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MannKind Corporation (NASDAQ:MNKD)

Goldman Sachs Healthcare Conference Call

June 12, 2014 02:00 PM ET

Executives

Matt Pfeffer - Corporate Vice President and CFO

Hakan Edstrom - Chief Operating Officer

Analysts

Jay Olson - Goldman Sachs

Jay Olson - Goldman Sachs

Okay, I guess, we can get started here. Good morning everyone, I'm Jay Olson from Goldman Sachs. And I want to thank all of you for hanging in there until the end this final presentation of our conference. It's my pleasure to introduce MannKind Corporation and it's a very fortunate timing to have MannKind with us here today, have an extremely positive MD Advisory Committee Meeting in April for AFREZZA and now it’s about a month ahead of their July 15th PDUFA date.

So our guests here today from MannKind are Matt Pfeffer and Hakan Edstrom. And just a little background, Matt is Corporate Vice President and CEO of MannKind since 2008, CFO excuse me, CFO of MannKind since 2008. Prior to MannKind Matt was the CFO of VaxGen and he was also CFO of Cell Genesys before that. And Hakan is going to be walking us to slide presentation today is the President, CEO and Director of MannKind. And he was previously President of Bausch & Lomb Americas; CEO of Chiron Vision and CEO of [Pharmacy Ophthalmics].

So without any further ado, I'll turn it over to Hakan.

Hakan Edstrom

Thank you, Jay. And again thank you Goldman Sachs for the invitation opportunity to come here and present and thank you to all of you and the loyalty to stay to their end of the conference and listening to us. So while, I certainly will be making forward-looking statements at this presentation so I certainly advise you before you make any investment decisions to refer to our Qs and Ks going forward.

AFREZZA, while we say it is the first and only ultra-rapid acting insulin and that is quite true. And it is unique in terms of its PK/PD profile and we will come back to that later on and also in terms of the clinical benefits that are associated with the kinetics of our products. Laying a little bit of background if you look at diabetes it certainly is an epidemic on a global basis. I mean we just got updated numbers for the U.S. on CDC whereas now in the U.S. it is expected to be about 29 million people with diabetes which is about 9% of the population.

On a global basis today it’s about 400 million people, in another 20 years the expectation is this will be about 600 million people worldwide affected by diabetes. And we know from the Middle East where close to 20% of the population are affected by diabetes that certainly is a global epidemic of really proportion speed beyond one would expect.

Looking at the U.S. alone as I said all patients we just had that updated to be about 29.1 million people in the U.S. affected by diabetes, about 21 million of those being actually diagnosed the other ones are still undiagnosed. So it is a significant patient population. Even in insulins alone there is about 7 million patients in the U.S. treated by insulin and eventually most type 2 patients eventually will end up on an insulin as the disease progresses. And there is about 0.5 million patients each year that transition from an oral therapy into an insulin therapy.

So just looking at the rapid acting analogue market or the insulin market we’ve seen a significant growth of the number here in excess of over 20%. So it today is a $4 billion market with again close to 7 billion people. So there is a significant market opportunity for AFREZZA for MannKind in entering into this marketplace.

We all know that current insulin treatment has a number of challenges as number of statements associated with it. It expresses itself certainly in terms of non-compliance from the patient’s point of view which is a significant issue of beyond the risk of hypoglycemia which really makes patients very, very cautious and concern in terms of entering into insulin therapy and even from doctor’s point of view, particularly the GPs. They tend to lose their patients when they go for an oral to an insulin therapy. So there is a lost kind of income opportunity for the GPs and they tend not to have the resources to deal with their patients if they suffer from an hypoglycemic event. Beyond that, we certainly have [waken] and we have the inconvenience associated with insulin injections.

So if you look at even the [physician] statement for groups like FDA and [ESSD] in terms of what would be an ideal insulin, an ideal insulin therapy, I would have to say that if you look at AFREZZA, you look at the dynamics of AFREZZA, we come pretty close to what is described by this organization as an ideal insulin therapy for the patients.

