Welcome to the MannKind Corporation Second Quarter 2019 Earnings Call. As a reminder, this call is being recorded on August 7th 2019 and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call until August 21st, 2019.

All participants will be in a listen-only mode for the duration of this conference. [Operator Instructions] The company will take questions from analysts after prepared remarks. This call will contain forward-looking statements.

Such forward-looking statements are subject to risk and uncertainty, which could cause actual results to differ materially from these stated expectations.

For further information on the company's risk factors, please see there 10-Q report filed with the Securities and Exchange Commission, the earnings release and the slides prepared for this presentation. Joining us today from MannKind are Chief Executive Officer, Michael Castagna; and Chief Financial Officer.

I would now like to turn the conference over to Mr. Castagna. Please go ahead sir..

First is international partnerships, we just discussed and the second is Australia, which I also mentioned. United Therapeutics is going very nicely. We expect to start the Phase 3 trial very shortly. The high potency manufacturing area is complete and built out. We anticipate achieving our second milestone with $12.5 million in the second half of 2019.

The research agreement for the undisclosed PH compound is substantially complete. We expected decision with United Therapeutics in Q3. On insulin and MannKind awareness, many of you've seen our Indianapolis 500 Sponsorship with Conor Daly as well as our Friends for Life as we go into the pediatric space.

We also are trying to change the conversation with print ad that you'll see in a second in one aspect as well as inhalemyinsulin, website, social media, billboards that we just launched this past week. And finally, we've increased our analyst coverage to four with BTIG initiating in May.

The first thing I want to share with you is the excitement that's going on in Brazil. Since the day of announcement of approval, it's been very exciting down there. We've appeared on the front page of the two big newspapers.

And there has been lots of write-ups by the physician community down there, over 60 appearances have happened and there's just a lot of buildup there and so we're looking forward to working with them and make this a very, very successful launch where we can take the learnings from the U.S. and launch successfully in Brazil the first time.

The second big thing many of you may have seen in the past week is two targeting messages that we're working on in Texas around spread the word, say goodbye to mealtime insulin, say goodbye to needles for your mealtime insulin, visit inhalemyinsulin.com. And everybody knows somebody with diabetes, tell them about inhalemyinsulin.com.

This is targeted in a couple of cities right now including airports in the Midwest. So, we're excited to see how this works and so far the early days of website traffic and video shares, et cetera have been going above expected. The next agreement that we signed was One Drop which was announced on Monday.

The important part of this aspect is it really starts to connect Afrezza into the Connected Care community when we think about providing seamless integration of patients managing their disease on third-party platforms. We expect One Drop to be the first of other -- many platforms we go forward with in the coming years.

This will make it a seamless experience for when a patient takes their Afrezza, the dosing will show up in the One Drop app. And when you look at your glucose data, they are able to integrate Dexcom as well as their own BGM data.

Patients will able to see an overlay of their glucose response curves and with that data, ultimately will be able to start to do predictive analytics. The next slide here talks about the scientific communication.

These are decisions that were made over one to two years ago when David Kendall joined 18 months ago where we started a couple of these trials.

We submitted the data from 2017 and 2018 and now you can see it just takes a while to get the scientific data moving, but as we go forward, we see numerous publications coming to support Afrezza at the various conferences already in 2019, but as we go forward in the publications in the second half and new data generated in 2020.

For those you may have missed one of the important datasets that ADA, I want to share with you here is around our new fixed dose titration schedule in Type 2 patients. This very easy to follow protocol resulted in a 1.6% reduction in A1C in the first 12 weeks.

Additionally, we measured time in range where we saw an improvement by 76% from baseline, almost 93% of people achieved A1C less than 180, and the time spent greater than 180 was reduced almost by 50%. These types of results are unheard of and very excited about continue to make Afrezza part of the standard-of-care.

Now, I'm going to bridge to the pipeline. We completed an external third-party landscape assessment to give us some feedback on how our platform stack-up against other inhaled products including nasal technologies.

When we completed this assessment we were convinced that amongst our peers out there, we have a platform that does differentiate itself and that these compounds are the right ones to continue to focus on. When we look at the real way to create value, it's really licensing these products when they get to Phase I.

