MannKind Corporation (NASDAQ:MNKD) Q1 2024 Earnings Call Transcript May 8, 2024
MannKind Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to the MannKind Corporation 2024 First Quarter Financial Results Earnings Call. As a reminder, this call is being recorded on May 8th, 2024, and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call until May 22nd, 2024. This call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainty, which can cause actual risks to differ materially from these stated expectations. For further information on the Company’s risk factors, please see the 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 for MannKind are Chief Executive Officer, Michael Castagna; EVP, and Former Chief Financial Officer Stephen Binder; and Chief Financial Officer, Chris Prentiss.
I’d like to turn the conference over to Mr. Castagna. Please go ahead, sir.
Michael Castagna: Good evening, everyone, and welcome to my 28th earnings call. I’m thrilled to report another exceptional quarter of growth for MannKind. Over the past eight quarters, our revenue has surged by over 250%, a testament to the dedication and innovation of our team. This puts us on a run rate of over $250 million in revenue for 2024. We have made tremendous progress in the field of inhaled insulin that we believe will continue to be a growth driver for years to come. I’m also excited to share with you our progress in addressing rare orphan lung diseases today. Thank you for joining us on this journey of growth and societal impact around the world. Just to remind everyone, our mission at MannKind is to give people control of their health and the freedom to live life.
When we think about that, it translates into how our products make a meaningful impact on patients every single day. As I look at Q1, we had a record Tabesa DPI revenue of almost $48 million due to strong sales by United Therapeutics and record production in Q1 as we continue to scale up the expansion facility we’ve been building over the last several years. Number two, mankind 101 made several strategic advancements with the IND being cleared fast track designation, as well as a setup to meet with the Japanese authorities to get a clearance on how we expect to pursue Japanese registration approval down the road, but also activate clinical trial sites in the second half. 201 also received the green light to proceed to Phase 1. We expect that to start momentarily.
In our diabetes business, things are going nicely given the upset that we all had with Change Healthcare. As we look at April, we’re growing 7% on volume year-over-year, and we believe the challenges that happened in Q1 will be behind us as we look at Q2 going forward and I’ll provide more comments as we get into the discussion today. On the financials, Steve will go into great detail, but I want to say thank you for all the work that the team has done as we ended Q1 with $304 million in cash, which was $2 million above the previous quarter, and GAAP net income of 11 million, and continue to reduce leverage as we came into Q2. On MannKind-101 with clofazimine inhalation suspension, we are moving into a promising area as we think about our nebulizer version.
We are next on deck for this product to be developed and be a key part of NTM treatment worldwide. When we look at the NTM prevalence, this is continuing to grow and the unmet need exists around the world and we believe this will be over a $1 billion opportunity with two players over the coming years. Patients are suffering greatly and we’re gearing up to hopefully bring them a new solution. As you can see in this chart, the unmet need really focuses on the US and Japan, which is where 80% of our clinical trial sites roughly will be. As I share with you here our ICoN-1 Phase 3 study design. We’ll be having our investigative launch meeting here next month to really talk about the study design and the expectations for this trial and the interest is growing as we already have about 80% of the sites identified who are currently gearing up through the contracting process with our hopes to enroll our first patient by the end of Q2.
We’ve aligned with the FDA on our co-primary endpoints. Our Phase 3 is progressing and I want to remind everybody that we have 12 years of exclusivity between orphan and QIDP designation. As we look forward to the next up in our pipeline is IPF or cough fibrotic diseases because we could also be looking at PPF and other pulmonary-related conditions for 201. When you look at this, it’s continued to become an unmet need with only two products approved and littered with failure, this is a very, very difficult disease to treat and harmonize the types of patients you’re studying. But when you do look OFEV has done over $3 billion in 2022 and $3.8 billion, I believe, in 2023. So this is an exciting opportunity. And the reason we’re excited is when you look at this slide, we believe strongly this product can compete in an evolving landscape and we’re excited that by moving this into an inhaled version, we could potentially reduce the side effects that we see with oral OFEV and maybe dose higher into the lungs than we can currently get with the products available.
