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MannKind's (MKND) Management Presents at Jefferies Global Healthcare Conference (Transcript)
Jun. 3, 2015 8:01 PM • MNKD
MannKind Corporation (MKND)
Jefferies Global Healthcare Conference
June 03, 2015 02:00 PM ET
Executives
Matt Pfeffer - CFO
Analysts
Shaunak Deepak - Jefferies
Presentation
Shaunak Deepak
Good afternoon, welcome back to the 2015 Jefferies Global Healthcare Conference. My name is Shaunak Deepak, I'm with Jefferies Research and it's my pleasure to introduce Matt Pfeffer the CFO of MannKind.
Matt Pfeffer
Thank you Shaunak and thank you all for coming and your attention today. As is typical I will be saying some forward looking things so I advise you to check our SEC filings for forward looking information and other disclosure. So today I'm going to be talking about three things, first for a few of the new faces in the audience we will talk a little bit about Afrezza, the background, what it is, why we think it's important and how we got here. But then I'm going to also talk -- I’m going to spend a little bit of time talking about other applications of this delivery technology which is very important to characterize somewhat euphemistically here as the future of MannKind -- MannKind's development [trends][ph] in this case, I guess three in total, and then talk a little bit about the financials.
So we'll work through that and maybe we’ll have time for a little bit of questions I think we will have a break out as well. First talking about Afrezza, this is clearly a new class of insulin therapies, it's different from anything that's come before it. It does share at least one characteristic, one prior insulin and that it is inhaled but really we think the key thing here is the kinetics of the product which are quite different from other insulins. But it's in a very nice form factor, very simple, easy to use, we always show pictures of it for some reason, people when they see it in person always seem surprised that it's as small as it is. But this is it. I have to be careful because if I hold my hand around the wrong way you can't even see it. But it's a very simple easy and I usually have one in my pocket device to carry around with you.
We think and we still believe this does have blockbuster potential both it's approved for type 1 and type 2 diabetes for prandial insulin. And we're partnering with Sanofi, something we're quite pleased about. Sanofi, a world leader in diabetes treatment, I can't imagine we can have a better partner with Sanofi's for something like this, and in that it is now on the market launched in February this year. So why do I think this is important? Well there is a lot of problems with current insulin therapies and a few of them I've noted on this slide.
Two thirds of patients are concerned about hypoglycemia, at least a third don't take their insulin as prescribed so compliance is a big problem and physicians report they really have a hard time getting their patients to reach the targets either because they're not taking their insulin as they should or they can't get them to take insulin in the first place or a whole multitude of reasons. Clearly there's a need for our new therapy and we think we have it. Expanding on that a little bit, if you dig down into the data a little further patients who are an early stage, at least the type 2 patients that are on two or more oral anti-diabetic agents are very resistant to starting insulin.
We all know insulin is arguably the most potent therapy you can have, it's what the body uses itself, but people are reluctant to start it for a multitude of reasons some of which are on this chart. It's only about a third seem to be at least according to this survey willing to consider insulin, the other two thirds don't because they are afraid of injections for a number of reasons. Not always just because of pain, but sometimes the stigma associated with injections and so forth makes them reluctant to start insulin. I guess the theory here is, if we can get -- give them something that doesn’t have some of those stigmas and some of the other issues associated with injected insulin.
We have a winner of a product that not only will be successful for us but successful for all the patients, because there's been a multitude of studies saying earlier introduction of insulin lead to [benchmark][ph] outcomes and avoidance of some of the long term complications of diabetes which are still out there and if you look at the data the leading causes of a lot of things in this country like amputations and loss of organs and things, tends to often be diabetes. It shows we're not doing a very good job in spite of some very good tools we have to deal with it. Doesn't help if you have a good tool if it's not being used, so give somebody a tool that they will use without some complications and think we can really make a benefit to the patients in their ultimate outcome.
So again we have something we think is the answer to many of these problems. It does have small easy to use discrete inhaler, if -- I'm sure I could do -- you’re all staring at me, so maybe not but if I -- with the size of my hand, I could take out an inhalation and you probably never even know. That said you see a lot of reports out there people that, oh I took a dose at a public place and nobody even looked at me twice. It looks like a whistle, and people may wonder why they're blowing on a whistle that's not making any sounds, but it's certainly not the stigma you get from an injection. Obviously you do avoid injections, no cleaning, minimal training, it's very simple.
