Post by mannmade on Feb 24, 2015 22:44:20 GMT -5
SA Transcripts, Recent earnings call transcripts (52,248 clicks)
We cover over 5K calls/quarter
Profile| Send Message| Follow (3,168 followers)
MannKind's (MNKD) CEO Hakan Edstrom on Q4 2014 Results - Earnings Call Transcript
Feb. 24, 2015 10:36 PM ET | About: MannKind Corporation (MNKD)
MannKind Corporation (NASDAQ:MNKD)
Q4 2014 Earnings Conference Call
February 24, 2015 5:00 pm ET
Executives
Hakan Edstrom - President & CEO
Matthew Pfeffer - CFO
Alfred Mann - Executive Chairman
Analysts
Jeff Takimoto - RBC Capital Markets
Cory Kasimov - JPMorgan
Jay Olson - Goldman Sachs
Keith Markey - Griffin Securities
Ben Shim - MLV & Co.
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation 2014 Year-End Conference Call. At this time, all participants are in a 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 24, 2015.
Joining us today for MannKind are President and CEO, Hakan Edstrom; and Chief Financial Officer, Matthew Pfeffer. Also joining for the question-and-answer period is Executive Chairman, Alfred Mann.
I would now like to turn the call over to Matthew Pfeffer, Chief Financial Officer of MannKind Corporation. Please go ahead, sir.
Matthew Pfeffer - CFO
Yes, good afternoon, and thank you for participating in today's call. We're going to break with tradition in few places on the call with Hakan leading off the discussion after which I'll provide a discussion of our financial results for the fourth quarter and full-year 2014 as reported this morning. But as usual before we proceed further please note the comments made during this call will include forward-looking statements within the meaning of federal securities laws. It is possible that 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 and Exchange Act of 1934. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast February 24, 2015. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this call.
With that, I'll now turn the call over to Hakan.
Hakan Edstrom - President & CEO
Thank you, Matt, and good afternoon. Let me start my comments today by reviewing our accomplishments with AFREZZA and our plan for leveraging our existing strength to develop new therapies. First, let me recap all that we accomplished in 2014, which was pivotal year in this company's history. First and foremost, we achieved the approval of AFREZZA, a novel rapid acting inhaled insulin treatment and currently the cornerstone therapy of MannKind. Soon after we entered into the global licensing agreement with Sanofi who we believe is the best possible strategic partner for AFREZZA. This partnership puts AFREZZA in the best position for commercialization.
And this brings me to the fourth quarter which was a very important and busy quarter for us. We finalized all the partnership arrangements with Sanofi, established joint management committees, prepare the transfer of the IND, and plan for the post-marketing studies agreed with the FDA as part of our approval.
The AFREZZA, NDA, and IND, have been transferred to Sanofi, and Sanofi with MannKind's assistance will be responsible for conducting the post-marketing studies and managing the ongoing quarterly and annual report.
Commercial manufacturing got underway in the fourth quarter in preparation for launching in early February. We provided the commercial loan supply in January following an integrated production plan issued in October of 2014.
As we did throughout the year, I'm happy to report that all those activities were executed with excellent results and all key milestones were reached. In fact, our manufacturing startup has been outstanding. Our deals have been better than projected and we have consistently stayed ahead of our very ambitious delivery schedule.
Installation of additional capacity remains on schedule and will come in line during the second quarter, more than tripling our manufacturing capacity. Consequently, we are prepared to supply additional commercial product to meet the market demand if sales are required.
Furthermore, Sanofi filed a 12 unit corporate dossier as a supplemental NDA on December 17, 2014, and approval is expected in the second quarter 2015, adding to our product offering.
Importantly, we also earned $225 million milestones associated with the launch of AFREZZA late in the fourth quarter. So we have now realized $200 million of the $925 million in upfront in milestone payments from Sanofi, demonstrating the near-term value creation of our partnership. Which leads us to today and I'm happy to report that AFREZZA has been on the market for about two weeks. I notice that you are very interested in the AFREZZA launch and its progression, but remember it's very early in the launch cycle having been on the market for only two weeks. So we cannot really offer any insight into the results at this time. However we did see a very motivated Sanofi sales force leading the sales meeting that we attended, and based on initial feedback the excitement is continuing. In fact, we were just the other day asked if we could up the sample pack volume, since demand for samples has been higher than anticipated.
And as we've said for some time now, this sort of product is not the one that is expected to grow explosively, but rather to start slowly and build from there. Even those anxious to try AFREZZA, you need to make an appointment with the doctor and get the initial pulmonary function test done before they can be prescribed to AFREZZA. We are certainly encouraged with what we have heard thus far and remain confident that we have a paradigm shift in the making with AFREZZA.
