Please standby, we are about to begin. Welcome to the MannKind Corporation First Quarter 2020 Earnings Call. As a reminder, this call is being recorded on May 6, 2020, and will be made available for playback on the MannKind Corporation website shortly after the conclusion of this call until May 20, 2020. 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-Q report filed with the Securities and Exchange Commission this afternoon, 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 your host Mr. Castagna. Please go ahead, sir.

Hello, and thank you, everyone. Good evening. Last we spoke 17 million people had filed for unemployment and unfortunately that number is probably going to double by tomorrow. I’m optimistic as the country lives up people can adjust to normal and we can expect a gradual recovery as things go forward. The one plus for us with COVID the discussion around A1c control and diabetes, as we've seen a significant higher death rate of people who go into the hospital with diabetes and those without. This discussion has been elevated as we go forward out there with our customers considering that the 5 million people are injectable insulin are not a goal and need to be doing everything they can as possible to get the goal now more than ever. Hence our mission is to get people to control their health and the freedom to live their life, life more human. This has been focused more for us over the last six weeks than ever as we continue to talk about control and the dozen webinars that we've done with our commercial sales and marketing team and medical team over the last several weeks. Really quickly I want to touch on the key things that we've achieved here in Q1 despite the event of COVID happening in early March. AFREZZA U.S. quarterly revenue of $8 million was 58% higher over first quarter 2019 and the highest quarter of sales we've had to-date. There was some stocking of wholesaler and patient stock up increased net revenue by approximately $0.5 million to $700,000 as we could see scripts accelerating during the month of March. However, research analysts ranges -- ranged from $6.5 million to $7.7 million with a consensus of $7.1 million. And you can see we can certainly have beat consensus…

Thanks, Mike and good afternoon, very pleased to review our first quarter 2020 financial results, which show another quarter of accelerating Afrezza net revenue, increasing Afrezza gross margin and improving operating cash burn. 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. Let's start with looking at revenues for the first quarter of 2020. Afrezza net revenue was a record $8 million versus $5.1 million for the corresponding first quarter of 2019. The 58% increase, was generated by volume growth from underlying the Afrezza prescription demand up 27% a favorable mix of cartridges, which I'll dive into in the next slide. Price, an approximately $0.5 to $0.7 million from increased buying patterns and patient prescription trends as patients stocked up on Afrezza as pandemic stay at home orders increased across the United States in March. There was no Afrezza international revenue in the first quarter. Growth nets were 43% for the quarter, which fell into our expected range of 42% to 44% as communicated during our 2019 year and earnings call. The increase from 38% a year earlier, which primarily due to an increased estimate of product returns, an increase in the utilization of our patient copay assistance program. Revenue from collaboration and services was $8.2 million for the first quarter of 2020 versus $12.4 million for the corresponding first quarter of 2019. The reduction in revenue was mainly due to the recognition of the $10 million United Therapeutics research agreement over the period of the fourth quarter of 2018 to the second quarter of 2019 and our performance obligations were substantially completed. Inception to-date, we have recognized $45.6 million from the United Therapeutics license agreement and $9.8 million…

Thank you, Steve. On the next slide here you can see that our TRx has continued to grow in some support our sales force infrastructure out there in Q1 of ’17, all the way through now Q1 of 2020. We typically see a small dip here in Q1 versus Q4. And that was no different this year albeit a lot less than the previous year. But that will recover or should recover as we progress throughout the year as we see Q1 drops, typically Q2 to Q3, Q4 pickup. This year, we may see a flattening in Q2 and a pickup as we go to Q3 and Q4. We've done everything we can to ensure success coming out of COVID and as you see here, we have the three 3x growth and as Steve talked about on the revenue side, for think about as a one to two leverage almost where you got 3x growth and prescriptions, you get almost double that revenue. Here we saw quarterly net revenue go from $1.2 million in 2017, almost to over $8 million here in 2020 and 7x growth in revenue. We don't see anything dramatically shifting this trajectory we continue to look forward over the quarters beyond 2020 just have to get through this COVID hiccup that we're all facing. A lot is happening here, we're continuing to progress forward, we're making sure we align our resources appropriately and reduce our costs where we can continue to deliver demand and get this company going in the right direction. We also move into a virtual shareholder meeting here on May 21st. I'm going to remind people to make sure they vote their shares. Please sign in 10 to 15 minutes before the start and have your control number when you log in, in…

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

Hi. Thanks for taking my questions and congratulations on all the progress during the quarter. Firstly, can you just talk about the impact of COVID-19 on your ability to onboard and potentially train new patients? You've talked about the sales force is going back to work, but maybe in April how we should think about that and as the sales force ramps back up. And then secondly, can you just elaborate further on what drives growth in the high unit cartridges? Thank you.

