MannKind Corporation Q4 2008 Earnings Call Transcript

| About: MannKind Corporation (MNKD)

MannKind Corporation (NASDAQ:MNKD)

Q4 2008 Earnings Call

February 17, 2009 4:00 pm ET


Matthew J. Pfeffer – Corporate Vice President & Chief Financial Officer

Hakan S. Edstrom – President & Chief Operating Officer

Peter C. Richardson – Corporate Vice President & Chief Scientific Officer

Alfred E. Mann – Chairman & Chief Executive Officer


Cory Kasimov – JPMorgan

Thomas Russo – Robert W. Baird

Michael Tong – Wachovia Capital Markets

Elizabeth Naldi – Piper Jaffray


Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation Fourth Quarter 2008 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, February 17 of 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. I’ll first summarize our financial results for the fourth quarter of 2008 as reported earlier today. Next Hakan and Peter will provide an update on key accomplishments during the past year, and finally, Al will comment on the current situation and our outlook going forward. We’ll then open up the call to your questions.

But before we proceed further, please note that comments made during this call will include forward-looking statements within the meaning of the federal securities laws. 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, February 17, 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's start with the financials. For the fourth quarter of 2008, total operating expenses were $81.8 million, compared to $79.1 million for the fourth quarter of 2007. R&D expenses were $68.8 million for the fourth quarter of 2008, compared to $66.8 million for the fourth quarter of 2007.

The increase in R&D expenses was primarily due to increased manufacturing costs including clinical supplies for AFRESA, offset in part by lower purchase services and the associated clinical development programs and lower technology agreement costs in oncology research programs.

General and administrative expenses were $13.0 million for the fourth quarter of 2008, compared to $12.3 million for the fourth quarter of 2007 and $13.4 million for the previous quarter of this year.

G&A expenses increased from the fourth quarter 2007, primarily due to increased stock compensation expense. The net loss applicable to common stockholders for the fourth quarter of 2008 was $83.3 million or $0.82 per share, compared with the net loss applicable to common stockholders of $75 million or $0.75 per share for the fourth quarter of 2007.

For the full year ended December 31, 2008, total operating expenses were $305.8 million, compared to $307.4 million for 2007. R&D expenses were at $250.4 million in 2008, down $6.4 million from 2007, primarily related to lower technology agreement costs in our oncology research programs and decreased clinical development program expenses, offset slightly by increases in manufacturing costs, again including clinical supplies for AFRESA and associated clinical development program expenses.

G&A expenses increased by $4.8 million to $55.3 million for 2008, as compared to 2007 primarily due to salaries and stock compensation expense. The net loss applicable to common stockholders for 2008 was $303.0 million, or $2.98 per share, compared with the net loss applicable to common stockholders of $293.2 million, or $3.66 per share in 2007.

Our cash, cash equivalents and marketable securities at the end of the year totaled $46.5 million, which compares to $95.2 million at September 30, 2008, and $368.3 million at December 31, 2007. Cash at year-end 2008 included the first $30 million drawn against the credit facility from Al, but we didn't spend any of that money toward the end of the year.

Our cash burn decreased steadily during 2008 with $99.2 million spent in Q1, $88.6 million in Q2, $85.2 million in Q3, and $78.7 million in Q4. We expect this trend to continue and likely accelerate in 2009, ultimately reflecting a decrease in spend of somewhere in the range of 30% to 40%. With our cash on hand and the $320 million still available under the credit facility from Al, we believe we will be able to fund our operations at least into the second quarter of 2010.

I would now like to turn the call over to Hakan Edstrom, our President and COO, who will provide an overview of our accomplishments in 2008. Hakan?

Hakan S. Edstrom

Thank you, Matt and good afternoon. As you can well understand we are excited about the fact that we will submit the AFRESA NDA this month. After tremendous efforts from our people including the late-stage bioequivalent study of the commercial inhaler, compared with the clinical version and the final assembly of the NDA document, we are now in the electronic translation and hyperlinking phase.

The complexity and size of the final NDA has taxed our and our vendors' resources to the maximum. However, in spite of this and our relentless quest for a quality submission, we are pleased to be able to submit the NDA this month. And while we are now readying ourselves with the interactions with the FDA, regarding PAI inspections, queries regarding our filing and the potential advisor panel meeting, we’re also devoting significant efforts towards the commercialization of AFRESA.

This includes, as you well know, partnership discussions with returning as well as new partner candidates. These discussions will begin in earnest following the NDA submission later this month when we again can devote staff, time, and management focus towards these objectives.

Beyond that, we do not have any further comments regarding our partnership activities at this time. We've also made significant progress during this past year constantly improving our product, considering that we already have the advantage from a high bioavailability, certainly as compared to other product candidates in this category.

