Welcome to the MannKind Corporation Fourth Quarter and Year-End 2019 Earnings Call. As a reminder, this call is being recorded on February 25, 2020, and will be available for playback on the MannKind Corporation website, shortly after the conclusion of this call until March 10, 2020. All participants will be in a listen-only mode for the duration of this conference. [Operator Instructions] This call will contain forward-looking statements. Such forward-looking statements are subject to risks 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 their 10-K 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, Steven Binder. I would now like to turn the conference over to Mr. Castagna. Please go ahead, sir.

Thank you. Good morning, everybody. Thank you for dialing this early. As many of you may have seen, we recently rebranded our company, along with our mission and our strategy and I'm here to share a few of those highlights today. One of the things unique about our mission is, our product technology and our focus of our pipeline is really to give people control of their health and the freedom to live their life. This is one of the number one things we hear around AFREZZA and we hear the early results coming out of the brief study for Treprostinil. We continue to be excited about the feedback we hear directly from our patients and our key stakeholders. Along with that comes a new strategy. And what that strategy is, as you'll hear today is, we'll move to a therapeutic focus in two distinct disease areas, endocrinology which encompasses where we are today with AFREZZA and continue to build out other areas. It could be a metabolic diseases, diabetes and any symptoms around endocrinology disorders and orphan lung diseases. These are the two areas that we believe we either have existing infrastructure or could build future infrastructure and make a difference in unmet needs. We will exploit our current proprietary technology, but will not be limited by them. So if we find outside innovation. That's okay. Now, everything will be on Technosphere as we look at out there for BD opportunities. We ultimately out license or terminate pipeline products which are not in either of our two foal areas, as we'll talk about later today. And we will focus, execute and deliver on these priorities as we go forward. Before I begin our Q4 and 2019 highlights, I want to address the serious threat that many companies and people…

Thanks Mike and good morning. Very pleased to review our fourth quarter and full year 2019 financial results which show record revenues, accelerating AFREZZA gross margin and improving cash burn. I'll be discussing select financial highlights and urge you to read the consolidated financial statements and MD&A contained in our 10-K and additional quarterly information contained in our press release both of which were filed with the SEC this morning. Let's start out with looking at revenues for the fourth quarter which appears in the middle box in the table. AFREZZA net revenue for the fourth quarter was a record $7.8 million, versus $5.7 million for the corresponding fourth quarter of 2018. The increase was generated by volume growth from underlying AFREZZA prescriptions up 13% from having an extra week shipments in the fourth quarter of 2019 with about $0.5 million in price. There was no AFREZZA international revenue in the fourth quarter. Gross to nets were 44% for the quarter reflecting a 1% uptick in the fourth quarter 2018, as well as the third quarter 2019 mainly due to increased commercial and Medicaid rebates associated with the price increase taken October 1, 2019. The price protection from one of our two significant commercial contracts reset as of the first of the year which will deliver a lower rebate rate for 2020 versus the fourth quarter of 2019. We expect gross to net to be in the 42% to 44% range for 2020. Keeping in the middle box, revenue from collaboration services was $8.2 million for the fourth quarter of 2019 versus $10.3 million for the corresponding fourth quarter of 2018. The reduction in revenue was mainly due to recognition of the $10 million United Therapeutics research agreement over the period fourth quarter 2018 to the second quarter 2019 and…

Great. I'd like to highlight a few other things that have happened either towards the end of 2019 early this year and where things are going. The first is our new preliminary data we just got in on the sumatriptan PK results, showing an ultra fast onset using sumatriptan on our platform. The graph on the left highlights the PK curves as you look at the different formulations available today between nasal spray, powder, oral tablet and subcu injection. The thing you should note the most is the delay in absorption of an oral tablet showed you insulin peak versus the subcu injection. These are the current formulations of sumatriptan on the market. We weren't sure how this would look in our rep PK study, but this is any indication of the human data we expect. You can see first on the scale please note it goes from 100 to 700 versus zero to 120 on the left. And that results in a two times higher peak concentration just off the first rep PK dosing we see here relative to subcu. As we think speed of onset is important to migraine, this is something we look forward to continuing to explore as we progress this program forward. As an IV-like response, just like we see in Afrezza and the other products, we put on our platform. We're very excited about this preliminary data albeit animal. Usually for us, this is indicative of the direction we go as we go through dosing and toxicity studies. This program ultimately licensed out to a partner or spun out of the company. And if we can't find a partner for some reason and at that point, we wouldn't invest any more MannKind resources in it. However, we think it's prudent to get us to…

Thank you. [Operator Instructions] We'll go ahead and take the first question from Brandon Folkes with Cantor Fitzgerald.