Much simpler than trying to teach somebody how to inject themselves. Certainly in a small breath powered device, so it's not aerosol or anything like that. You just suck through the device looks like the opposite of a whistle I guess and you got your dose of insulin. The cartridge in about half a second so we're not talking about a lot of air pressure or very much time, if there's any secret in the training it's you tell them to take a full breath, because a quick puff even if it's empty if it -- that air only goes as far as your mouth it's not making it into your lungs, you take a full breath and after that everything's easy.
And it is very efficient, it dissolves into the deep lungs very quickly, part of the secret sauce here is the carrier agent FECP which has some unique properties that are very unique and perfectly suited for something like this. It's nice aerodynamic size that goes into the deep lung where it needs to be and then once it reaches there in a neutral pH environment it tends to dissolve naturally because it's a pH sensitive powder. So at neutral pH it's not a powder at all, it's actually a liquid, looks like a glass of water. But if you make it very acidic or slightly acidic as we do in the manufacturing process we create these crystals which then create the effective powder. And as a result of all this and here's much of the key refining in real life world out there, we get kinetics which are pretty unique and are much more similar to what a healthy human pancreas can do.
Reaching even peak insulin levels in the blood stream and typically 12 to in around12 minutes. So you might finish on this curve, this is not from any particular study, this is one of a simulations from different studies, but it shows what -- how the body reacts to an infusion of glucose, in the case of the blue curve there which is the pancreas’ reaction to an infusion of glucose. We see you get a very rapid spike. The red curve is the AFREZZA curve which is rather remarkably similar you might say and certainly different from the black curve. Nothing is intended by the colors here. The black curve which is the traditional rapid acting analog by injection, so we come up to the speed more quickly and then we go away relatively quickly too which is equally important we believe. And we're finding the increasing reports about how much simple this makes life for the patient.
And we have survey data for that as well and this is older survey before we even launched the product but clearly, if you were thinking about taking insulin from the patients' perspective or adding insulin if you’re already on there but basal instance for example, there is a clear preference amongst the survey data and this is the survey I believe Sanofi did for AFREZZA as an alternative and that carries over to the doctor as well. Doctors think it's going to be easier and I hope we’ll ultimately find out as we’re increasing penetration in the market, but doctors believe that the acceptance of this product over an injected one would be much higher either in an early insulin initiation environment or intensification environment. By intensification here I mean as an add-on to an existing basal.
So how are we going to do this, clearly as I mentioned before we have a partnership with Sanofi, Sanofi is clearly a world leader here and it's about a good a partner as we could hope for. They have done very well with their existing insulin, it’s getting the on market in huge number countries very quickly. We hope that will be the case here. We're starting with U.S. but we hope not to finish there. We have a lot of other places to go in mind. And we drove over profit sharing arrangement with Sanofi which is a good thing to have or something like this because it means as long as there is profits we'll continue to share them, as opposed for example a royalty arrangement where at the patent structure [indiscernible], your royalties scale down. And we think we have a long life with this product.
Beyond even the patents are quite long also, but beyond that we think there is a lot of other thing in various markets -- the entry of the market. We did receive $150 million upfront. We've earned $50 million of milestone since then and that's beyond the profit split. And we do have a lot of other milestones still to go, so there is potential for another $725 million of milestone. These are for things, a variety of milestone for launches in other countries and book of sales based milestone. Clearly, Sanofi's responsibilities are sales and marketing for the most and ours tend to be more in the manufacturing and further development side of the business. I just want to say we don't have any involvement with those, but this is who has primarily responsibility halfway we've been involved in many of those things as well.
So what is Sanofi is thinking, this is an old slide at this point, but this is kind of where they're focusing their efforts or where they think ultimately the big market is which is earlier in initiation of insulin. So is it people who are failing on early therapies probably have to be on insulin and are not. They're resisting. It's a well know syndrome the people put out insulin as long as they can occasionally as they are literally referred to as the lost decade because it can take so long to get these people who ultimately breakdown and take insulin, and I think during that whole time they're doing themselves damage that accumulates over years and years, and we'll see it later in life, if we can get them on insulin more quickly hopefully we can avoid much of that.