We had a favorable starting point. Now, having worked our key supply chain relationships and been fine-tuning our form fill and finishing processes, we are confident that we can effectively compete with both current state-of-the-art injectable insulin therapies and most oral therapies both in Europe and in the U.S.

In fact, we may be in a position to share more of the progress we've made in this respect at our next earnings call. And these efforts do not include the option we have with SemBioSys’ for the plant-derived insulin, which in itself makes good strategic sense, but is a more long-term opportunity.

Well with that, let me now hand the call over to Peter, who will give you an update on the status of our NDA and what we believe our label could look like considering our Phase III clinical trial data. Peter?

Peter C. Richardson

Thanks Hakan. I’m obviously very pleased to be able to report that the NDA is on track to submission by the end of this February. And as you know, we had a successful pre-NDA meeting held in the FDA on July the 14 of last year when the agency endorsed our position that with data generated since the end of the Phase II meeting, we’d be in a position to submit an application.

Remind that the agency requested an additional bioequivalent study comparing with the marketed commercial device and with that used in the clinical program known as clinical device. Following that meeting, the trial of 84 patients was setup, conducted, and analyzed with all data available and reported by the end of January 2009. Allowing for us to maintain the submission date projected for the end month.

The agency in addition have specific request for the analysis of data regarding hypoglycemia. The complexity of this analysis has been a rate-limiting factor in our ability to finalize clinical trial reports with summaries. The methodologies required to map the data collected through requested form extremely time consuming and complex.

In addition, some of these significant subsets of patients not normally required in an NDA was also requested, and the prediction of these analysis that involves areas of the organization outside of the clinical development fund to logistic supported writing and quality control in excess of 1000 narratives.

Indeed, although we did not get a specific letter from the agency, they asked that we conduct a special analysis of cardiovascular events pre-submission. The special pooling strategy was applied using external vendor to maintain impartiality. Following a rigorous methodology, we demonstrated no excess cardiovascular risk with Technosphere insulin compared to the comparative populations we’ve studied. Numbers fall below those triggering the need to further study, which the agency announced in November 2008 guidance regarding treatments intended to the use of diabetes.

So all studies are completed by the end of the year, including the additional bioequivalent study requested at the pre-NDA meeting. The pre-clinical study module was completed in December 2008, on a chemistry manufacturing control module is completed in mid-January 2009. The comprehensive clinical [Audio Disturbance] pharmacology studies other than the bioequivalent study, has finalized clinical reports by the first week in January and the remaining Phase III clinical trial reports comprising the last module were completed during the first two weeks of February and are in publication.

The summary documents of the modules will be completed during this week and final electronic publication should take between 10 to 14 days along submission of the full electronic dossier comprising of a 450,000 pages by the end of February 2009.

I would emphasize that size of an NDA is not unusual in this day and age. Relatively few unexpected findings have emerged in the completed studies. Summary analyses have been pre-planned to areas of special interest and the most complex areas have been in the assessments of pulmonary function and hypoglycemia. Extensive exploratory analyses of these data sets have been required to position us to support a claim to a substantial reduction in hypoglycemia as part of the proposed label.

These analyses also allow us to propose that based on the extensive data sets we’re presenting, there should be no requirements to the routine testing to pulmonary function. Finally, a full third-party blinded review of the massive data set generated in the over 1000 high resolution CT scans we performed in the program, they showed no imbalance in pulmonary lesions between patients treated with AFRESA and controls. This data will be the message we have in detecting any signs of tumor promotion.

We believe that the proposed label will support all of the anticipated claims that we had envisaged at the start of this program, which are, a hemoglobin A1C reduction as good as the gold standards for insulin used in Type 1 and Type 2 diabetes, but with superior early post-meal glucose levels, lower weights of hypoglycemia, less weight gain and an improvement in fasting plasma glucose levels.

In addition, we believe we demonstrated by the extensive data set reflected that there is no justification for the use of pulmonary function monitoring in the management of patients using AFRESA.

Thank you. Al?

Alfred E. Mann

Thank you, Peter. Peter has given you a brief overview of our NDA and some label expectations for AFRESA. That remarkable file over 450,000 pages is a very comprehensive compilation of the results of a large program that included extensive preclinical studies demonstrating the unique scientific advantages and clean toxicology and carcinogenicity of AFRESA and the data and the valuation over 40 clinical trials in more than 5000 people.

Peter, who spent about 20 years at Novartis, describes the NDA as the most sophisticated and most positive he has ever seen. Indeed, the NDA documents, the data that I say to you confirms the extraordinary efficacy and safety of AFRESA. The data shows that AFRESA is superior to other diabetes products and several very important areas without any notable negatives.