Hi, thanks for taking my questions and congratulations on all the progress this year. Firstly, can you provide any detail on the persistency of patients on Afrezza? And then secondly, could you elaborate on the feedback you're getting from physicians in practice regarding the dosing conversion work you did with insulin? Was this a tailwind in 2019? Or should we think of that as a tailwind for 2020? Thank you.

Brandon, great. Thank you for the two questions. The first one on persistency is we just finished up an analysis as we prepare for the board meeting. And in that we can definitely see a big difference in compliance and persistency through our co-pay card program on patients who are Type 2 versus Type 1 and prescribers for that matter that are Type 2 versus Type 1. So the data has – obviously data gaps that come along with it. However, there is a distinct difference. And as we look forward to expanding into the Type 1 market, we expect that persistency to increase. I don't want to share exact numbers. But I think in the upcoming meeting once we go through the day a little further we can go through that. But in general, half our patients on Afrezza today are Type 2 and half are Type 1. And then within the Type 1 segment, they're generally fall into three buckets. They use it exclusively full time. I'll call that a third of the market. They use it third of the time on top of a pump. And the third 3 of the time they just use it in case of emergency for highs. So that's probably what you see in our refills. They're not always 1:1 and a month-by-month basis, because of how people are using Afrezza. It gives them the flexibility to control their disease. Obviously, we're moving towards more patients using it full time and really thinking about pumps bearing opportunities exist in the market. On the Type 2 side, we see well over in general Type 2 patients about 50% drop out by month one or two. So that's a market that you see much higher dropouts in general just due to the nature of…

Great. Thank you very much.

Thank you.

And our next question comes from Oren Livnat with H.C. Wainwright.

Thanks. Just a couple of questions. You really surprised me to the upside on the results this quarter, which is great. I just want to make sure I understand what's going on the underlying, I guess economics of Afrezza or launch some pipeline stuff. So it looks like sales were up, net sales excluding Brazil almost 36%, 37% quarter-over-quarter on like a 5% volume increase and plus some price. So I'm just wondering, if you could give us some sense of what the I guess IQVIA or Symphony normalized value per script we should think of going forward if you're capable of doing that? Because I don't want to carry forward this value and then be surprised to the downside in Q1. So any help you can give us there would be great, and then I have a Treprostinil question. Thanks.

Things to look at, one, in the fourth quarter, we did have an extra week of shipments. To compare back to the third quarter, it's about $0.5 million. So that is something you should take into formulation. I don't have the average price per script with me at this point. We can follow-up on that.

And I think you're right Oren, you did see 37% growth just on the net U.S. from Q3 to Q4. From our perspective, we continue to see volume mix look positive. We're trying to reduce the number of free scripts out there and trying to put programs in place to convert those to paid prescriptions. And I think this year you'll see a big push there because almost 20% of our revenue or 15% of our prescriptions fall in that free goods program. And as we increase managed care coverage there's no reason those don't turn into paid scripts. And so today they reduce probably average script cost but that's something we continue to focus on.

Okay. In the Q1 with normal seasonality, should we expect or should we conservatively assume that it's a slog on that realized value per script early in the year?

I don't yet see that. I mean, we're looking at our copay data or out-of-pocket data coming in every week. Our script trends are holding up decently. Our outflows and the wholesales are holding up pretty well. So usually I see a big out-of-pocket costs and big slowdown in prescriptions, but the year started off pretty strong. So I think we were just -- we can gross to net to make sure that looks good for the quarter. But at this point we're optimistic for 2020.