At the same time an obvious market for someone like Sanofi who essentially owns the basal market is insulin [intensification][ph], so because the complications with prandial insulin today may patients start with basal insulin. And I think it's safe to say that essentially all those people would benefit from the initiation of a prandial insulin and given that Sanofi knows that markets so well and they are really essentially all their patients anyway it's an obviously target for them. Here I've broken the slide down between people who are controlled and people who are uncontrolled. People who are controlled tend to migrate to uncontrolled sooner or later but this is a snapshot.
But I have also taken out because people asked about this a lot, how many people given the label instructions, we've always said that this product is not advisable to be used by smokers or people who have active lung disease, so if you exclude those people and also exclude people that are already under controlled, you still left with a pretty darn large market and this excludes the add-on piece which isn’t a focus of their marketing efforts, but clearly if you watch the social media and so forth we're getting a lot of them which is the existing type 1 patients who are switching, what we’re used to call them switcher, people who are on insulin already.
So Sanofi's launch was as we always said a focused and targeted initially with the idea that it would be extended outward overtime and that's exactly what happened. Initially we start with our an early launch focused very much on the kind of thought leaders in the areas the endocrinologist with the idea that ultimately it would expand increasingly to the general practitioner market and with things like DTC advertising which I think is uniquely well suited to product like this which we will start very shortly. We said early next quarter. The potential addition of ex-U.S. markets and there is a lot of them out there, some would require additional trials, some not. But we’re in the active process of looking through those opportunities right now and ultimately to the extent that Sanofi's starts manufacturing our supply of the raw material of insulin that will help the margin.
In the long run Sanofi said publically that they will have ideas for label expansion studies. We're in active discussions about with them about what those should be and we hope to finally put some of the safety issues [indiscernible] on longer term prospect. The good news is we're getting increasing attention and buzz out there. So one of the nice things about diabetes is that it’s a very active community, people are very vocal and it's not very hard and I encouraged you to do this when you have a minute to go and find out what people think of this product and so I was like some kind of a dinosaur, I never had a twitter account before, I do now because these people are out there twitting about their experiences and literally posting pictures of their blood glucose monitors and other thing which is very, very encouraging because we’ve yet to find anybody saying anything other than they loved the product. So the initial launches were slow it gives me hope, I think it’s going to get there. If they love it as much as everybody says they are and I’ve yet to find an exception, having no doubt it going to be the blockbuster product we all thought it would be.
The same time we start to see it more and more on diabetes website and efficacy groups and they are very active in those sites as well. So I think this is phenomena that will build on itself, startup in spite some of the initial hurdles to get over, to get prescribed the product that makes me as confident as ever, maybe even more so that this would be product that [indiscernible] always said it would be.
And they’re obviously in print media as well, in fact I’ve just received an article from [indiscernible] Los Angeles Times this morning talking about the products. So the words getting out there, honestly the focus of that article was actually how difficult to completely get a prescription of product and actually start using it. But the end result always needs to be the same. The women who was quoted, talked about she was not a very persistent person she probably would have given up, given the issues they had to go through their doctor and the pharmacy, issuer and so forth but once she got it, she loved it and that seems to be the recurring scene.
So most of the things are structuring issues they are being addressed, so I feel confident this is going to be quite the product, so stay tuned.
So few little minor updates here and there mostly because people asked about this all the time. We are increasing the main factory capacity. We started out with just one line in operation and we now have three lines in operation and the 12-unit cartridge which was recently approved will be the first thing that’s coming off these new lines. So those would be, starting to be produced shortly if they aren’t today, I’m not sure if they are today but they aren’t, they will be in any moment and Sanofi says they will launch in the market next quarter.
People often asked about doctor interests and sample pack. So there is only one specific figure I can give you as we now have produced and delivered 54,000 sample packs, which is a bunch, representing 1.6 million cartridges. Typically, we do sampling of this product, it may not seem intuitive but we tend to give out 10 day sample packs to the doctors, so when they give you a prescription you get the 10 days’ supply to get you started and give you time to get to the pharmacy and so forth.
