Interview with mannkind ceo and cfo relationship

interview with mannkind ceo and cfo relationship

A conversation with MannKind's CEO about the biotech's future with Afrezza, payers, Relationships with managed-care organizations. In spite of this, Nate still believes MannKind will be a big winner for him. Equity · Impact Partners BrandVoice · Investing · Markets · Personal Finance . be that the CEO who signed the agreement for Sanofi was ousted a few . the company could enter into a relationship with an outside party for any of the. Russell Reynolds' proprietary survey of more than top-tier CFOs demonstrates the benefits of a healthy CFO-CEO relationship.

So I just want to remind for those of you new to the story today that we have 4 buckets that we look in molecules and the speed of which they can get to patients into market.

Bucket 1 are known compounds already delivered to the lung, that's an area of focus for us. And bucket 2 is our second area of focus for things that we'll bring forward on our own, which are known compounds, nonlung delivered but acute use. Bucket 3 and 4 we find of interest, but given the time and the commitment of financial resources, these are areas that we would focus on external innovation and investments with.

At the end of the day, we formulated over 40 Technosphere molecules, and we're very excited to start to finally move these products forward into patients. Now let me switch over to Afrezza.

Afrezza, we're focused on building the next standard of care in mealtime insulin. I know we've been saying this for a while, but it's important to know that change -- changing habits just takes time.

We've used insulin the same way for 95 years, and we don't expect to change that overnight. However, I can tell you the conversations I've had have dramatically changed over the last 24 months of being here from doctors not wanting to see us to saying, "Hey, sit down and teach me everything I need to know. And as we go into pediatrics and have now done the United deal, the believability in our future and being here but also the technology being utilized in pediatrics demonstrate safety as well as the technology being delivered to the lung in another disease area continues to bring confidence to our prescriber base here in the U.

In the end, we believe Afrezza is a very unique mealtime insulin that solves an unmet need predominantly because of how you take it, when you take it and the experience you have when you're using it. And I won't go into all the details of the marketing messages. But I think for those of you who want to talk about it further, we're always open for discussion.

I think the next slide here really demonstrates what we're talking about when we think about Afrezza. This data just got published in September.

And what it really starts to show you is that within 60 minutes post-meal, your sugars are going down. That is a very different experience than post-meal after you're eating, you see your sugars going up for an hour and you don't know what's going to happen until 2 hours. So if you're a patient, think about that 0 to 4 hours after you're eating and you're watching your sugars and you're testing them, you want to know what's going on, we gave you that real-time feedback, and we're very excited as we see Libre continue to penetrate the market here in the U.

And we see Dexcom continue to grow. Over time, as our patient base starts to learn how to use Afrezza and doctors get that experience, there will be an accelerated curve for patients who really want to see that real-time control and that real-time feedback. Next comment here is around our prescription. So we look at -- there's 2 types of data. Some of you see weekly data on the Internet. I will talk about prescriber data, which is a little more detailed than that is given to the public through the Bloomberg terminals.

The data here is based on prescriber data, and we've seen 5 -- out of the last 5 weeks, we've broken In a few weeks, we've come close to scripts a week. We're breaking 7 -- and numbers consistently now as we go forward.

We continue to expect to see Afrezza growing for years to come. Another question we often get is around our base business and our new member Rx versus NRx. So we continue to see very positive momentum. We continue to see great new prescribers joining us every week and the depth of prescribing increasing. We all want it to be faster.

And in closing Q3, I want to let you know about several changes we made in Q4 that you should be aware of. One, we've transitioned to a new Head of Sales, who has deep diabetes background and thought leader relationships, who will be instrumental in helping us recruit and retain talent given the competitive job market. Number two, we've hired several new marketers starting with Garrett, our Chief Marketing Officer, who we previously announced.