All right, great. Thanks. And on Tretti, I look back at Martin's commentary from January, JPMorgan and issue was specifically about finishing the study I think by April hopefully. And I got the impression that maybe stability is the only gating factor. I know it's not really our product to add commentary on that, but can you just maybe help us understand as far as you know, is that the only gating factor or stability beyond the PK study? And do you see like any risk around this PK study based on the data you've seen to date? Or is this just a bioequivalent spot check exercise? Or is this a higher dosing and switch studies stuff also important in any filing decision?

Yeah. I mean, I think as time goes by the risk in this program dramatically decreases. And I say that mainly due to the stability. We believe the product will work fine. We've done the SAD study. We've got some initial data out of the -- pre-study in terms of PK. We know the patient experienced so far in the pre-study. We hear people are rolling over into the extension phase. So there they were able to change into the higher dosing. So it's a pretty straightforward program. We don't – there's always risk in any development. But when you think about -- our technology is already FDA approved, Treprostinil is already FDA approved. It's already confirmed the dosing and we know it works in the inhaled routes. So from a risk perspective relative to other programs we would do like I'll call it implement of time, we believe this risk is low in terms of anything going wrong from here to approval. That said it is a development program and we always have to be cautious. But in terms of rate limit and effects, PK, we feel very good. About that we ran some sample PKs as we're getting into pre-study to confirm before we went to the major PK study. On a health factor study, we feel very good. We've learned plenty of those. We've learned the pros and cons on that one. And then the final, just stability and that just takes time. And so far that continues to progress nicely. The plant is up and running. We continue to make batches. So we don't anticipate anything going wrong. And we feel pretty confident that when we think about our cash on balance sheet and cash expectation we are betting $25 million on Treprostinil this year and we feel good about that opportunity. If anything we got to really think about factory built with this new WHO Class III is like you have to scale even again from scale we just built and we'll continue to increase our conversations with UT. We meet with them quarterly and usually monthly we talk. So, everything is on track there. Teams are working great. We're just very excited. I know they're very excited and couldn't ask for a better partner.

All right. And can you comment on the competitive landscape there? Do you think based on what you know about I think Liquidia has a filing there imminent or maybe just happened. Can you remind us of maybe the differentiation there?

Yes, I think there's a couple of things. Number one, their first time filing a drug-device combo or an NDA, for that matter, that's a pretty huge task. As you know many companies don't always get in the file accepted or get for approval. I can't anticipate where they are. They've not received FDA acceptance of their file yet. When you think about the supply chain that comes along with such a complex drug-device combo that's a hard hurdle for the FDA to get through. And so we feel good about our capabilities that our technology and our partner in terms of everything we're doing. So, I think that's just a big gap. I think then when you think about the clinical aspects of the product, they're very different when it comes to dosing and conversion of dosing. Those two attributes of the product are very different. When you think about the technology behind the product, looks like they had a hiccup somewhere in their development around consistency and inhalation. They have to reduce some of their data if I recall in our case, we feel very good about the ease of our device to consistency dosing and the amount of power that gets into the lungs to deliver the therapeutic benefit we expect. So, I think from a consistency and quality and scalability, we feel very good about our platform. And then finally, I think we've got a great partner. So, when you think about UT's experience with these 7,500 patients in the marketplace, some of which are invasive, one of the other two formulations they have working with the market leader in those relationships. We think we're close enough in an approval sequence that shouldn't be a big impact. And I think there are some other things working on that will continue to differentiate the molecule. I don't want to go into for competitive reasons, but we feel our overall strategy will be very strong in the marketplace to help continue these patients that don't have, so -- and expand the market even further.

Great. I appreciate the color.

And our next question comes from Thomas Smith with SVB Leerink.

Hi, this is Dylan Dupuis in for Tom. Congratulations on strong quarter guys. Just a couple of questions. First how are you guys thinking about expanding the number of reps and expanding territories and how this might impact your ramp in SG&A? And then I have another question after that.