So we view that as something of a leading indicator very much as, for example Sanofi has a discount card program, some of you may be aware of prescription pharmacy discount card. So to the extent which those requested and so far tend to be leading indicators of future sales for us as well. So, I guess this is hope. Other new news there is increasingly and this is not public information pre-say but sometime it’s hard to find, increasing programs that have been done by doctors around the country by Sanofi and this is doctor to talking to doctor. So it’s very helpful especially given reactions from the doctors we keep hearing about, having talked to their peers about their experiences.
It can occasionally be challenging to get the doctor to write that first prescription, but pretty much inversely what we’ve found is once they do, they’re pretty happy. Occasionally that means their patients is dropping [indiscernible] writing that first prescriptions, which is maybe one reason why DTC will be important, but again universally it seems to be a trend once they wrote the first one they just tend to write a bunch more, that will be important.
[Indiscernible] is something that Sanofi recently rolled out, it’s an assistant program for the patients, helps them get started and know what to do. I thought this was a big secrete but I found it on their website, so I guess it’s not anymore, so I can safely put it on the slide. But there is lot of hopes that will make a big difference as well and that’s just coming online now. And finally [DTF][ph] -- DTC advertising I’ve talked about a couple of times but it will begin early in Q3 and again I think this is going to be a major inflection point for the company.
Prescription trend, I mean there is lot of made out of the weekly prescriptions. I would urge caution looking at weekly numbers, because the numbers fluctuate around a bit. I found this very funny how our prescriptions in one week go up 75% and nobody says anything, and the next week it goes down 5% and they notice a lot. But these fluctuate around a lot, sometimes it’s just because there is a holiday in that week, like [indiscernible] day that just passed or maybe because there is some doctor event like [Deepak] and I are going to [88] from here today or tomorrow and a lot of doctors are going to be at [88]. So they probably won’t be writing scripts.
So these things, the weekly numbers can float around. So I took the weekly numbers and changed them into monthly numbers creating a standard four week a month. So they still fluctuate around a lot, but trend is not awful. I mean it is trending upward, maybe not as fast as we hoped but 42% growth in May over April is nothing to be embarrassed about and we hope that can accelerate with some of the things we’ve talked about. And that’s in the context about what this generally a flat to negative market. So I haven’t named the competitors, to protect the not so innocent, but those would be the other three top rapid at that analogs in the market.
So with that I want to turn to the feature of MannKind a little bit, which is Technosphere platform. So as I mentioned before this is a very unique delivery system. It’s a way to get drugs into the blood stream very quickly, intentionally mimicking intra-arterial administration in a way you could not do outside of hospital normally, it has a lot of advantages; speed is the obvious one that most people think of. But also has the advantage of bypassing the liver, so they first pass metabolism which in some cases mean you don’t need as much drug, which is a good thing and so now it means you can avoid the liver toxicity and other issues.
So it has a lot of advantages and lot of potential applications. And we’ve done a lot of experimenting in this area and it was I keep being embarrassed by with so much [indiscernible] here, which really just meant we had a lot product opportunities and we’re struggling a little bit to pick the best ones and hired an external adviser to help with that. To start on the best foot and get the maximum bank for the buck, normally we can’t do everything all at once. But I want to make sure people realize that some people out there have the miss perception that we’re talking about just licensing deals with pharma companies. And they’re just on the rate our [EBIT][ph] number down here is number three for a reason and sure that’s a low risk proposition, but people should realize it’s not all money upfront, that usually just means they're taking the products and it’s no risk, they're doing all the work. But that probably we have a small royalty stream probably single digits later on.
That’s not how we want to build the company around. We want to be a product company and we want products and sometimes that means, for the second plan -- I’m working right from the bottom up here, a new chemical entity which is great because of the work potential is huge, but much riskier and very long term. The obvious thing to do is to focus on things -- we have essentially an proved delivery system now, focus on things that are approved in other context and given them some new capabilities be it speed or route of administration or avoiding injection or avoiding infusion or a [indiscernible], a whole list of thing that you could use as advantage to create a new product. Which gives you the advantage of a different regulatory pathway which is dramatically quicker and dramatically cheaper and given we have a bit of a gulf between our approved product [indiscernible] and our pre-clinical development effort, we need to rush some things along to fill that hole.