A lot of questions I get are around when will these products get to Phase I? And how long does it take? And so the next slide really gives you some descriptions of what this typically looks like for typical program.

So, this is a sample development plan to show you year one and year two and our various compounds are in the various phases between year one in year two as we get to pre-IND.

But you can see the decisions that we made back in December to move the pipeline forward take six to 12 months before you start to get to pre-IND filing, for example, EpiHale has already done in year one of this project and we have to go back to the FDA to find a feasible population that we feel this product can work in.

But we are very excited to now fund the pipeline and this is in our cash flow plan to get each of these molecules to at least Phase I where we think we can create significant shareholder value. Now I'm going to turn it over to Steve to walk us through our financials..

Thanks, Mike and good afternoon. I'm also very excited by the announcement of both our recapitalization as well as our second quarter results. I'll be breaking my discussion into two sections. The first will be addressing our recap.

The second will be a review of second quarter and June year-to-date results, where I’ll be discussing select financial highlights and urge you to read the condensed consolidated financial statements and MD&A contained in our 10-Q, which is filed with the SEC this afternoon.

In addition to Mike’s high level review, we issued an 8-K after the market closed today, which provides the details of our recapitalization. Now it's time to dig into some of those details. Starting with the graph on the left, we entered the third quarter of 2019 with $108,000 in debt.

Since then we executed four debt transactions over the last 30 days to reduce our debt by approximately $28 million, while pushing out $100 million 2021 debt maturity overhang. And we brought in MidCap financial with initial $40 million funding, which puts our total debt outstanding post these transactions at approximately $120 million.

As Mike said earlier, MidCap financial is a firm with deep roots and experience in lending in the life sciences industry who've done extensive research on our company before lending money to us. We feel really good about our partnership with MidCap and the support we have received so far.

So looking at the big picture, we have increased cash by $30 million, while increasing debt by only $12 million and pushed out debt maturities to better align with future increased operational cash flows.

There are a lot of moving parts, which are more fully described in our 8-Ks and we will answer questions in Q&A at the end of our presentation to help understand the numerous transactions we have entered into. Now a little bit more on the MidCap funding.

The total funding commitment is $75 million with two more tranches that we funded based on MannKind obtaining milestones related to our commercial strategy. The funding is other option and we expect the second tranche to be $10 million after attaining our milestone by the end of the first quarter 2020 and 25 million by June 30th of 2021.

The transactions associated with our legacy borrowings saw a $28.4 million reduction in debt which consisted of first, $9 million repaid to Deerfield between two transactions, a previously announced repayment in July of $4 millions, and yesterday we repaid the remaining $5 million.

So Deerfield is now paid-off as we released our leans on our assets and has released the $5 million held in Escrow.

Second, an $8.4 million reduction in the senior convertible note consisting of repayment of $6 million and a principal reduction in the form of the discount for early payment of $2.4 million leaving $5.3 million now due in 2020 and a $5 million convertible note due in 2024.

And third, an $11 million reduction in the Mann group convertible note and accrued interest with the restructuring of the remaining $70 million debt into a $30 million convertible notes due 2024 and $35 million term-loan due 2024. The debt reductions included the use of cash, MannKind stock and a discount on debt.

So when you roll the recap transactions together including the repurchase of warrants announced in July, restructuring of our legacy debt and the establishment of a new debt facility, we increased shares outstanding plus shares reserved for issuance by only 5.2 million shares or less than 2% of outstanding in reserve shares.

In addition to the new funding, we are committed to reducing spending from historical levels to enable us to achieve cash flow break even. We have been reducing operating expenses year-over-year as you highlight in our press release and 10-Q, and which are shown in the top table on the slide. We plan to reduce spend further as we move into 2020.

Moving to the table on the bottom of the slide highlighted in our 8-K filed today, we restructured our insulin purchase agreement to reduce our insulin purchase commitments by $46 million from 2019 through 2023 exclusive of a $2.75 million fee that would be paid partly in a third and partly in the fourth quarters of 2019.