We believe our Rat PD bleomycin study is the first indicator that the doses we’re identifying can meet the needs of these patients, as we have not published this data yet, but we do have internal data, and we’ll continue to look at other ways to triangulate the best chances for success with an inhaled version. 28-day talks have now been completed, and chronic talks can be done at the same time we roughly getting the Phase 1 data. We’re looking forward to moving this forward into humans here in the next month. Now I’m going to focus on the endocrine business unit. Our endocrine business grew 7% year-on-year on the strength of Afrezza. As we look down, you can see the growth of Afrezza was offset by the decline in V-GO. When you look at V-GO, we reduced our sales force support dedicated to V-GO in July of last year, and in January this year, we transformed our sales force footprint and added more resources towards Afrezza.
This has directly impacted V-GO as we doubled down our efforts to get ready to grow Afrezza faster. Some of the key things that we did this year that we should start to see the fruits of that labor here in Q2. On the field restructuring is we added field reimbursement teams, additional training support, and key account managers and now we’ll be gearing up to support medical as we get ready for the release of INHALE-3 followed by INHALE-1. We believe Q2 is already starting to show the benefits of this focus as we’re up 7% in the month of April, year-over-year, and we’ll continue to watch this trend closely as we close out Q2. We’re really excited about the new data on Afrezza and how this could impact our growth trajectory in healthy, to remind you is our Type-1 study where we went head to head against the standards of care, whether that be MDI or AID pumps.
We are utilizing a new conversion dose upfront which we just presented this data at ATTD, and we’ll also have another meal tolerance test followed by baseline, followed by week 17, which has not been presented yet but our goal here is equal efficacy to the standard of care, which includes the AID. And the reason that’s important is doctors perceive this to be the best thing for their patients. We think it’s going to be critical to really understand that data as we get ready for the launch. We do want to update Conversion Figure 1, and we’ll make a decision on whether we do this separately or together with the PEDS data based on the FDA feedback we get later this year. I’ll also remind you that there’ll be a second data readout later this year for 30 week data, which will provide some interesting insights as we look at patients who got to week 17 and continued for an additional 13 weeks, as well as the remaining cohort of patients who didn’t switch, who switched for the first time because now doctors will have more data and more experience around titration and dosing and hopefully, we continue to see that progress as people switch to the second round versus the first round.
INHALE-1 is a pediatric study focused here in the U.S., and that one is almost 40 centers, and we expect to secure pediatric approval in, 2025 and beyond and that will depend if we file on six months or 12 months of data. Let me remind you the growth opportunity for Afrezza that we look at over the coming decade. First, we know Type-2 will continue to be dominated by GLPs, so we are now double down our efforts on Type-1 diabetes with INHALE-3, which we started last year. With that data coming out, we believe that will set us up for continued success in Type-1 diabetes to go head-to-head against the competition. As we look into the future, children with INHALE-1, that will be a critical milestone and pivot point. As I’ve always said, most diabetes innovations have started with children, whether that be CGM or the original insulin pumps that Outman developed.
And finally, gestational diabetes is getting a lot of attention these days for lots of good reasons, and we believe that the support around Alfreza will continue to grow as interest and guidelines get updated and as more data gets generated. These will be long-term strategic initiatives for Afrezza that some of which we will control and some of which are outside of our control. With that said, I’m now going to turn it over to Steve Binder to walk us through the financials.
Steve Binder: Thanks, Mike, and good afternoon. I am pleased to review select first quarter 2024 financial results. Please supplement this call by reading the condensed consolidated financial statements and MD&A contained in our 10-Q which is filed with the SEC this afternoon. The first quarter extended our streak of exceptional quarterly revenue growth with total revenues growing 63% versus the first quarter of 2023. This was our eighth consecutive period of quarter-on-quarter revenue growth. Let’s start at the top of the table with Tybeso DPI royalties, which generated $23 million in first-quarter revenue, a growth of 94% over 1Q 2023. If you listened to UT’s earnings call last week, strong patient demand for this innovative product is driving growth in our royalty which is based on UT’s Tyvaso DPI net revenues.