And the YouTube, Facebook, and Twitter, commentary by excited patients are certainly increasing by the day supporting such a settlement. And further details about AFREZZA progress will certainly be forthcoming from Sanofi at appropriate times.
Now I'd like to spend some time talking about the MannKind's future development plans. Having successfully partnered AFREZZA, and validated the type of the technology and our innovation and our innovation platform, we also intensified our product development activities in the fourth quarter.
We engaged a major consulting group to assist us in identifying, validating, and commercially assessing a number of targeted disease areas, where we believe our Technosphere and innovation technology, can differ, can deliver a well differentiated benefit. And as I know, in our last call, our intention was to complete this evaluation for presentation to our Board of Directors this month, and I'm happy to report that this has occurred and out strategy was met with great enthusiasm.
Accordingly, I would like to take this opportunity to share a bit more about our vision for our future product development activities. Our goal is to develop a credible pipeline of exciting new product opportunities. At this point, we have identified a small portfolio of potential exciting products on which to focus our efforts. These potential new products have in common the following characteristics. First, they all address serious unmet medical need; secondly, they have comparatively relatively short development times or low cost of development; third, they all take advantage of the unique benefit of our proprietary drug delivery technology; and finally, they all address large markets.
Our current focus is on product in three areas pulmonary diseases, pain, and oncology support. As a relatively small company we cannot immediately begin working on several ambitious programs simultaneously. So as a practical matter you can expect us to begin full scale development activities on one target at a time, with each successive new target to be rolled out some months later. But importantly, we've already identified the area of development of the specific API and disease indication for each, and some key hires are also part of the plan.
In the coming months we will finalize our development plans for each, and at that time we will be able to offer more insight into this process, including timelines, rational, market opportunity, and potential development cost. This will occur one at a time as each target completes its initial steps. In some cases though, competitive pressures may dictate that we not keep our hand too early, we will commit to sharing as much information as we can as soon as we can.
At the same time, but independently, as we have previously said, we are in discussions with certain other companies to bring their API on to the Technosphere platform. This work is ongoing. We view these opportunities as a nice add on to our core business enabling us to extend our reach beyond what we otherwise could, but again we consider ourselves first and foremost asset product development company. Additionally, our agreements with these parties currently prevent our making any statement about them, but if our work results in a material agreement we will of course announce it.
So before turning the call over to Matt, to walk through some of the financial for the quarter, I want to add that I'm really excited about the future of this company. With AFREZZA approved, and in the market, not only have our technology platform been validated, and is becoming to see economic results, we have gained a roadmap to realize significant opportunities ahead of us.
It has taken us sometime to get here, but we have consistently overcome obstacles in our path, marking the beginning of a new exciting chapter for this company.
Thanks to a very capable work force and committed workers. Matt, thank you.
Matthew Pfeffer - CFO
Thank you, Hakan. So turning now to the financials. The net loss applicable to common stockholders for all of 2014 was $198.4 million or $0.51 per share compared with a net loss applicable to common stockholders of $191.5 million or $0.64 per share for 2013.
Operating expenses increased year-over-year from $169.4 million to $179.6 million or $10.2 million, primarily due to a $19.7 million increase in G&A expenses, only partially offset by a $9.5 million decrease in R&D expenses. Increase in general and administrative expenses was primarily due to increased professional fees of $15.4 million associated with the closing of the collaboration and license agreement with Sanofi, which we announced earlier; the amendment of the financial facility with Deerfield; and a significant expansion in our program to identify, screen, and fully evaluate new product opportunities that will best take advantage of the unique advantages of our Technosphere drug delivery technology.
The outcome of some of this work was discussed just shortly earlier by Hakan. Other G&A expenses increased by $4.3 million, primarily due to stock-based compensation, earned compensation for the achievement of significant corporate milestones in 2014, as well as severance expense related to reduction in force in the fourth quarter of 2014.
R&D expenses decreased in 2014 with the completion of the Affinity studies in 2013 resulting in decreased clinical trial related cost of $14.7 million, partly offset by increased spending on commercial readiness of $4.4 million, and an overall increase in stock-based compensation expense.
Cash and cash equivalents at the end of the year totaled $120.8 million compared to $70.8 million at December 31, 2013. As of December 31, 2014, as previously announced, we had earned $50 million from two milestone payments in connection with the satisfaction of manufacturing milestones specified in the Sanofi agreement. This amount is included as an account receivable at December 31, but has since been received and will be included in cash reported at the end of this quarter.