We also extended the agreement by two years, which should better align our short-term and long-term insulin purchase commitment with patient demand for Afrezza. In addition to the spending reductions, we have a number of different sources and potential sources of cash inflows.

Looking out over the next 18 months, we expect to see over $110 million coming in from United Therapeutics and MidCap. Assuming we exercise our option of MidCap tranches two and three. We also have additional and potential sources of cash inflows that come from increasing U.S. Afrezza sales.

International Afrezza sales including possible new territories, warrants exercise before expiration in December 2019, royalties from United Therapeutics from sales of TrepT. The monetization of TrepT royalties, a new business development deals for both the Afrezza and on development pipeline.

Taking into account, the full recapitalization of paying off and restructuring debt -- our legacy debt, providing -- I'm sorry bringing in new funding, reducing our near-term spending including our insulin purchase commitment and understanding our sources and potential sources of cash, you can hopefully see how our business is expected to be funded to cash flow break even.

Now, moving to operational results. Starting with the table on the left. Total revenues for the second quarter were $15 million versus $3.9 million for the corresponding second quarter of 2018.

A 285% increase comes from both the recognition of revenue related to the United Therapeutics license and research agreements of $8.8 million, as well as growth of 62% in Afrezza net revenue to $6.1 million for the second quarter of 2019.

Inception to date, we have recognized $21.8 million from the United Therapeutics license agreement and $9.5 million from the United Therapeutics research agreement, for our performance obligations are substantially complete.

The Afrezza net revenue increase is favorably impacted by volume, cartridge mix, and price and this is a similar story to prior quarters. Please note that we did not experience a significant wholesale inventory change in the second quarter like we saw in the first quarter, which negatively impacted our Q1 Afrezza revenues.

Moving to the June year-to-date revenues in the right table.

Total revenues were $32.5 million versus $7.4 for the corresponding six months of 2013, a 341% increase comes from the recognition of revenue related to United Therapeutics license and research agreements of $21.1 million as well as growth of 56% in Afrezza net revenue to $11.1 million for the June year-to-date period.

The Afrezza net revenue increase is favorably impacted by volume, cartridge mix and price. And Afrezza gross to net of 40% were similar to 2018. I just mentioned our second quarter Afrezza revenue growth was favorably impacted by cartridge mix.

We grew our eight-unit and 12-unit cartridges more quickly than the four-unit cartridge, which has a profound impact on revenue growth as our eight-unnit was priced at two times that four-unit, and our 12-unit is priced to three times of four-unit.

You can also see the total cartridges grew more quickly at 39% than TRx, which grew at 28%, which reflects the impact of increasing 180 count box versus 90 count box prescriptions being filled. Addressing the Afrezza gross profit for the quarter.

The table on the left hand side of the slide shows the second quarter of 2019 the third consecutive quarter that we have had a gross profit for Afrezza. Our net revenue increase in our cost of goods sold decreased in the second quarter of 2018 producing our gross profit of $1.7 million for the second quarter 2019 and the gross margin of 28.7%.

We continue to have excess capacity costs being recorded in cost of goods sold, which are not capitalized and the inventory due to the underutilization of our factory and manufacturing related personnel.

Table to the right shows our June year-to-date to Afrezza gross profit $2.8 million, net favorable change of $4.7 million from the first half of 2018 when we had a gross loss for the same reasons that just discussed.

Our Afrezza gross margin for the last three quarters, which is the quarters when we had a gross profit was shown at the bottom of the slide. Gross margin has increased from 12.9% in the fourth quarter of 2018 to 28.7 in the second quarter of 2019.

We expect sales increases to outpace cost of good increases in the near term as excess capacity costs are absorbed into the inventory, which should produce increase in gross profit as revenues increase. Thank you. And now I'll turn it back over to Mike for additional comments..

Thank you, Steve. Nice work. So when we look at Afrezza, we really strive to simplify diabetes treatment. So we look at the top of this pyramid, our first goal obviously is to continue to grow and accelerate Afrezza’s growth. Additionally, we've tried many different things over the past couple years.

And as you look forward, we're going to do less and place targeted bets. It's really about executing what we have and continue to balance the cash in the company with the expectations of revenue.