That said we probably will at some point add some new chemical entities into the mix too, but really our focus today is on that first point. And I want people to realize that we’ve spend a lot of time getting to there so we literally mostly what’s changed by this time we’ve added timeline, so people know we've been working on this for a while to get screen compound, picking the best of ones, identifying the markets, the timeline, the cost of development and so forth. So we can really maximize our limited investment to our share and then developed a whole long development timeline and plan which is the stage we're in now.
So we do have a product in development at this moment. We expect the second product to enter the pipeline, as this is going to be very likely a traditional pipeline. We can only get one starting to a time, but the second one will then enter the pipeline by the end of the year. And then you can assume we can try it’s the target here, it’s not a confirmed promise, but our target at least is to get another one in every six months or so. We have identified the first four candidates and this means we specifically identified both the indication and API, the active pharmaceutical ingredient and development plans are underway. And I want people to realize this isn’t just us speaking about it and talking about it, we actually have a lot of people working on this. So we have about 35 people working on this. I was at our conference with the bunch of my peers last week, when I was reminded that 35% biotech is a decent sized biotech. So you really have a company within a company working on this new product effort.
We intentionally a little bit vague about some of these things at this point. We have told the world that three of the top four educations are in pay management, pulmonary disease and oncology. And we have said that the first two indication where out of those first to caption, it’s not necessarily in that order by the way. But those are the ones we'll be working on this year. At this point we're not going to say too much more because we want to take them a little further down the road before we open the kimono too far and maybe open the door to potential competitors. We need to develop some intellectual property in the meantime, but we are pretty excited about what's going on in these areas.
With that finally I want to make sure -- hopefully a little bit of time at the end, I want to talk about our financial below that. So our balance sheet is strengthening we do have a lot of cash, we ended up with $120.8 million in cash at the end of the year versus 35 or so in the same quarter last year, that’s certainly an improvement. But more importantly our burn rate is coming way, way down. So we've already reduce operating expenses by about 48% over the prior year, much of that’s because the clinical trials are obviously no longer going on and so forth but also reducing and streamlining much of our operation.
We've been a little more forthcoming that we are centralizing the world to a great extent into Denver and Connecticut. We formally had a facility in New Jersey that we've now closed and absorption some of those people into Connecticut and to some extent we don’t have some those functions those people are no longer with us. Those would typically be things that Sanofi is now responsible for as opposed to us, even on the West Coast front base we have a huge monstrous facility there that’s larger empty these days. So our intention is to sell it, it is on the market and we're goggling into some space in the Omnia Industrial Park across the freeway, it’s given we only have about 25 or so people left in California.
So all these things will reduce cost that you'll see the benefit of, some you've seen already and people increasingly see the benefit of that. For example we've -- even though we’ve abandoned the facility in New Jersey we're still paying rent through May I belief. So some of these things are going to ripple in but bottom line is that cost just continues to come down and we will sell surplus equipment and facility as we go. And milestones are something that people sometimes forget about, that we’re -- we do get things beyond just profit share from Sanofi, we have just recently earned 50 million in milestones for the accomplishment of some certain manufacturing milestone and there are many more to come. We have another 70 million to 125 million in more potentially milestone.
So we feel pretty good about our financial position going forward and really this is the summary slide, I think we're feeling pretty good about our financial position and the opportunities available to us. We have a near term potential product that we still view with blockbuster potential and more with Afrezza. But really in long term we have a lot of opportunities for future product growth based on the Technosphere delivery platform.
So with that I appreciate all your patients and attention. I think I have time for maybe one or two questions and then I think we still plan to -- there is some controversy whether we’re having a break out, I think we are still having a break out session.
I think I sabotaged the question by letting people know there would be breakout with people --.
Question-and-Answer Session
Shaunak Deepak
Matt Pfeffer
Well we're down to the last couple of minutes and with that all again thank you for your attention, stay tuned and I'll try to add new things to introduce presentations over the go, but sometimes it’s hard. Thank you very much.