In addition, we still have $30.1 million of borrowings available under the amended loan arrangement with Mann Group, and $50 million potentially available under the ATM facility.
Turning now to some forward-looking statements, I'd like to provide a little bit of guidance generally of where I see our P&L and cash going during 2015. I previously noted that our G&A spend will remain relatively consistent with 2014, if we take out non-cash stock compensation expense and selected one-time cost. This equates to roughly $10 million to $12 million quarterly.
I see some opportunities for reductions in the horizon but it's too soon to make any promises in that regard.
In R&D, I previously guided to lower numbers in 2015, as clinical trial costs run down and much of the cost of our manufacturing facility in Danbury becomes absorbed into product costs rather than R&D.
While we now anticipate including costs of the new product development in 2015, such cost should not be very great in early periods. As a result, I expect quarterly R&D costs, absent non-cash stock comp expenses, to decline from roughly $20 million per quarter in 2014 to roughly $12 million or less per quarter in 2015.
In regards to alliance, profits and losses, I will not be providing guidance, as doing so this early in the launch is not realistic, and these profits and losses are shown either in our statement of operations nor in our cash flow statement in any case.
In regards to cash, most of this can be derived from the guidance above, but I would like to remind everyone that now that we are in a commercial operations, we will be exposed to some more traditional uses of cash than we have been previously, such as accounts receivable, and inventory build. The later in particular could be material.
So with commentary on the year-end financial is now complete, we're ready to transition to the Q&A phase.
So with that I'd like to turn it back over to the operator. Operator?
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions].
The first question is from Adnan Butt with RBC Capital Markets.
Jeff Takimoto - RBC Capital Markets
Good afternoon. This is Jeff on for Adnan. Thank you for taking our question. A question on the pipeline, I know you mentioned the three areas of focus. But are there any updates or plans in the near future for the inhaled GLP-1? And also is there an upper limit capacity for Technosphere technology to deliver proteins to the lungs?
Hakan Edstrom - President & CEO
In regards to your question on GLP that certainly is a topic that's under discussion with our current partner Sanofi. So I can certainly acknowledge the fact that that is also a potential development project that we have in conjunction with them.
On the second question, you're looking at the size of the API in terms of the ability to deliver with the Technosphere?
Jeff Takimoto - RBC Capital Markets
Yes, since insulin and GLP-1 are both pretty small. I was just wondering if there was like a upper limit capacity for a larger protein.
Hakan Edstrom - President & CEO
Yes, there is. However I have to say that I'm not say skillful enough in the technicalities of the product I could give you a specific molecular weight and so on and so forth. But I mean we are looking usually at like small molecules and relatively potent dry symptoms of the API to be able to deliver it through the lines.
However one also need to realize that by avoiding the first type metabolism sometimes you could significantly reduced the amount of API and still we get a good metabolic effect because of the fact that you delivered through the line.
Alfred Mann - Executive Chairman
Yes, this is Mann, I was hoping that Hakan might remember, I know, I've heard that figure stated before, but I can't recall what it is the size limits, but that was certainly part of the screening criteria that was being used by us and our outside advisors to help us select products both as far as the molecular size and weight of the API but also the quantity needed, if you get into new quantities, you just start running into practical problems for how big cartridges get or whether you can fit them in there without significant redesign. Thus all taking into consideration as we selected the API and the choice as we -- to these indications we did.
Operator
The next question is from Cory Kasimov with JPMorgan.
Cory Kasimov - JPMorgan
Hey, good afternoon guys, and thank you for taking my questions. First one is I am wondering if you can comment on how reimbursement negotiations have been going for Sanofi on the AFREZZA front. And how easy it is for patients to get AFREZZA relative to the analog at this stage? And then I have a follow-up.
Matthew Pfeffer - CFO
It's a little premature to say. I mean typically most of those discussions don't happen until it's been out in the market for some number of months. I know those discussions are ongoing; it's a very active area. We had a joint advisory committee meeting, joint AFREZZA advisory committee just yesterday, in fact. And kind of an update on that they are working diligently at it. So it's coming along.
In the meantime, you can still get it. Some places, it depends on the particular insurer. Some of them will just stick it in Tier 3 automatically as a new product. Some will want prior authorization, which isn't usually very complicated to get. It just requires the doctor to request it. Most times it's just a form they check off and say, I think this patient should get it.
So yes, an extra step, it makes a little bit more complicated initially and slows down the process in the first few months, but so far we haven't heard there has been a particular barrier.
Cory Kasimov - JPMorgan
Okay, and then Matt, in your comments you alluded to inventory having a potential affect this year. Can you comment at all on kind of what the early inventory build in the pipeline has been for AFREZZA?