Sure Brian -- Dylan. I wouldn't expect a major impact on our SG&A. We've been able to manage our overall headcount in the company, continue to reduce our expense base through other cost savings. So, when we look at the net-net reps in the increase, you'll probably see surely will be taken down probably 5% of the positions we've already filled a couple. Some of them we just haven't seen the right talent join us and then apply. So, we're not going to continue to be distracted by those particular markets. And some of them you'll see some new ones pop up in markets that we're looking to increase our penetration. So, net-net you can anticipate a five to 10 FTE increase. And if you think about the next three quarters you're talking roughly $1 million $1.5 million. I don't think that's a significant amount given our current structure. And my guess is we can offset that through continued sales growth or a reduction in our expense base if we need to. So, we don't anticipate any major or material impact on SG&A.

Great. Thank you. And then kind of a broader question. When you guys were initially describing the plans to develop the Phase III trial in India, you talked about how you want to design a trial that was going to be differentiated and give you guys new insight to Afrezza that you hadn't really looked at before. Just wondering if you guys had any color that could give us at this time on how the trial might be designed and what is you're looking for that might be new?

Yes. So, the Phil Levin just got presented this week showed you roughly the full cohort of patients. And that dosing regimen that we're using in the Indian trail is based on the Phil Levin data. So, we're excited to see a trial that goes from I'll call it 25 patients in Type-2 to now over 100 patients -- I don't know the exact number sorry. It will be a Phase III trial head-to-head placebo-controlled. So, we're very excited about having that data in a different -- it'll be a safety trial with an efficacy assessment. The trial kicks off in April-May timeframe and it's a three-month primary endpoint if I recall. And so that'll be going forward and we're excited to kind of get dosing data and a head-to-head placebo as we go forward. So, we just finished up filling the placebos. Those will be shipped over to India very shortly and the kickoff for the trail is roughly the first week of April if I recall. So, India is progressing as expected and it just takes a little longer to get through all the regulatory hurdles there. But otherwise everything is on track and we'll look forward to that data set. There's probably some minor things like we're debating liberate or not and I think we're not going to get there because it's not approved in India at the time; we're looking to finalize the protocol. So -- but it'll show us pretty good data in Type-2s in a market that has a very high unmet need with really high A1cs. So, we're excited as we saw 1.6 A1c drop. In Levin study, hopefully, we'll see a comparable or more greater drop as the trial goes beyond the 12-week time period.

Great. Thank you very much.

And next will be Bert Hazlett with BTIG.

Great. I've got four questions. Could you please let us know specific deliverables for TreT to get that product to a NDA?

Bert we haven't disclosed exactly what they're tied to in the milestones, but there are things in our control and we've stated publicly in the past, it's around the stability, it's around making sure we prep the files, because we have to write a lot of the NDA as well as United. So when you think about all the manufacturing, all the CMC, the supply chain that's all on MannKind. So these are the types of things that are in the -- in our control that our responsibility as part of that filing. So hopefully that answers on a high level what you're looking for.

Okay. And that's within the next 12 months, correct?

Yes. That would be within the next 12 months.

Okay. Second question then is, does the scale for manufacturing that you've contemplated with United Therapeutics, does that include at this point the increased study results? And if not are is there an option to potentially include that in your manufacturing effort?

The factory scalability that was built was primarily focused on existing market of Tyvaso with some additional capacity i.e. we can run the plant nonstop for 24 hours a day. But I think if we are looking at an expansion of double or triple the current Tyvaso revenue, obviously, we would have to expand the infrastructure we built around the factory today. And we have that space in Danbury. So that's not something that keeps us up. We built the factory as it exists very quickly. And if we had to build up another scaled factory we have enough time to do that appropriately with UT as part of that.

Okay. And just remind us how the NDA is going to progressed assuming expansion or assuming an inclusion of the increased data for Tyvaso. How would that progress with regard to any filings with TreT?

I don't know what UT want to say publicly on that Bert. So I'm going to not answer that one yet, because I don't want to say something they're not supportive of. I've done this in the past with the types of products and a 505(b) strategy. So maybe one-on-one I can talk a lot, but I don't want to tip off anything related to United that they're not comfortable with sharing.