Collaboration and services revenue was $25 million increase of 118% versus first-quarter 2023, which mainly resulted from a higher level of production activity, a higher volume of semi-finished Tyvaso DPI units sold to UT with a higher average selling price per unit and a new source of revenue kind of certain SKUs of Tyvaso DPI instead of using a third party or sending to UT for kitting. Net revenue of $14 million grew 16% versus the first quarter of 2023, which was primarily driven by a lower growth to net percentage of 31% versus 38% in the prior year and a price increase. The lower growth to net percentage was mainly the result of a change in estimate for Afrezza product returns, included in our first quarter Afrezza results is an unfavorable impact to net revenues due to the interruption of our co-pay card services when Change Healthcare had a cyber intrusion in February, which completely interrupted co-pay support as well as severely impacted the ability of pharmacies to fulfill prescriptions.
Our co-pay program was down for approximately two weeks. VGO dropped 16% to $4 million in the first quarter of 2024, which is mainly driven by lower demand resulting from transitioning our focus on volume growth to a focus on profitability for V-go. The next slide shows our revenue growth by source and basic earnings per share on a quarter-by-quarter basis over a rolling eight-quarter period in the second quarter of 2022 to the first quarter of 2024. For the first quarter of 2024, far right-hand bar total revenues of $66 million increased 13% sequentially versus the fourth quarter of 2023 and are up 251% versus the second quarter of 2022, which is the first quarter of Tabesa DPI commercial sales by UT. Our exceptional revenue growth is dropping to the bottom line as you can see below the graph where we show our quarterly basic earnings and loss per share.
The first quarter of 2024 was the third straight quarter with net income and positive earnings per share, $11 million of net income, and $0.04 a share, which was a significant increase over the third and fourth quarters of 2023. Moving on to our GAAP to non-GAAP reconciliation, we had GAAP net income of $11 million which, when adjusted for select non-cash items for the sole portion of royalty revenue, interest expense on liability for sale of future royalties, stock compensation, and gain or loss on foreign currency transactions which is related to our insulin purchase commitment produced a non-GAAP net income of $15 million versus a 2023 first quarter non-GAAP net loss of $5 million. This is a $20 million quarterly year-on-year improvement.
On the fourth quarter earnings call, I laid out our plans for deploying the $300 million in cash and investments on our balance sheet at the end of 2023 against our highest priorities. This slide is an update of what we discussed at year-end, as the priorities have not changed since that call, but we have begun to execute the plan, as you can see from the comments highlighted in green. Now that we have fast-track designation and FDA clearance to move forward with the Phase 3 clinical trial for MNKD-101 and FDA clearance to move forward with the Phase 1 clinical trial for MNKD-201, we will invest behind these trials to see them executed as quickly and efficiently as possible. As we look for opportunities to grow Afrezza faster from our new commercial model and upcoming data readouts, we intend to wait to see the results from INHALE-3 and INHALE-1 before making a decision on whether to increase investment behind Afrezza.
Moving on to changes in our debt structure that were executed in early April. First, we paid off the mid-cap senior secured debt which freed us of the encumbrances on our assets and discharged the associated debt covenants while eliminating our higher cost debt, which had an interest rate of 40%. We then extinguished the convertible debt without man’s trust by converting part of the debt into 1.5 million shares to the contractual conversion rate and paid cash for the remaining outstanding debt. By paying cash, we reduced expected dilution by over two million shares that were backing the convertible debt. We also believe that the per share price paid in cash of $4.31 was a bargain for the company as we see a price on our stock in this range is severely undervalued.