Some of you have called attention to the fact that in the key target of HbA1c, AFRESA is only comparable to rapid acting analogs, today’s gold standard for prandial glucose control. Frankly, such concerns are misplaced. AFRESA provide the most effective means for prandial glucose control today, and does not cause the frequent post-prandial hypoglycemia effects seen with rapid analog

Those large and dangerous plunges below baseline, with injected insulin, lead to an equal or slightly lower average glucose excursion and thus A1C as compared to AFRESA. But AFRESA does not cause those dangerous plunges. It is difference of excursions from baseline that masks the overall superiority of AFRESA. The key to understanding the superiority is that with injectable insulin, both regular insulin and rapid analogs, there are dangerous hypo risk. So, that the fasting glucose is typically managed at dangerously high levels to minimize that serious risk.

With high fasting levels and normal A1Cs are almost impossible to reach at least safely. In our trials, we do see some hypos, but the incidence and the severity are much lower than with injectable insulin. In fact, when the detail data is carefully analyzed, it is seen that the hypos and the AFRESA cohorts typically occur mostly when there is no plasma AFRESA present.

The hypos thus appear to be caused primarily by other drugs used in the trial, not by AFRESA. Physicians are beginning to recognize the superiority of AFRESA and they become truly comfortable with the important safety benefits, they will lower fasting levels.

Moreover, eliminating the hyperinsulinemia and restoring more normal hepatic functions and gluconeogenesis will lead to lower and normal fasting levels. I say to you that the NDA is so very positive and without negative signals, that I’m confident of AFRESA’s prompt FDA approval. While one can never predict the process timeline, I believe the AFRESA NDA will be approved in a little more than a year at the latest and possibly sooner. With only about a year or so far until approval, a fair question is how are we going to launch this product? I do not want to spell this out in detail at this time, but it is nonsense to suggest that there is little interest from potential pharma partners.

As Hakan noted, we are in serious discussion with several companies and there are other inline. Last spring, we said we were reassessing partnership discussions and resume exploration of such opportunities once we have filed the NDA. And that is imminent. What I can say now is that while there is no certainty, we do expect to reach agreement with a partner and to the complete this process during 2009. We have set this as a goal for the third quarter, but we are not in a hurry. We believe AFRESA is a great opportunity and since we have carried this program all the way through to the regulatory filing at substantial cost we have set objectives for such relationships.

We will be flexible but we do have certain expectations that we believe will generate fair value for both our partner and for MannKind. Some of the concerns about the commercial potential with AFRESA arise from the unrelated perceptions about Exubera and its failure, AFRESA is so very different and we are confident that it will prove to be a very successful product.

MannKind has contracted for a multiple independent market study and those have consistently indicated much larger acceptance and market penetration than we see in the reports published by sell-side analysts. This was so even for a study done last May, at the height of the concerns about AFRESA and about pulmonary insulin generally.

Furthermore, the public projections suggest the misconception of the economics and much lower financial benefits then we expect for our share. I believe that AFRESA will be very handsomely rewarding me for my investment of almost a $1 billion in this company. 2008 was a year in which there were very few noteworthy news events for MannKind. We were concentrating on completing the pivotal trials for AFRESA and building a factory.

By contrast, we expect some significant announcements during 2009, so this year should be a very important one for MannKind Corporation and I hope also for mankind, with one “n.” , Not only are we making significant progress for our program with AFRESA, but our oncology team is all smiles these days. Stay tuned, there can be some fascinating news this year and so now, with that let me open the call for questions.

Matthew J. Pfeffer


Question-and-Answer Session


(Operator Instructions) Our first question comes from Cory Kasimov with JPMorgan.

Cory Kasimov – JPMorgan

Hey, good afternoon guys. Thanks for taking the questions. Actually, my clinical questions are basically answered last week at your Breakfast, but some financial ones here. First of all, can you discuss the plans to draw down the remaining loan from Al, would you do this all at once, or is this going to be gradually throughout the year as needed?

Matthew J. Pfeffer

It would be gradually throughout the year as needed. You know we get keeps it from having to draw it all at once and frankly what the interest on money we don’t need before we need it.

Cory Kasimov – JPMorgan

Okay, so all right. And then in terms of R&D budgeting for 2009, Matt, do you said that you expect the burn to decline by 30% to 40%, but could you give us a little bit more clarity in terms of the contribution from a manufacturing scale up and how that may contribute to R&D spending? And I mean, so you think in the fourth quarters as a decent run rate going forward?

Matthew J. Pfeffer

It’s just going to be a little lumpy, but that’s not a bad estimate I think you‘ve seen most of the ramp up in the manufacturing are already built in. We should be able to see reductions pretty much in all areas, but yeah the manufacturing will stay more stable.

Cory Kasimov – JPMorgan

Okay and then lastly, as it relates to Hakan’s comment on the cost efficiency of AFRESA, can you guys talk at all about where you expect the gross margins for the product ultimately come out, maybe how you are thinking about pricing at this point and given that you are maybe just about a year away from commercialization? Thanks.