Okay. And then last I think you mentioned something early in the call about a second order from Brazil. Is that accurate? And did you say Q1 shipment there'll be some revenue in Q1 and some revenue in Q2. Or did I hear something else? Thanks.

No, you heard correctly. We’ve received the second order for Brazil, just given the long lead times and the initial shipment shipped back in September if you recall. So we anticipate shipping a part of that out in Q1 with the rest of it in Q2. So we haven't yet given a value or a breakdown. But I just want to give people a heads up that we expect another order and you'll see some of that in Q1.

Perfect. Thanks.

Thank you, Bert.

And our next question comes from Steven Lichtman with Oppenheimer.

Thank you. Hi guys. Mike, can you talk a little bit more about how you're evaluating the pediatric opportunity as you mentioned? Just curious on your areas of focus and the milestones ahead on that?

So on the pediatric, I mean, we were very excited to get alignment with FDA directionally on finalization of the part one of the two parts for approval. Part one was just confirming that our PK results meet the criteria for the FDA for the 8 to 17 year-olds. And then the second part of that alignment with FDA was that we're going to forgo a 4-to-7 year old label indication and they've aligned directionally to those two requests. The next part is getting – getting in Phase III study protocol approved. That will happen over the next three to six months. And then in that timeframe, we'll be meeting with many thought leaders within the pediatric space, confirming the endpoints that we're looking at, as well as starting to build the poly relationship, but also really confirming what we believe is an unmet medical need, especially as it pertains to hypoglycemia and nocturnal hypoglycemia, timing range all the things that parents are looking for in their kids. We think will provide a unique benefit for AFREZZA. We'll also get some quality life data later this year out of our kipmus [ph] study. I think will be important as we think about [indiscernible] an area that obviously we think we can make a difference and that'll be important. And then the final is just the whole market assessment means that we really believe that -- my personal bias is that, the way you change the standard of care for the next 100 years is really through pediatrics and Type 1 and getting these patients started in early age, getting them to get great outcomes, proper dosing will grow up on the product, they'll transition to a build endos and there's teenagers into college, some more kids growing up, may not have experience in injectable mealtime insulin or a pump for that matter. So we think that's the big opportunity to start to layout that foundation and we'll confirm that through our market assessments that we're doing or conduct as we speak. Looking to higher dedicated marketer to lead that up as well as pre academic knowledge, so we're really going to start to focus our efforts to make sure we do a great job in the pediatric segment. And we think it's a big opportunity, but we'll confirm that through additional research.

Got it. Thanks. And then just secondly, Steve your product gross margin was ahead of our thinking and up again sequentially. I know you don't provide guidance, but can you talk qualitatively about what could drive product gross margin further looking forward?

Sure. Our cost of goods sold because we've got the overcapacity is going to remain fairly flat in the near term. So as we drive our topline sales that'll drive both gross profit and gross margin in the near term. So we see that increasing. We're not going to give specific guidance on it, but I think you can do a pretty good job modeling that out.

Great. Thanks guys.

You’re welcome.

And that does conclude the question-and-answer session. I'll now turn the conference back over to you for any additional or closing remarks.

I want to thank everybody, all of our employees, our stakeholders, our investors. 2019 was a great transition year for the company. We were happy to finish up the recapitalization we began over two years ago. We finally have the right balance sheet. We have the right team and we have the right mentality in order to take this company forward. Very excited and optimistic about 2020, this is really our pivotal year as we think about TreT progressing to filing. Having that approval we'll bring in additional revenue into the company as we get double-digit royalties. Today Tyvaso does almost $500 million with the state of readout yesterday. We're very excited about that. We'll continue to reduce hopefully the cash burn quarter-over-quarter as we go forward. And really just our focus right now is helping as many patients as we can and getting many of the new prescribers onboard as we can in 2020 and launching some of the key initiatives we have. I think that will really start to build confidence and increased prescriptions for AFREZZA beyond the trends we've had historically. Thank you everybody for your time and patience. We look forward to talking to you soon. We'll be at investor conference later this week. Hope to seeing you there. Thank you.

Well thank you. That does conclude today's conference. We do thank you for your participation. Have a wonderful day.