We're going to paraphrase with CGM, as you saw our first deal today with One Drop, we think that's exciting given where they are with integrating some come into the platform. We're going to remove and reduce payor hurdles as we go forward and expect to have continued positive news in this segment as we go forward.

When you look at these four underlying pillars, it's about driving consumer demand which we're currently doing in the billboard, no mind campaign, removing friction along the journey which is really around the access copay card program we launched this year as well as reduction of prior authorizations or minimization of prior authorizations in payors.

We're going to build partnerships with third-parties around the CGM, JDRF, ADA, AADE as well as ACE. And we're going to continue to focus on enhancing the sales force capabilities. We've really taken about half of our sales force through Tier 2 training, which has really helped close the gap and bring them from the middle to the top performance.

Now when I look at Afrezza growth over the last three years between in each quarter, you can see we've had a 4x revenue, whether you’re looking at gross revenue, net revenue, by the quarter or by the half, we continue to expect the Afrezza grow for years to come.

It's really nice to see the choices we've made, the investments we've made continue to pay off quarter-over-quarter, year-over-year. And finally, I wanted to show you a good historical perspective based on Symphony PHAST Data from when we launched our sales force in Q1 of 2017.

Looking at refills continuing to build NRx continue to grow and revenue as a result of our strategy continues to grow quarter-over-quarter with a consistent decline in Q1 versus Q4 and continued growth the following quarters.

There’s nothing in this trend that we don't expect to continue, we're very excited as we continue to move the company forward in the coming year. And then finally, just want to talk about some key milestones as we close out the quarter. We've hit many of the ones we've laid out and expect to hit the meaning five or six on the slide.

Core II to really a couple of patients away from completion, formulation work is substantially done, we'll meet with United and decide next steps there. Our Brazil launch, I will be there in the coming months. I'm excited to meet with the team down there and the doctors. We are initiating our clinical study in India currently building the supplies.

And the study many people aren't watching the ad called Kipnes which is type 2 using dexcom CGM with a fixed dose titration. And again, this will be a bigger study than the one we did with Phil recently presented in Phil Levin data that we expect to see really good outcomes as the study completes the moment and gets presented next year.

And finally, as the slide that we all know is recapitalization is now complete, and I'm excited to lead the company forward without focusing on raising money and getting us.

And we're now going to focus on getting us new investors to continue to build the investor base as we go forward and executing our plans that we've laid out over the next five years. Thank you everyone. I think we'll take questions..

Thank you. [Operator Instructions] We will now take our first question from Pasha Sarraf of SVB Leerink. Please go ahead..

Hi. This is Dylan Dupuis sitting in Pasha. Two questions for you.

Number one just to kind of look further down the road the pediatric study what steps are going to be next – required next after the current cohort 3 finishes enrollment and in order to get label expansion? And then second question just on other initiatives such as with Kaiser Health How should be thinking about interactions with these groups the growth opportunity there? And how that compares to other key targets such as these the centers of excellence that you're also making a priority? Thank you..

Thank you, Dylan. First on the pediatric, so cohort 3 is really the cohort for 47 year olds. We just recently opened up another site.

So this cohort 3 hopefully will go as planned and we can wrap-up the study in the meantime, we're planning to go to the FDA to wrap-up the data we have so far and get alignment on the Phase 3 protocol and then depending how things are and post the FDA meeting, we'll decide how to progress this into the Phase 3 segment. But that's the first step.

The second step here is continue to meet with pediatricians and understand how big of an opportunity the pediatric segment can be and then from there we'll accordingly work through the funding plans that we have for it. The second one is around Kaiser.

So Kaiser is really starting from ground negative, I'll say meaning, it's a closed system and they have no exposure to a authorize other than a handful of patients, who were there and we have a dedicated person working up and down the channel Kaiser, really starting to make inroads in fact some of our employees, because Kaiser is one of our own health insurers, are going to Kaiser for their own health benefits and their first meeting there was, they didn't even know what Kaiser was.

And so I think when you think about impacting all their endocrinologists it's going to take a little bit of time. But when you look at what Kaiser is publishing, it's around $100 million an expense around hypoglycemia, and they really are focused on how do they contain or reduce hypoglycemia rates in their system, and get better outcomes.