Alfred E. Mann

Well we have during actually 2008, met with managed care companies that was responsible really for about 30% of covered labs in the U.S. and what I can tell you at this point in time is knowing what the reimbursement is in terms of tearing and also in terms of the cost did by rapid acting insulins. We feel that we are able to successfully compete in the space where rapid acting insulins are at this point in time from a cost point of view and the reimbursements.

Cory Kasimov – JPMorgan

Okay. All right thank you.


(Operator Instructions) Our next question comes from Tom Russo with Baird.

Thomas Russo – Robert W. Baird

Good afternoon. Peter, I just wanted to clarify your comment on the cardiovascular profile and I think the analysis that you’ve run suggests that there may not be a post-marketing cardiovascular outcomes trial required. Can you confirm whether that is your actual expectation or not but there would be one or would not be one, post-marketing?

Peter C. Richardson

I can confirm that, we have no expectations of that, based on the numbers that we have now run, we don’t show any excess concerns of cardiovascular morbidity or mortality across the program and we’ve had discussions with the agency in terms of where we should go with this they’ve asked us to conduct that but as you know they issued a specific guidance where they gave the levels which may trigger specific a request for the cardiovascular studies post approval. We don’t approach those numbers the natural fact our relative risk is essentially one it’s just over that. So we compare very with controls and we have no expectations that would do that given the profile of that we’ve seen from our studies.

Thomas Russo – Robert W. Baird

Okay and then only other question I wanted to clarify was with regard to pulmonary function testing not being required to monitor that do you or do you not anticipate having that test being required upfront before a patient would start a therapy? Thanks.

Peter C. Richardson

Well, our position is that we see no basis in which that actually helps in terms of the management of patients that will be taking AFRESA. And our analysis around the pulmonary function have been very reassuring, in terms of there being no generation of a safety signal or there being anything that indicates that there is in pulmonary function testing, either at baseline or subsequently. Of course, this will be this will be a matter of considerable discussion with the Agency. And I’m sure that we will have appropriate discussion around how best to manage patients and insure their safety which is paramount importance.

Thomas Russo – Robert W. Baird

Okay, thank you very much.


Our next question comes from Michael Tong with Wachovia Capital Markets.

Michael Tong – Wachovia Capital Markets

Hi, thanks for taking my question. Just some thoughts around a partnership, I remember in the past you talked about the preference for a global partner, is that still the case and can you also give some color as to your current thoughts about the regulatory process in the international area in terms of timing and how much behind or not behind the U.S., they are?

Alfred E. Mann

We have expressed the desire for global partnership, but we are not sure that we want to define a global partnership as everyplace in the world. Certainly, we would prefer to have a partner that would be responsible for the major markets that exist today. But, we’re flexible on the subject. As far as the regulatory program is concerned, we have planned to work on the filing for the European Union later this year and planning to file it sometime later this year. And we are also talking with the couple of other countries about the regulatory program. And those others are early stages so we are not sure how that’s going to evolve.

Michael Tong – Wachovia Capital Markets

And just to clarify on the EU filing plans. Do you believe, you have all the studies in hand right now, that you don’t need additional studies for that filing?

Peter C. Richardson

We don’t need additional studies. We will be taking some information from one of our on going studies, which is with Study 117, where we have included the couple of additional end points and which I think will be helpful in the filing. And we would like to include that in the European filing

Michael Tong – Wachovia Capital Markets

Great, thank you very much.


(Operator Instructions) Our next question comes from Elizabeth Naldi with Piper Jaffray. Your line is open.

Elizabeth Naldi – Piper Jaffray

Hi, thanks for taking my question. I just wondering if you have any pre-launch activities planned for 2009. And if you are going to conduct any further market research in preparation for the launch?

Alfred E. Mann

Market research, we have not discussed any specific or recurrence of the reputation of some of these studies we’ve done. We’ve done a number of them and we are not sure that we see any great benefit of doing further ones. We haven’t really discussed that in detail, we might consider doing a study later, when we have more clarity on what the label will actually be.

Hakan S. Edstrom

Yes, that the plan as we said right now is that some of the status that we present for the American market. We are taking those as certainly what Al said, with now a great understanding also what we would expect our future label to be into the European arena, so that that is on our schedule for 2009.

Peter C. Richardson

In terms of some of the activities you can expect this year, one of the things that kept us very busy over the holiday period was the production of abstracts for ADA and I was very pleased by these numbers and quality of abstracts that we have been able to submit.


At this time there are no other questions. I would like to turn the call back over to Mr. Al Mann

Alfred E. Mann

Well thank you all for joining us today. We are pleased that we seem to have answered your questions, but we look forward to updating you at our next quarterly call.


Thank you, for your participation. You may disconnect at this time.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!