasimov:]

Now, would you want a sales force that are strictly targeting specialists or would you be going after primary care physicians as well or would you leave that to the large pharma partner?

[Hakan S. Edstrom:]

Yes, if we look at the North American market, if we decide to launch our own sales force, that would be a sales force that would be focused on the specialists and we would leave the primary care market to our partner.

[Cory Kasimov:]

Okay good and then just in terms of the Phase 3B data you referred to specially Study 117, when could we expect to see that data, at least the top line look at it?

[Hakan S. Edstrom:]

Peter?

[Peter C. Richardson:]

We are still recruiting that study and that is a six-month follow up. So, we are anticipating somewhere first or second quarter of next year.

[Cory Kasimov:]

Okay so maybe ADA next year. And then just quickly two housekeeping questions, in terms of the bridge loan from Al, I just want to confirm, you draw down $60 million on that in the first quarter?

[Alfred E. Mann:]

Yes.

[Cory Kasimov:]

Okay and then how should we think about the operating spend going forward now that the trials are done, spending came down this quarter, you just undertook the restructuring. How should we think about that over the next couple of quarters?

[Alfred E. Mann:]

Well, it will continue to go down slightly but I am not going to give very specific projections but I think we have said before, we are targeting somewhere in excess of 30% reduction so we were in the low 20 this quarter and we are heading in the right direction.

[Operator:]

Your next question comes from the line of Michael Tong - Wachovia Capital Markets, LLC.

[Michael Tong:]

I have just a quick question on the partnership front. As you look at a US or global partner, can you refresh my memory as to your current plans and timeline for European approval?

[Peter C. Richardson:]

We are in preparation regarding, there are some additional studies that are required by the EMEA in terms of the approval. So, our expectation based on where we are right now and certainly focus on the NDA so that we will build our file and we have started to make contact with European regulatory agencies and consultants to make sure. So, I would say the early part of 2010 is when you would expect to see a filing in Europe.

[Michael Tong:]

Okay and updates on your GLP-1 program?

[Hakan S. Edstrom:]

Presenting data with ADA, I look forward to sharing you the results from the studies that we conducted earlier this year.

[Operator:]

(Operator's instruction) Your next question comes from the line of Thomas Russo - Robert W. Baird & Co., Inc.

[Thomas Russo:]

You guys commented earlier about the insulin operation and the cost of goods. Just when you think about potential partnerships, would your first preference be more of a royalty agreement or are you looking for something like a profit share? I am just trying to understand the most important aspect of lowering cost. Ss it to be most attractive to a partner or are you looking to have more of a profit share type outcome?

[Hakan S. Edstrom:]

I would say, Tom, at this point in time we are kind of in sensitive parts of our partnership operations so at this point, I would say I would decline to comment on that while we are looking for certainly a very mutually beneficial agreement with potential partner but I do not want to make inappropriate statements at this point in time.

[Operator:]

You have a follow up question from the line of Thomas Wie - Piper Jaffray.

[Thomas Wie:]

I just have a couple of quick regulatory questions. One is what are the additional studies that are required for filing in Europe and then second, if you are targeting a partnership by the end of September, is it fair to say that regulatory risk is not a major consideration for the partners who have gotten to that term sheet stage that you referred to in the prepared comment?

[Hakan S. Edstrom:]

I will answer the second question. None of our partners seemed very concerned about the regulatory risk and the first question; we will ask Peter to respond to.

[Peter C. Richardson:]

Yes, Thomas, one of the some additional things we have done in Study 117 is incorporate getting some echocardiogram which is something that the European authority asked us for. We are just waiting for those to come through in terms of that part.

[Thomas Wie:]

I am sorry, why are they interested in getting at those?

[Peter C. Richardson:]

I think this is a question that they asked us during the course of the review so we have incorporated that into one of the studies. I really give you information in terms of why they are asking for that.

[Thomas Wie:]

Was there some valid finding pre-clinically?

[Peter C. Richardson:]

None at all, absolutely no preclinical whatsoever.

[Thomas Wie:]

And then just circling back on the prepared comments part, did I hear you correctly, can you clarify that you are at the term sheet stage, somebody has offered you term sheet.

[Hakan S. Edstrom:]

What I have said that we are in emerging term sheet discussions.

[Operator:]

Gentlemen, we have no further questions.

[Alfred E. Mann:]

Well, thank you very much ladies and gentlemen. This has been a very important quarter for MannKind and as we move forward, we think you will be hearing some very exciting news in the coming months. Thank you and we will talk to you again in three months.

[Operator:]

That does conclude today's conference call. We thank you all for participating. You may now disconnect and have a great day.