And so remember they use HUMULIN still as their primary insulin of choice. So we really think we have a good value proposition for Kaiser as it goes forward. But it's not going to happen tomorrow, but we do have a five year contract and excited to continue to work with them to change hopefully, the whole standard of care there.

The following one is just around other access contracts, so we would continue to show for example, the top 25 docs, who adopted Afrezza went from 100 scripts two years ago to over 500 scripts in the last quarter. We continue to see as we get people on board and they adopt the drug. They continue to grow.

And the question is how do we keep getting the next group of physicians in the next group of physicians and increased depth of prescribing. So with that – that's one of our core focuses and the Med D contracts are just now coming in terms of what the results are for contracting for 2020.

And at this point, we're cautiously optimistic and excited that we'll see some good changes in our Med D access as we come into Q3 and get ready for 2020. So I hope that answers those three questions..

Excellent. Thanks..

Thank you..

[Operator Instructions] We will now take our next question from Anita Dushyanth of Zacks Small Cap Research. Please go ahead..

Anita? Are you on mute?.

Hello. Can you hear me, okay..

Now we can hear you, yes..

All right. Thank you. Congrats on the quarter and thank you for taking my questions.

I wanted to know what sort of percentage growth you expect in the prescribe going forward and also do you plan to turn on the DTC during the rest of the year?.

I don't think we've given guidance on prescriber growth. We continue to see prescribers grow quarter-over-quarter. We look at our new copay card data we see that growing month over month. So overall, there's nothing change we expect to gain new prescribers given our sales force footprint.

I think what's important is we started the year at about 55 sales reps in the field. We've hired about 20. We think right now we've got two or three openings, so we're roughly fully staffed at almost 75 people and a lot of those people just came out training the last quarter. So they get the lunches and points with their doctors.

We know it takes three to six months for them to start to make impact. So we're optimistic in the second half that we'll see more and more prescribers adopting the product and trying the product as we start to fill since January. The second question is DTC.

So, on that one I think given the lack of response that we saw and the investment that it took, at this point, I would say, we see more impact from the billboards we launched in the first week. And if anything we will scale that one up before we scale up TV. It's a very expensive proposition.

And I think the second part of that would be we probably would make a new commercial at this point before funding that commercial, but as we look forward DTC is not in our current cash flow or spend, and it's not something we expect to bring forward in the near term..

Great. Thank you for the clarifying that. You said a further distribution in Brazil. The launch will be in Q3.

When do we sort of expect -- should we expect the shipment for Australia recent time next year?.

For Brazil you should expect the shipment in Q3. For Australia we expect -- we're working on the filing now. So that's going to take a little bit of time down there, so I don't give guidance yet as we haven't yet filed the application for Australia..

Okay. And just a last one more question.

Could you provide some clarity on the pipeline related to Arlett [ph] agreement with them? Do you have any update on that?.

I don't want to speak for Arlett. I know they're working on quite a few things, and they continue to be a great partner and move that product category forward, because obviously a lot of state and Federal laws and country laws they have to get through. But I think that market continues to evolve and our technologies differentiated within that market.

So I don’t want to speak Arlett, but I think we'll continue to have news coming out in the second half..

Great. Thank you. That'll be it for me..

Thank you..

One more?.

Okay..

We’ll now take our next question from Robert Hazlett of BTIG. Please go ahead..

Hi, guys. This is Jake on for Bert..

How are you?.

Okay good.

I was just wondering if you guys could comment on your progress with type 1 patients?.

Yeah I think the type 1 segment in particular that's an area that we're going to continue to focus more on. They make up about 40 – 40% to 45% of all insulin use in the country, on meal time. But when you think about our product and CGM adoption, it's an ideal platform for type 1. One of the challenges I know, we've seen in this historical.

Uptake in the type 1 is that they've used it more as an add-on to make their pump work more effectively or to tap out a high – stubborn high that they were experiencing. So I think the real question is how do we continue to drive fundamental adoption as a real true meal time insulin full time as opposed to this add-on concept that we've seen.