Now that we've stabilized our company and our future prospects, she is working on a plan to put Afrezza back on track to become a major growth driver over the coming years. Three, we continue to be prudent with our capital allocation by holding openings and spend where appropriate as we rebalance our company priorities to include tremendous focus on the Technosphere platform, balanced by driving Afrezza growth in the near term.

And finally, we're building out our program management office in business development functions as we believe these will be critical as we transition our company back to a growth engine. That said, I will now turn it over to Steve. Binder, MannKind Corporation - CFO [4] Thanks, Mike, and good morning. I'm excited to discuss our third quarter and year-to-date results, which show continued triple-digit year-over-year growth in Afrezza revenue, the external validation of our Technosphere platform with our United Therapeutics agreements and continued progress in restructuring our balance sheet and recapitalizing our company.

Let's start by reviewing the third quarter and 9-month year-to-date financial results. The net revenue increase was favorably impacted by volume, which Mike discussed earlier on the TRx growth slide, cartridge mix and price, but was also unfavorably impacted by product returns for expiring product. Focusing on our gross-to-nets, there are a number of intermediaries between MannKind and the patient that take a large bite out of our revenues, which include managed care and government program rebates, chargebacks, wholesaler fees, patient co-pay support and product returns.

In addition, we now have charges for product returns, which were not required in under previous revenue recognition guidelines. We expect our managed care contracts to reset inwhich will lower the amount of rebates we pay per prescription next year.

The Delicate Dance: Improving the CEO-CFO Relationship

In addition, we have increased our returns reserve accrual to 3. The increase is primarily due to the same reasons already outlined, increased managed care and government rebates as well as recognition of product returns as a gross-to-net deduction in I'd like to take a minute to address our cost of goods sold. We expect to get better at forecasting our production and revenue volumes to minimize future write-offs. In addition, our cost of goods include excess capacity costs, which are costs associated with running an inefficient manufacturing operation due to low volumes of production.

These costs are recorded as expenses in the period in which they're incurred, but will eventually get captured into inventory costs as production volumes increase.

As long as we have a low volume of inventory write-offs and minimal adverse foreign exchange fluctuation to our FX hedge on our insulin purchase commitment in Q4I would expect to report a positive gross profit next quarter. This debt principal slide is an update from the second quarter earnings call and shows the continued progress in reducing our debt from July 1 of through Octobera remarkable 16 months of activity that has significantly strengthened the company's balance sheet.

Focusing on the Deerfield debt. As we did last quarter, we look at our debt-to-market-cap ratio, which has been reduced from 1. Put this in perspective, our market cap ratio of 1. Michael Castagna Thank you, Rose, and good morning to everybody, especially those in the West Coast who I know had to get up extra early, like us, to get ready.

I wanted to say we continued to make tremendous progress in turning around our company. Our institutional shareholder base continues to grow, and our retail investor base is as active as it's ever been based on the number of comments I received.

interview with mannkind ceo and cfo relationship

Additionally, we've met with several Wall Street analysts who want to get updates on the company, as well as lots of new potential institutional investors.

We feel very good about the story of the company and the direction we're heading. One of the big focuses of us is enhancing our shareholder value. We are working on a cohesive strategy to transform the company with an entrepreneurial spirit that drives innovative solutions.

Let me walk you through these four pillars. First, the outcome of our TreT results, back in June, confirm that for us that Technosphere is a differentiated technology platform that we have historically undervalued and underinvested in. We invested, last year, in the platform based on the feedback we heard from potential partners as we believe we could create value by moving our various Technosphere powder formulations into patients.

We will seek to move several new formulations as we believe these molecules provide patients with a unique experience to manage their various disease conditions. To accomplish this, we're not only going to be looking at our own resources, but looking to external sources to accelerate our ability to move these assets forward.

Second, we published our STAT trial, a few weeks ago, which demonstrated what we always knew, than when appropriately dosed Afrezza provides a winning combination of efficacy with low rates of hypoglycemia. While this study was small and in pilot, it did confirm we believe this is meaningful to customers that we discussed with. It also opens the door for new conversations and reinforces the unique PKPD of our product. We have our work cut out for us to change the standard of care, but as we look out we don't see any competitive entrants, and we believe we have over 15 years of patent life ahead of us to make this dream a reality.