There we go. So, how do we describe AFREZZA? What is kind of critical in terms of the profile AFREZZA? We try to express it in terms of excellent control and less risk. What do we mean by that? Well, in terms of the PK/PD profile, I will come back to later, you have a product that works much -- in a much more (inaudible) way as you would see in healthy individual in terms of its insulin management. That translates into a synchronization in terms of the workings of the insulin in the blood with your meal digestion. So they synchronize which means that you reduce the risk of hypoglycemia, you reduce the need to help to manage your insulin in the blood following the meal while you still have insulin in the blood, whether your meal digested, you have the risk of hypoglycemia and patients need to eat to manage the blood glucose. We take care of that one and not the least, even the friendliness and the discreetness our inhaler promotes actually compliance that the patients will use them at each meal.

So if we look at, AFREZZA, it is clearly differentiated in terms of its pharmacokinetic profile which leads to significant clinical benefits, we have seen in our Phase 3 trials that we certainly have non-inferiority in regards to HbA1c reductions and superiority and when we compare to orals, significantly reduced risk of hypoglycemia, both in terms of incidence and event rates. Less wait game and the better compliance because of all the benefit on the inhaler. And I will also say that our overall safety profile is very benign with the product; there is nothing really that stands out in terms of pulmonary function testing, in terms of cancer incidence which is really what you would expect to see in this type of population and really no impacts on cardiovascular.

Patients, with a small market share in a big, big market, you can still be very successful. If we look what is the patient pool for AFREZZA, while you have all of those sales are on a rapid-acting prandial insulin today which is in excess of 4 million patients that have the inconvenience having to inject themselves 3 to 4 times a day plus in addition to maybe a long-acting. So, that's not just a painful, but it's also a very, very [enrolled] way of having to kind of medicate yourself.

You have people though on long-acting insulins like the Lantus that eventually need intensification that is not close to 1.7 billion people in day one. And then you have the big pool of type 2 patients and you know that those oral patients eventually will end up being on insulin usage. We've seen today about 0.5 million patients transitioning from oral patients into insulin therapies because of not being well controlled.

We spoke about AFREZZA, we spoke what is different with AFREZZA. Well, as you can see from the quotes here that AFREZZA has a very fast rise time to peak concentration in the blood within really 15 minutes of inhalation as compared to say 45 minutes to an hour for rapid-acting analogs. The criticality here is that you can take AFREZZA as you sit down to your meal and still take care of the glucose, the carbohydrates coming from the meal, because of this fast rise time.

You avoid the big, big swings in blood sugar. And on the lower panel, well also what you see is that AFREZZA disappears relatively quickly out of the bloodstream, again synchronized with your meal digesting, you do not want insulin in the blood after you've digested your meal, because then you have run the risk for hyperglycemia. This is why patients need to snack, need to have a glass of juice and do something, which of course has to be consequence also of weight gain. So this is a very, very critical and important part of why AFREZZA is different and why translates into clinical benefits for the product.

On top of that one, if you have an administration that’s easy for the patient to use discrete and very convenient, you have the benefit of compliance, because compliance is a big issue in patients with diabetes, because you don't have an immediate impact of not being compliant even though overtime you do, but we know that many of patients going out to [general] or going somewhere will skip and will not take the injection that they need.

As you know, we did get us here from the FDA in conjunction by switching order from the old inhaler to the new generation 2 inhaler. And while we did show to the FDA from a bio-equivalents point of view that they were really identical in terms of the processing insulin into the blood, the FDA wanted us to demonstrate that in the hands of patients longer term, these two inhalers produced the same result from an efficacy point of view as from a safety point of view.