Matthew Pfeffer - CFO
Not with much specificity. I just -- I see it in our budget and projections for the year. So I wanted to get it on the table. We're hoping not to be holding too much as we transfer to Sanofi and let them hold it instead as we produce it.
Right now we have not had a material amount of inventory build. We don't have a lot of -- the way it generally works, we take it, if you remember the packaging, we'll take it to the foil over wrap stage in our inventory, and then hold it in that form, and then it once it gets combined in the different kinds of packaging, as determined, like it will be may be a mixture of 4 and 8-unit cartridges for example, and later 4, 8, 12, or whatever happens to be it goes into a secondary package or and that's where it's really technically finished goods. In our hands it is more like semi-finished goods. And we don't do too terribly much of that. But we do have some obligations to hold some measured in number of months and to the Sanofi contract.
Cory Kasimov - JPMorgan
Okay. I appreciate you taking the questions. I will hop back in the queue.
Matthew Pfeffer - CFO
Thank you.
Operator
The next question is from Jay Olson with Goldman Sachs.
Jay Olson - Goldman Sachs
Hi, thanks for taking the questions and congrats to Hakan on his new role as CEO. I had a couple of AFREZZA questions and then may be a pipeline question, if I could. Could you tell us what the sample configuration is? Is it 90 cartridges? And also how many sample packages have already been distributed?
Matthew Pfeffer - CFO
Well the sample packaging, is, if you're talking about the real samples that have active drug I believe it's a 10-day supply, so that would entail 30 cartridges. There's also a demo gets flirting around out there would be dummy inhalers and cartridges just for demonstration purposes or show what the patients or perspective patients what they look like. The second part, I forgot the second part of the question.
Jay Olson - Goldman Sachs
How many of the 10-day supplies samples have been distributed?
Matthew Pfeffer - CFO
Not enough. Or as I mentioned in my -- I mean, we've been asked by Sanofi to look into increasing the number of sample packages. So I couldn't give you a number, I only know at this point in time that demand has been higher than they had initially anticipated.
Jay Olson - Goldman Sachs
Okay. And then on the new product development front, I guess you mentioned pulmonary disease, pain, oncology support. I am guessing it sounds like an anti-emetic. It seems like may be these are more moving in the direction of PRN dosing as opposed to chronic dosing. Is that correct, and if so, can you give us some color around how you chose to move the new product development in that direction?
Hakan Edstrom - President & CEO
You're correct in regards to the fact that most of these are certain, not say, chronic type of diseases ad hoc. The benefit there of course is that we have a significant safety package around AFREZZA, because it's addressing such a kind of common disease and the long-term disease where patients are on it. So that certainly makes sense. And then there are other areas where our technology is certainly very beneficial in terms of again avoiding the first type pass metabolism.
So in working with a number of consulting groups, physicians, and hospitals, and hospital groups out there, in identifying areas where the cancer patient are suffering from a lot of side effects from the therapy and where most of the say reprieve that they get are say in-hospital type of the treatment which is very costly and very inconvenient.
So those are the types of areas which is being focused on specifically and have opened up actually quite new avenues for us that we really did not even consider only about six months back.
Matthew Pfeffer - CFO
Yes. Some of the, that just comes from the criteria that Hakan was talking about earlier where we're looking for much quicker regulatory path and getting a jump start into the market much more quickly than we've experienced before. So may be AFREZZA would be a extreme example of that but there's a lot of ways we could dramatically shorten that pathway, make it go much more quickly, and frankly it costs less. So those are amongst the criteria that were used in some of the screening and some of the same criteria lead to some of the effects you're talking about.
Operator
The next question is from Keith Markey with Griffin Securities.
Keith Markey - Griffin Securities
Hi. Thank you for taking my questions. I just had a few related to accounting. I was wondering if you could break out the current liabilities and also discuss a little bit about the prepaid expenses going up -- most of them are significantly higher than last year.
Matthew Pfeffer - CFO
Yes, well -- it's a little similar to the accounting nuances. In the prepaid expenses we had a pretty large advanced payment for inventory, which is what caused that go up, it was $15 million for inventory and shipments that we've received or are receiving this year, and that's the key thing there, other than cash of course -- excuse me other than, yes, it's pretty much the big things and of course the receivable from Sanofi is $50 million so that cash and both well, you asked specifically prepaid. That's really mostly insulin.
As far as current liabilities, a lot of that have to do with where things are being classified now, for example, things have moved up the notes that are due in August of 2015 are now current, so they're shown in current liabilities as supposed to long-term.