We continue to evaluate the senior convertible debt as we get closer to the March 2026 maturity and intend to do what is in the best interest of shareholders. To summarize, we grew total revenues 63% year-over-year. Another exceptional quarter for revenue growth, and we achieved our eighth consecutive quarter of revenue growth, which has us on a run rate of over $250 million in annual revenues. We recorded $11 million in net income, our third consecutive quarter of net income. Our growing revenue is being used to fund our capital allocation priorities and has favorably impacted our ability to grow net income and earnings per share. We ended the quarter with $2 million more in cash and investments on our balance sheet than when we started the quarter without needing to sell stock, raise debt, or enter into a BD deal, a first in my seven-year tenure in MannKind.
As this is my last earnings call, I would like to thank Mike, the extended MannKind team, the MannKind Board, and those shareholders who supported us through the dark days when our continued existence was in question as this support allowed the executive team to execute our strategy and build MannKind into a company that has a bright future and one that we can all be proud of. Thank you. And now I’ll turn it back over to Mike.
Michael Castagna: Thank you, Steve. And as you can see, we are on the upswing as our revenue trajectory continues to be strong with continued shots on goal increasing to leverage our infrastructure over the coming years. Let me officially welcome, Chris, and say a big thank you to Steve, as he couldn’t have gotten done without him. So, Steve, thank you for everything you’ve done. Chris, I’ll give you a few seconds here. Welcome to MannKind.
Chris Prentiss: Thanks, Mike. As you and Steve just highlighted in reviewing our quarterly performance, this is an incredibly exciting time to join MannKind. Some may notice from my background that I’m actually returning to MannKind, where I began my biotech career nearly two decades ago. The company I knew 12 years ago has undergone a remarkable transformation with growing revenue streams and a robust pipeline focused on improving the lives of people living with diabetes and orphan lung diseases. My focus is working with the team to expand upon the positive momentum as we propel the company forward. I look forward to engaging with all of you at an upcoming conference.
Michael Castagna: Thank you, Chris, and welcome back to MannKind.
Chris Prentiss: As you look at 2024, we pretty much hit all the milestones we laid out so far in Q1 and are on track to hit the milestones we’ve laid out for Q2. We’re really excited about this year in the second half and one thing I didn’t talk about is the potential approval for India. There was a clinical review there in India. We are submitting some feedback that they requested and we do expect market authorization to happen with potential approval by the end of the year for a launch potentially in 2025. We’ll continue to give you updates as we progress on that, but I do want to let you know because that is public knowledge at this point. As we look at our anticipated key value drivers, MannKind-101 is now underway. MannKind-201 has proceeded to clear.
We look at OFEB revenue of $3.9 billion. That’s a tremendous opportunity to help a lot of people around the world. Tabesa DPI we’ve updated for every 10,000 patients covered now looks to be roughly $300 million to $350 million in revenue as we continue to look at upside projections on our production. UT-T cell studies reading out could provide meaningful upside from where we are today as well. On the endocrine business, we believe pediatrics is key and we’ll know that answer later this year, as well as the combination with INHALE-3 and continued growth of Afrezza internationally. As I look at the diabetes market, I continue to see roughly two-thirds of sales are outside of the US for insulin and that’s a tremendous opportunity to help more people around the world, and not one we pursued rapidly over time because we believe that we need to get these data sets that we have coming out this year, which will set us up for 2025 and beyond.
As we look at opportunities to communicate with shareholders, we have three things coming. We have the Annual Shareholders Meeting next week. It will be via the Internet. Please submit your questions there. Please vote for your shares as well. I just did mine last night. Scientific conferences will be at the endocrine. There’s two endocrine meetings coming up, the ADA meeting here at the end of June and the CD meeting at the end of mid-August. And then we have lung disease, which will be one of our first times attending as an NTM patient conference, followed by the American Thoracic Society, both in San Diego in the next two weeks. So we’ll have a scientific presence where we can and continued engagement with key thought leaders at these places.
And we’ll be at the RBC Conference next week, followed by Leerink in Boston, in July and I believe we just got another invite for August for another conference. We’ll update that shortly. Thanks again for everything. We look forward to talking with you all next week. And please bring on your questions and we’ll try to answer them as best we can. Thank you.
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