Diabetes is a tough market, as we've seen several competitors start to dropout and layoff their employees. But we've made it through the worst, and as you can see, we've grown basically every quarter since we got the product back despite our limited financial position. We had a lot of things to cleanup that just took time, and we've been focused on high-value outcomes-based strategy versus a low-price volume strategy to grow Afrezza. This strategy is starting to pay off as we look at the payer landscape changing and our data readouts continue to demonstrate the unique profile of our product.

However, I believe we are moving to an outcomes-based healthcare system where interconnect care and outcomes will matter instead of volume of care. Third, we've been fortunate to restructure our balance sheet without having more restrictive covenants that have put some of our peer companies and their shareholders in bad situations over the past year.

And I want to thank them, the Mann trustees, and Bruce, our senior secured debt-holder for helping us out and giving us the runway we need to get to where we are today, which is basically a three-year runway without any major debt due. We now have a lot more in flexibility to invest in the right opportunities to run our company as we go forward now that our balance sheet is in better shape. Thank you, Steve, for helping us get through this over the last 12 months.

Fourth, we are actively seeking several B opportunities that we believe will diversify our growth drivers and compliment our investments into our infrastructure that we've built, and align with our future areas of focus in endocrinology and pediatrics.

Now, let me talk about some of the Q3 highlights. Technosphere platform is one that has continued to show evolution between the Receptor Life Sciences deal we closed as well as the United Therapeutics deal that closed a few weeks ago. I'll give you more details on this in a second. These are important numbers that Steve will go into more detail in our financials, but I want to highlight to you the top line gross and net because as we made our transition this year, on several key decisions we had to make, really impacted gross-to-net in We continue to increase the scientific acumen and knowledge out there with Afrezza and by our STAT study as well as our presence at several major conferences over the last several months.

Additionally, we completed cohort 1 of our pediatric program, and are now well underway of progressing cohort 2. Just to remind you, cohort 1 is the first part of our pediatric trial where we dose patients from 13 to year-old. And now, we're focused on patients that are eight to 12 years old. Let me go into more detail for those of you who are new to our story and have not yet followed all the United Therapeutics details. So we're very excited to be partnering with such a unique company focused on patient outcomes in the areas of the lung.

Well, we licensed their product of worldwide exclusive rights in a collaboration for treprostinil. As part of this agreement, they have exclusivity to the Technosphere platform for PAH.

And as the product gets approved we expect low double-digit royalties. As you look at United Therapeutics, one of their major growth drivers is Tyvaso, which is the product we expect to continue to continue to improve the patient experience upon, and we're glad to see that that product continues to do well in their shop, and we couldn't have partnered with a better company.

So I just want to remind for those of you new to our story today that we have four buckets that we look at molecules and the speed of which they can get patients into market. Bucket one are known compounds already delivered to the lung, that's an area of focus for us. And bucket two is our second area of focus for things that we will bring forward on our own which are known compounds, non-lung delivered but acute use.

Bucket three and four, we find of interest. But given the time and commitment of financial resources, these are areas that we would focus on external innovation investments with. At the end of the day, we formulated over 40 Technosphere molecules. And we are very excited to start the filing of these products forward into patients. Now let me switch over to Afrezza. Afrezza, we are focused on building the next standard of care in mealtime insulin. I know we have been saying for awhile.

But it's important to know that changing habits just takes time. We have used insulin the same way for 95 years and we don't expect to change that overnight.

However, I can tell you the conversations I have had have dramatically changed over the last 24 months of being here from doctors not wanting to see us to saying, hey, sit down and teach me everything I need to know.

interview with mannkind ceo and cfo relationship

That tone has continued to shift quarter-on-quarter. And as we go in pediatrics and the believability in our future and being here but also the technology being utilized in pediatrics, demonstrating safety as well as technology being delivered to the lung and other disease area continues to bring confidence to our prescriber base here in the U.