And then the other -- the biggest change their -- I'm sorry that you'll see all this when the K gets filed, would be. Remember going back to the strange accounting for this whole collaboration causes us to take the whole $200 million essentially that were going from Sanofi and hang it up as a liability. So sitting in current liabilities, which is an odd place to find it, but its deferred payments from Sanofi essentially, so it's not going to the P&L yet.
Keith Markey - Griffin Securities
Okay, and well that that sort of leads to my next question. That is, how are you going to actually present the results of your partnership with Sanofi in your upcoming quarterly income statements?
Matthew Pfeffer - CFO
Well, if you remember the last call, I talked very awkward but you won't find it in our quarterly income statement nor our cash flow statement, you have to tease it out of the balance sheet and the other disclosures we will make. It's kind of awkward but that's the way the accounting world seems to be these days.
So really anything that would be a source of revenue is going to be hung up on the balance sheet for a while. We will make disclosures about what -- to make sure there is no misunderstanding we will make disclosures about what the profits or losses from a collaboration are. And you can see there is a movement on the balance sheet but that’s not a very good disclosure. So we'll make sure it's specified in the MD&A at the very least, and probably in the press release as well.
Well I also talked about things that I think investors will find important like levels of sales. Sanofi will probably previously disclose that anyway so they typically have their calls before ours, but we'll make sure it gets in there, even though it doesn't direct on -- it doesn't reflect it on the face of the financial statements.
Keith Markey - Griffin Securities
Okay. Great, thanks. And I was just wondering if the 12-unit dosage form that was filed in December is the same formulation as the 4-unit and 8-unit dosages.
Hakan Edstrom - President & CEO
Yes, it is.
Keith Markey - Griffin Securities
It is.
Hakan Edstrom - President & CEO
Exactly the same, yes.
Keith Markey - Griffin Securities
Okay.
Matthew Pfeffer - CFO
That's just simple as it's just been a little more powder in the cartridge.
Keith Markey - Griffin Securities
Okay, and finally, you talked a little bit about the new drugs coming out fairly quickly. Do you think that something could be launched later this year or is it -- is that way too early?
Hakan Edstrom - President & CEO
That is way too early. Yes, I mean you need to go through proof of concept and go on those efforts. We certainly hope to have started all or at least the most of the development projects during the course of this year, but yes, no you will not see a launch in 2015 that's not possible with the regulatory pathway even though we are looking at an expedited regulatory pathway for most of these product opportunities because they are -- kind of known API. So from that point of view they tend to have a good safety profile around them already and they are -- they're well known substances.
Operator
Your next question is from Arlinda Lee with MLV & Co.
Ben Shim - MLV & Co.
Hi, it's Ben Shim for Arlinda Lee. Thank you for taking my questions. For AFREZZA I was just wondering if you were going to contemplate any other packaging sizes for example, pediatric, is there anything like that that you have in store for the future?
Hakan Edstrom - President & CEO
We are aware of the fact that as part of say a pediatric, say range of product, we may have to go to a lower say dosage size, than we have currently. And those are part of the development discussions that are people are having with Sanofi at this point in time. I don't have a decision at this point in time, but it certainly been recognized that for younger children that that may be a necessity.
Ben Shim - MLV & Co.
Okay, thank you, Hakan. Just a housekeeping question for Matt. Matt, can you tell us a little bit about what happened to the convertible notes? Not the corporate converts but I think the Deerfield notes? It looks like they went down. You just mentioned an amendment to the loan agreement. Can you tell us what happened there?
Matthew Pfeffer - CFO
They haven't gone down recently. I mean the last, there was some conversions early in 2014 which caused them to go down, but there has been nothing since then. There was -- it was one of the reasons for the fluctuations in the P&L which is just a non-cash charge because we had some amortized discount that we had to flow through when those portion of the notes went away, so I don't really think of it as a loss, but from a P&L standpoint it is. But since that time there is nothing that's changing and then the discount continues to be accretive a little bit. And then -- there's no conversion rights left with the Deerfield notes, it's just straight debt now.
Ben Shim - MLV & Co.
Right, okay great. And just on the year-end share count, the 406.1 basic shares, that's before the $9 million stock loan arrangement, right? Or is that inclusive?
Matthew Pfeffer - CFO
That is not, does not include the $9 million because those will come back to us, they're not considered to be circulating for that purpose.
Operator
That was the last question for today. I'd like to turn the call back to Hakan Edstrom for closing remarks.
Hakan Edstrom - President & CEO
All right. Well thank you for joining us today and next we are certainly looking forward to sharing with you the first quarter 2015 information which will happen in early May. So again thank you.
Operator
Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.
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 www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!