So they were a three arm study in type 1 patient, there was AFREZZA with the generation 2 inhaler plus a basal insulin as compared to insulin as part with the basal insulin comparing the efficacy and then we have the AFREZZA with the old inhaler, the MedTone inhaler also in addition to basal insulin. And of course the results that in between the two inhale arms was to compare the safety data, did that produce the same type of safety profile and certainly they did and also from an efficacy point of view AFREZZA was non-inferior even with both of the inhalers to say standard of care. But in addition to that one, we had significantly less severe hypoglycemic incidence and overall hypoglycemic events were less with AFREZZA. And we have seen that through all of our clinical trials.

In terms of SAV or pulmonary function testing again the two inhalers basically have an overlap incur. And the reduction from say standard of care is really insignificant it’s 40 milliliters which is really not clinically significant. And the other thing that we have seen that when you discontinue the treatment with the AFREZZA powder the curve returns back to base line. So it’s probably just a small reaction to the powder itself when you inhale a powder, but it’s non-progressive it just drops down and stays at that level.

So what were the conclusions from study 171, while certainly we have non-inferiority, we have significant advantages in terms of hypoglycemia and weight and from a safety point of view the two inhalers really produced the same safety profile across the service studies.

We also did a study in type 2 patients. In discussion with the FDA they actually encouraged us to do that because they understand that if you want to gain control of your diabetes early on, the early you can get your patient on to an insulin therapy the better it is, but there are treatments associated with the injection and with hypoglycemia. So anyway, we ran a study in type 2 diabetes. This was a superiority study because it was orals plus AFREZZA on patients that were not well controlled on orals versus patients on orals with the placebo basically and inhaler just with the Technosphere powder in.

It was the superiority trial, we certainly met our superiority target. We have a significant reduction in terms of the A1c. So the conclusion from that point of view that AFREZZA produced a significant reduction in [HbA1c] making it an effective first insulin that could be used following orals. Today most the time what you would see that patients would go on a long acting lances as compared to a meal time insulin when you transitioned from orals. Recent most that we’ve heard is the fact that with the long acting insulin you only need one injection [run] 24 hours at the most two, so it’s easier to convince the patient to start a therapy with a long acting rather than with a meal time insulin.

If we look at the safety sum of the product; well, we’ve now done trails in almost 6,000 patients. Overall AFREZZA is very well tolerated. There is a little bit of kind of [salt] clearing cough that patients experience earlier on, it’s usually within days it’s gone because it’s just getting used as sensation of inhale in the powder. In terms of pulmonary function, really non-significant change and as we’ve said a non-progressive change.

In terms of cancer, we only had two cases which what you would expect in terms of this type of population. So it’s not beyond what you expect. And in terms of cardiovascular risk, we have not seen anything actually; our numbers are below the target base rates that the FDA has established. So overall, we feel good in overall safety.

So back in October, we did the remission based on the CRL demonstrating the non-inferiority and the superiority from an effectiveness point of view demonstrated that the two inhalers produce a safety profile that is very, very similar in the patients.

We certainly got a very, very strong endorsement from the advisory committee that was called by the FDA on April 1, with 13 to 1 and 14 to zero, so which was very, very encouraging. Of course following that the FDA which was not completely a surprise, extended the PDUFA date by 90 days until July 15th and that’s what we are working toward right now and certainly looking forward to July 15th or earlier.

While waiting for the FDA to be done with the review and we have negotiated the label with FDA, we are continuing to build out and hire people for our Danbury, Connecticut facility. It will be ready to go in early 2015 in terms of supporting commercial sales. Initially we will have capacity to support about 400,000 patients, eventually close to 2 billion patients.

So we are well underway and have used that facility also to produce all of our clinical supply. So we have a good experience in that area.

Financially, where do we stand financially? Well as of March 31, we had cash and cash equivalents about $35 million. We still have the line of credits from the Mann group about $30 million; we did get $20 million debt funding from Deerfield and upon approval, we will get another $40 million from Deerfield. So in the short term, certainly going into negotiations with potential partners which could certainly add licensees, we feel we are in a good position from a cash point of view. We don't need to negotiate with kind of a cash, so that's hanging over us. And opportunistically, we may even look into improving that situation if it turns to be a worthwhile for us.