In the end, we believe Afrezza is a very unique mealtime insulin that's solve an unmet need predominantly because of how you take it, when you take it, and the experience you have when you are using it. And I won't go in all the details of the marketing messages, but I think for those of you who want to talk about Afrezza, we are always open for discussion. I think the next slide here really demonstrates what we are talking about when we think about Afrezza.

This data just got published in September. And what it really starts to show you is that within 60 minutes post meal, your sugars are going down.

That is a very different experience than post meal after you are eating, you see your sugars going up for an hour and you don't know what's going to happen until 2 hours.

So if your patient thinks about that 0 to 4 hours after you are eating and you are watching your sugars and you are testing them and you want to know what's going on, we give you that realtime feedback. And we are very excited as we see Lebre [ph] continue to penetrate the market here in the U. It will be an accelerated curve for patients who really want to see that real-time control and that real-time feedback.

Next comment here is around our prescription. So we look at there is two sets of data.

35 Years Later: Assessing the Effectiveness of the Taiwan Relations Act_Panel3

Some of you see weekly data on the internet. I will talk about prescriber data which is little more detailed that is given to the public for the Bloomberg Terminals. The data here is based on prescriber data. And we have see -- over the last five weeks, we have broken and in few weeks we have come closed to scripts a week. We are breaking and numbers consistently now as we go forward.

We look forward to breaking through And we have had double digit growth from Q1 to Q2 and Q2 to Q3. We continue to expect to see it further growing for years to come.

Another question we often get is around our base business and our new member, Rx versus NRx. So, we continue to see very positive momentum. We continue to see great new prescribers joining us every week, and then make prescribing increasing. We all want it faster. And in closing Q3, I want to let you know about several changes we made in Q4 that you should be aware of.

One, we transitioned to a new head of sales who had deep diabetes background and relationships, who will be instrumental in helping us recruit and retain talent given the competitive job market.

Number two, we have hired several new marketers starting with Garrett, our Chief Marketing Officer, who we previously announced. Now that we have stabilized our company and our future prospects, she is working on a plan to put Afrezza back on track to becoming major growth driver over the coming years. Three, we continue to be prudent with our capital allocation by holding openings and spend where appropriate as we rebalance our company priorities to include tremendous focus on the Technosphere platform balanced by driving Afrezza growth in the near term.

And finally, we are building out our program management office and business development functions as we believe these will be critical as we transition our company back to a growth engine.

That said, I will now turn it over to Steve. Steven Binder Thanks, Mike, and good morning. I am excited to discuss our third quarter and year-to-date results which show continued triple digit year-over-year growth in Afrezza revenue, the external validation of our Technosphere platform with our United Therapeutics agreements and continued progress in restructuring our balance sheet and recapitalizing our company.

Let's start by reviewing the third quarter and nine month year-to-date financial results. The net revenue increase was favorably impacted by volume, which Mike discussed earlier on the TRx growth slide, cartridge mix, and price but was also unfavorably impacted by product returns for expiring product.

Focusing on our gross to net, there are a number of intermediaries between MannKind and the patient that take a large bit out of our revenues which included managed care and government program rebates, charge backs, wholesaler fees, patient co-pay support, and product returns. In addition, we now have charges for product returns which were not required in under previous revenue recognition guideline. We expect our managed care contracts to reset inwhich will lower the amount of rebates we paid per prescription next year.

In addition, we have increased our returns reserve accrual to 3. The increase is primarily due to the same reasons already outlined. Increased managed care and government rebates as well as a recognition of product return as a gross to net deduction in I would like to take a minute to address our cost of goods sold.

Included in the third quarter cost of goods are inventory write offs of million dollars which is a result of producing more finished product and we will be able to sell before the product date gets too close to expiration.