And some of that's, how it was adopted in California, that's driven that? I know we have a lot of pump-ins in California, but we really do believe type 1s and we see them everyday working for us that they have a phenomenal experience with the presence, they got phenomenal time and ranges.

And the thing is just how do we continue to get that out there and that's really the goal is starting to utilize the unique aspects of a presence PK/PD showing you that that almost real time feedback that you see on CGM with Afrezza.

And that's part of the in human insulin campaign where you kind of see the real world perspective of someone having to wait to inject their insulin and I think that's, that's our main focus is, how do we continue to bring this into the lifestyles of people that they can live in that spontaneous moment. And so, that's one area.

We continue to look at other ways to penetrate the Type 1 market. My work went to top leaders as well and looking as one investigator initiated trials that we think will help differentiate the product and that segment. So that’s a big focus for us. The short answer..

Got it. That makes sense. And then you guys also mentioned expectations for numerous new publications.

I just wondered, if you could provide additional color on what you expect to convey in these publications?.

Yeah just refer back to the slide real quick. If you look in the real focus for us is continuing to build out the scientific story around the altar acting aspects of the product.

So we think that's important to get this data published because we believe at some point between the ACE and the ADR guidelines there will be an old directing category and getting our data published to highlight the PK/PD profile of our product is one of those things that will be important for them to build a reference to when they create that category.

I think the other aspects of the product are really around time and range and hypoglycemia and showing you the dosing and so there's a whole host of publications around that.

And then finally it's really around pulmonary safety and helping people understand the data we do have on pulmonary and what's been studied historically and fortunately, Pfizer just published a data from 2012 recently, showing you that inhaled insulin is relatively safe and effective.

And I think that all that scientific data continues to support the efficacy, safety, balance of this product and this category of treatment as we continue to grow..

Thank you. If I could just ask one more.

I was just wondering if you could kind of talk about the response prescriber -- you've gotten from prescribers based on the 88 data you've presented specifically around the more simple titration regimen and the need to get on higher doses?.

I think I might add another couple of times since that data came out and the customers, but I think the general feedback from customers is this the ones who use it their feedback is that matches their clinical experience and reinforces their confidence. And the ones who haven't used it, it helps them understand what they need to get to.

And for example we just look back at one of our pharmacist just present an information from our 2006 trial and in the Type II segment there we actually cap the dose to roughly eight units of relatively eight units Afrezza with the average dose. And here in this trial, you can see people got the 16 to 20 units per million.

So it just shows you how far we've come in understanding the dosing of the product and what's required to truly get a nice response output and I think that's people misunderstand, trying to compare an injectable to an inhaled. And they really are different.

And I think that's what we're trying to explain to people is don't look at an apple and an orange really look at them as two different products, two different ways they work fundamentally indicated for mealtime control and I think that's where you start to see the summary of our data going forward and that don't mix up the units really look at this as a unique option and a fixed dose way that helps you get to the specialty under control without a lot of complexities.

Go there and we're implementing that protocol in India too. So I think that's partly what that study is very helpful for all the new trials we have that should be a protocol pretty consistent that we go forward with..

Okay, great. Thank you and congratulations on all the progress..

Thank you..

I'd like to turn the conference back to you for any additional or closing remarks..

I want to say thank you everyone. We're very excited about the second half in 2020 and beyond. It took us a little bit longer than we wanted to do to finish up the recapitalization, but we want to make sure that we signed up for covenants and partnerships and people in the partner we work with them on debt.

That was the right timing and we really do feel the company is at a place where this was the right time with Deerfield ending and starting him with a new partner and that we can hopefully minimize any dilution going forward, so that we can continue to run the company, but the stock price respond appropriately and continue to grow Afrezza within the U.S.

and outside the U.S in addition to moving Treprostinil forward as well as our pipeline. So thank you again for everyone. Thank you for the MannKind team working behind the scenes. There's a lot of effort -- a lot of late nights getting here, but we made it happen. And just thank you to everyone around us and all the support.

With that said, look forward to keeping in touch and a few comments updates in September at some of the healthcare conferences, so we'll talk then. Thank you..

This concludes today's call. Thank you for your participation. You may now disconnect..