So, what are the takeaways when we look at AFREZZA? Well, we certainly do believe, it is a blockbuster potential. I mean if you look at the patient populations on a worldwide basis and although you have to transition in the U.S. by 0.5 million patients on an annual basis, it is a large and is a growing population. And diabetes is a poorly met medical need, so there anyways you can improve compliance but also improve the care for the patient.

AFREZZA, in terms of its unique PK/PD profile, we believe has a significant kind of therapeutic benefit to the patients in terms of reducing the risk of hyperglycemia, certainly not adding to weight gain, but being weight neutral and the inhaler itself, I think completely stood fact that you will have an effective therapy that will be embraced by the patient.

So, we are eagerly actually looking forward to July 15th or early in terms of the FDA decisions which we certainly hope and believe will be one of approval, so we can move forward into commercialization.

So with that, thank you for your attention. I appreciate that and we will now go to -- if there any questions, we will be up here and please just raise your hand whatever so we can bring you the microphones and try to answer the questions. So again, thank you.

Question-and-Answer Session

Unidentified Analyst

Good morning. Can you just help us think about kind of what the next steps from your perspective and do you expect to have a partnership in place before you get the FDA decision? And can you help us think about what sort of partners that you are talking to, are they current insulin players, or the current diabetes players but not insulin, just any color and context around that would be very helpful?

Matt Pfeffer

Okay. Do you want to take it?

Hakan Edstrom

Well, yes, we have certainly involved in discussions with a number of companies. Some of them are involved in insulin and insulin -- sorry in diabetes and diabetes management as you say there with global reach and also with local reach. We at this point in time would expect that probably say within say six to eight weeks following but PDUFA date, we hopefully will be in the situation where we can finalize a partnership.

The structure of the partnership, you could say, could be anything from a traditional kind of royalty base to a profit sharing to that in combination with potentially co-promotion arrangements. Depending on the whether a North American or a global partnership, those parameters will change a little bit. But our expectation is that we'll hopefully, we can bring potential partner groups together and certainly the label will be an important component for them in terms of making the final decision, that’s why we believe that a few weeks after the PDUFA date hopefully we will be in a situation to make a final choice and negotiate it.

Unidentified Analyst

And would you prefer partnering with somebody with existing insulin capacities and infrastructure or would you prefer partnering with somebody who is a diabetes player but not in insulin?

Hakan Edstrom

Well there is two components. Certainly if they are enrolled in insulin and insulin business they know the marketplace, they may have a franchise already so there maybe a way to access that market very quickly. On the other hand they may also have then a product that’s coming out of their own R&D and their own manufacturing. So there may be a margin difference that we would be concerned about in regards to where do they put their emphasis in terms of marketing the product. So we are looking at both situations but we are carefully evaluating what we believe would be the best opportunity for AFREZZA.

Unidentified Analyst

Thank you. To what extent do you think the Exubera experience has [starved] the medical community towards the use of inhaled insulin?

Matt Pfeffer

Sure I will try. Certainly the Exubera experience has left its mark in maybe the waters a bit. I think amongst specialists and we see that at ADA for example where we will be for shortly again I think our product in its differentiation and its advantages certainly differentiation from Exubera pretty well known, but I am not going to minimize it amongst the doctors and the GPs out there. I think we still have lot of work to do which is why it’s going to be a challenging launch, it’s going to be a fair amount education’s, it’s going to be required, can they hit the success but I think it ultimately will be -- in order for it happen quickly, we need to make sure we get that story out there.

Unidentified Analyst

Just in order of what the reasons that Exubera sales I think had a lot to do with just bulkiness of the device but there were other reasons as well including the safety profile et cetera. I am just curious to know what you think when you think about marketing your drug, what will be the issues that you will have to address in order for the community to embrace this?