We expect to get better at forecasting our production and revenue volumes to minimize future write offs. In addition, our cost of goods includes excess capacity costs, which are cost associated with running an inefficient manufacturing operation due to low volumes of production.

These costs are recorded as expenses in the period in which they are incurred will eventually get captured into inventory cost as production volumes increase. As long as we have a low volume of inventory write offs and minimal adverse foreign exchange fluctuation to our FX hedge on our insulin purchase commitments in Q4I would expect to report a positive gross profit next quarter.

This debt principal slide is an update from the second quarter earnings call and shows a continued progress in reducing our debt from July 1, through October Remarkable 16 months of activity has significantly strengthened the company's balance sheet. As we did last quarter, we look at our debt to market capital ratio, which has been reduced from 1.

Put this in perspective, our market cap ratio of 1. I will close out saying a few words about our cash position and capital allocation. We plan to deploy this cash behind our growth drivers of Afrezza and our Technosphere platform. But more importantly, to spend in the places that provide us with appropriate returns to create long-term shareholder value. Now, I'll turn it back over to Mike for some concluding comments. Michael Castagna Thank you, Steve.

Some of this I've talked about, our Q4 trends and outlook, we expect to see TRx in weekly sales continue to trend positive. It will continue to balance week-to-week. I would not let that dissuade you from paying attention to the monthly and quarterly trends that we look at versus weekly-to-weekly sales was filled every four weeks from refills that would've happened four weeks prior.

Payer access discussions have been very positive. We expect that to continue to improve, and not only improve in a way that gives us more coverage, but improve in a way to actually remove some of the restrictions and friction that happens when a doctor or a patient go to get Afrezza.

  • Edited Transcript of MNKD earnings conference call or presentation 1-Nov-18 1:00pm GMT
  • MannKind Corporation (MNKD) CEO Michael Castagna on Q3 2018 Results - Earnings Call Transcript

We expect to see reduction in prior authorizations as we go forward in and beyond. We continue to publish the scientific data supporting Afrezza, as evidenced by our meetings just a few weeks ago at EASD and several new publications coming out as well as study readouts that we [indiscernible] and others. We hopefully will complete pediatric study cohort 2 in early Q1. Our pipeline plans are in progress with several assets that are moving forward.

And capital allocation remains a priority, where we continue to balance the short-term needs of reduction our cost and spending on the pipeline versus investing in Afrezza. When I think about where the company's been in the first year of Afrezza launch and how much money we've spent and how much we spent, it really pales in comparison. And so we really have not invested enough to grow Afrezza where we want it to be, and we're continuing to allocate capital to the growth drivers, such as DTC that you've seen turn back on recently.

In the end, we will continue to balance these needs and enhance shareholder value, which is the major focus of ours as we go forward in terms of accelerating growth. When I look at the next five years, we see nothing but positive things in front of us between the Technosphere platform molecules which we believe will bring in-licensing opportunities as well as royalties at the top as the new [indiscernible] here today, we look at Afrezza U.

Our Afrezza international expansion is well underway, with Brazil expecting approval in Q4, and India progressing in a phase 3 trial for filing there, as well as Mexico and Canada we continue to work towards.

We continue to look at our pipeline and see what can we bring in and what can we out-license, and move assets faster down the road. We continue to file this product as we go forward. Going to stop there, and open up for questions. Question-and-Answer Session Thank you. Brooks O'Neil Well, good morning guys. You've accomplished a tremendous amount, so congratulations on that.

interview with mannkind ceo and cfo relationship

I have a few questions. I was hoping, Mike, you might talk about the unique Afrezza mechanism of action or timeline. I know it's, obviously, fast-acting coming on as well as coming off. And I was hoping you might compare that action with some of the quote new unquote faster-acting insulin that have been announced into the marketplace recently.