Matt Pfeffer

Well I think it’s just important to make sure people understand that it’s not unusual for first generation products to be very different from follow on products. This is a completely different thing. It does happen to share the trade of being and inhaled insulin. But Exubera was an inhaled insulin who had inhalation as its really only advantage; the connect profile was essentially the same, maybe not even quite as good as rapid-acting analog injected where as our connect profile is quite different and really fundamentally different from, and better than an injected insulin.

Then you couple it with the device, there is -- you’re right, this is pretty bulky and difficult, so it’s not something you can carry around in your pocket, you have to carry around in a case, sometimes people didn’t have it when they needed it whereas ours, I almost always have one in my pocket and of course they do. So, it’s relatively easier to keep with you and have it available when you need it and then price was a big issue. Exubera is quite expensive compared to rapid-acting analogs where we think we can price it pretty comparably and be just fine. And pricing is important not just to the patients but also to the insurers because they frankly were not for the most part terribly excited about reimbursing a much more expensive product with really no clinical advantages whereas I think we can make the pretty compelling case that we do have clinical advantages and have demonstrated them in the Phase III trials we’ve done, at the same time we don’t necessarily need a premium like that.

So, we generally assume we’ll price comparably to injected insulin with the caveat that ultimately the partner will be the one who makes that decision and I hope we’ll get one as quickly faster approval as Hakan is indicating. I tend to be a little bit more pessimistic about that and don’t -- usually go up to let me give a timeline. But the question was would it be before, I think Hakan is right, it’s very unlikely to be before approval, but want to see the label, we will too, has advantages, both of us in those discussions, and then we will see how quickly it happens after that. Whenever we have multiple law firms involve that was since going to drive on for quite a while, but we’ll see what happens.

Another question?

Jay Olson - Goldman Sachs

Can you just comment on your longer term vision for MannKind, what is after AFREZZA, what else is in your pipeline, and what sort of therapeutic areas can you use to build upon the Technosphere technology platform?

Hakan Edstrom

Well, we certainly feel that the Technosphere platform is a platform technology, I mean for diabetes AFREZZA is certainly only one application of it and that is also why we have decided as part of opportunity that we will hold on to the manufacturing and control the manufacturing of the product. Other areas that we looked into, some of you may remember that we did earlier on a quick GLP trial, where we actually delivered GLP with Technosphere as well.

Pay management is another area that we have seen a significant benefit in terms of the rapid-acting nature of our product, where you [migraine] can reduce the issues from kind of taking on the drug until you actually have an effect really within five minutes with our product. So that is one area and other areas where say positive delivered; vaccines is another area, which is the way you would use again and a disposable type of inhaler and deliver vaccine because also that avoids the issues of hygiene and in some of those areas that they need to take the product. And of course I would say that, if you look at the Technosphere powder and that basic technology, starting with diabetes which is a chronic disease where the patients will use the product three times a day for the rest of their life is probably the toughest challenge you can start with in terms of validating that you have a technology that's very safe and effective. So, we do believe that there a number of ad hoc areas where we can benefit from that.

Matt Pfeffer

Yes, I tend to agree and it's unfortunate that we had some what seem like fairly promising programs we had to put on the back burner or put mockballs for a while given the delays we experienced with AFREZZA. But we are anxious to reinvigorate some of those. And a lot of new things have come up in the mean time and we've been approached by several parties. Because we are out there with the technology and remember that principal advantages here are a number one speed. So if you want something very quickly into the bloodstream in the versatile fashion that hope you mentioned, but also potentially as a way to stabilize otherwise difficult to stabilize compounds. And that's really where AFREZZA started out, it was a way to stabilize monomeric insulin in our view and it does that again in a very rapid form.

So, you can easily imagine a lot of things that would lend itself too. People tend to think of pain immediately, but there are others. And I think you’ll hear a lot more from us in the future, once we get the initial approval out of the way.

Hakan Edstrom

Alright. Well, I don't see any more on. So again, thank you for listening to us. Thank you for staying through the end of the meeting. We certainly appreciate it. And hopefully, we'll be back to you on July 15 or close to July 15 with some very good and uplifting news. Thank you.

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