Michael Castagna Yes, thank you, Brooks. First, when we think about the Afrezza, the second you inhale the FDKP really delivers the drug directly to the lung, it gets into the blood very quickly, which we believe is the unique competitive advantage that can't be replicated in what we see today out there with injectable insulin. We've seen really unique PKPD, and we'll continue to focus on that opportunity.

And I think the STAT study really demonstrated the uniqueness of our product where you can give it as quickly as one hour and not cause more hypoglycemia. That's never been done with anybody taking insulin, to say that dose your drug in one hour and get that real-time control, which we believe with the CGM out there coming and continue to penetrate the market will show real clinical meaningful benefits. So I was just presenting this week to primary care providers. And I asked the question how many of them know what CGM is, and it was amazing how far we still have to go in terms of educating our audiences out there.

But they don't know what CGM is, and so then it comes back to Afrezza as we continue to penetrate primary care, where half our sales today come from primary care doctors we call on. We have a long ways to go to continue to change peoples' experience and knowledge.

Edited Transcript of MNKD earnings conference call or presentation 1-Nov pm GMT

But as that happens and as they get that experience with Afrezza we believe that unique PKPD and fast onset and fast offset will provide real-time patient benefit. To talk about in the context of the recent competitive launches as well as what you may have seen out there with -- insulin, we don't believe any of these are real competitive threats. They are incremental improvements over their old products to avoid biosimilar competition.

And I'd just point out that as we look at fast-acting aspart out there for the last 12 months, while they probably had a faster uptake than we did, also they probably spent a lot more money investing in the commercial aspects than we have. But they were really converting existing patients over from one product to another. And the sad part is, when I talk to doctors what is hear is patients were disappointed that the promise there was over-delivered and they didn't really experience what they thought.

interview with mannkind ceo and cfo relationship

So there's -- when we hear that people are starting to de-invest in that particular molecule. And so we'll find out what really happens.

interview with mannkind ceo and cfo relationship

When we look atscripts a week, and someone's getting 5, orwe still have a long ways to go to changing the market towards faster-acting, I'll say, insulin analogues, whether its our products or competitive ones. Doctors' reluctance to change is absolutely amazing, but I think the good products always win in the end. So maybe you could just talk a little bit about the steps you're trying to take to change that behavior, and maybe you could highlight Dr. Kendall's impact or potential to move the needle with doctors in that regard.

Michael Castagna Yes, so two questions. So the first one is, what are we doing to move that needle. I think that's exactly what we're focused on now. That we got to where we are we can choose to make Afrezza a major growth driver.

And the fundamental question is what are the one or two levers that it's going to really take to change that, is that going to be a major DTC campaign, is that going to be a major educational campaign effort out there with third parties and doing regional conferences.

But that's exactly what we're working on as we go into Now that we've really freed up our ability to not run the company quarter-to-quarter and think about years and how do we start to transform over the next coming years. So I think that's a major focus ours to figure out what those levers are.

We have a lot of flexibility in our balance sheet to reprioritize or bring in new investment if we had to. But we're really conscious of all the dilution that's happened over the last year to fix the balance sheet and get to where we are and so just trying to balance short-term growth with long-term prospects.

But once we have that plan in place, believe me we will be executing to drive that as quickly as possible. The comment on Kendall is a very interesting one. I mean, it's really changed the top echelon of endocrinologists that they really just didn't know our data, and so they'll make comments that are really not based on science, and not based on scientific information, and that's really where Kendall has brought a lot of credibility to sit there and go toe to toe with them and educate them on our historical data because that's something MannKind has not always done as well as we wanted.

So what this brings thought leaders along, demonstrate why the product is unique. It's not just that it's inhaled, and that's not the reason you should ever use the drug.

But it's really that uniqueness of the PKPD, the endogenous glucose suppression, and what this really means from hypoglycemia. We have to manage these patients across the doctors, the pharmaceutical partners, and use the tools we have in our tool bag to give a better patient experience.