Great. Great question, Brandon. [Inaudible] so I think we definitely saw a drop about 35% in new to brand starts. And so that is due to the fact that they're just less patient being seen by doctors and are even less fewer patients being seen in office. So a lot of people have moved to telemedicine. And I think that's just really to maintain care. I won't say people are looking to actively change care. However, we have started those conversations with providers and implemented – I'll call the ability to ship ACV1 directly to a patient where they can access the instruction video. Video where the doctor show them the ACV1 result and ensure that compliantly start new patients that program just launched last week and we're already shipping devices days later. So I think we are able to continue to get new patients on board and doctors to start new patients. The second question is around training new patients to make sure they start off appropriately. That's even more important and we've kind of created a virtual training program, where patients and doctors can get support from the company where we can engage in appropriate training with patients in ways that we never had before. And so we're experimenting with new technologies, new opportunities, and new capabilities and we'll continue to assess these as we open up back into normal markets. But right now all of our team has been equipped to get new patients started, as that is the lifeblood to our future and our growth. We expect it to be slower than it was in Q1, but I think you're still seeing – we're seeing around 100, 150 new patients a week be started on the brand and so we think that's important as we turn the corner here throughout May and June. What drives growth at a higher unit cartridge is actually a great thing because one of the reasons the drug struggled in the first couple years of launch was mainly around under dosing. And doctors just could not get their head around. A four unit cartridge is not equivalent to a four unit injectable. And so, I think when you see all the work that the medical and commercial teams put out there around appropriate dosing – the right conversion is we expect more patients to be on 8s and 12 than we do on 4s and 8s. And so that's really a good reflection of the commercial strategy and the medical team doing their job around getting the information out there to providers and getting this one to one ratio, that was really launched out there with Sanofi that it really is not a one-to-one and so I think you seen that reflect as it continues to grow year-over-year and higher strengths there. So I think it's a good aspect of the execution we're doing.

Great. Thank you very much.

Thank you.

Thank you. We'll now take our next question from Steven Lichtman with Oppenheimer and Company. Please go ahead.

Hey. Thanks. Hi guys. Mike in your seven territory that you would be opening this week, I was wondering if you could explain that just a little further. Are these areas that are opening up to in-person patient visits or is it now that your sales reps to go in or perhaps scope. And secondly was this the first group of territories to open up?

Steve you coming in very cloudy maybe it's the mask I think. I think your question was, is it the first week we’re opening up and as the seven reps with the feedback you’re seeing.

With the plan?

With the plan, is that what the question was Steve?

Yeah. It was more headphones than mask, but let me I just I'll ask it again real quick too. So just want to understand a little bit more what the seven-territory opening up means. Is that opening up in-person patient visits in those areas or is it now that your sales reps can go in or is it both just wants to understand what that needs to be say opening up?

Yes. Yes. So I think our definition of open up is first that the states were compliant in following the stay-at-home order in the various states and that those states that are starting to open up opportunities for people to get back to normal, that we're allowing those people this was our first pilot week. And I think it was four states and we had seven reps impacted some of the states, we don't actually have reps in so it’s irrelevant but for two of the states, we did have seven reps. And I think that they're just getting out there prospect and seeing if they can set up lunches is that going to be appropriate or not. Are doctors opening to seeing in reps are they are even opening their offices, I think what we're hearing, for example, even though Atlanta is opening up, the doctors are no plan to open till late May or early June. So even though our reps could be out there, there's not a lot of places for them to go with doctors offices are still staying closed. Where I think the market is South Carolina and in that market, we did find opportunities to get out there and meet some customers. They were grateful to see our sales force again, excited to know we're still here and hopefully their support will be stronger than ever. And so, that was positive feedback and then some of those markets, we got general feedback that the academic centers in large, area health systems like integrated delivery networks, they're a little more closed still and we expect to be closed for the next four to six weeks. So the majority of our business happens to be private practice doctors. And so that's a good thing as those are the ones opening up first, because they do have to keep their lights on as well. So, we'll see it's only 72 hours out. So I can't give you a whole lot of color. But I can just tell you, the feedback was positive yesterday and our reps are following appropriate protection. Make sure we're not exposing them with other patients with doctor’s offices. The other thing I felt is interesting – that as I saw Steve was a doctor said we weren't checking temperatures on every patient coming in, but it was kind of pointless because no one has a temperature. So they stopped doing that because to do it 100 times, 100 negatives kind of, you got to cut work out of the system and try to figure out what's going to actually make a difference. So I think we're all learning as we open up and we'll continue to transfer those learnings from market-to-market. I hope Steve and do you have anything to add?

[Inaudible]

And then Steve its opening next week, we expect, I don’t know exactly…

[Inaudible]

Seven more states next week, which impact another 20 reps. So we have about 70 reps today. So about 27 of them will be up and running by next week and we just hired a new training class, which will start on Monday as well. So that will help us as we get out there in June but then we expect more when the markets reopen.

Got it. Thanks, Mike, for the color. Turning to the expense side on gross margin, your product gross margin expansion continues to be impressive. Steve, at about what revenue level should we expect absolute cost to start moving higher? And then secondly, I know you're obviously not giving guidance, but on that cost of revenue for collaborations. I guess that's a little more in your control any directional guidance you can provide on that as we look out over the next few quarters?

Yeah. So the first question was on our cost of goods sold in our gross margin expansion. So we don't give forward looking guidance. But I will say that we'll continue to have gross margin expand until such time as we actually have to add additional costs in our manufacturing site, such as additional shifts or additional lines to manufacture Afrezza. In relation to the revenue on the collaboration that is being amortized somewhat on a straight line basis through the end of 2021. So you'll see mostly consistent amortization of that revenue to our revenue line between now and the end of 2021. So if you're modeling it, that's what you should see.

And Steve just add a little more color – I mean, I think, Steve, we don't know in the foreseeable future in the next call three to four quarters, you shouldn't expect any type of shift in the manufacturing line in terms of adding a second shift. So I think we look out over the next four quarters. You can see that's been pretty consistent in the range Steve provided. But, the factory is built for scale, you've seen it and I think we still have some good expansion opportunities and productivity improvements we can make before we have to add more shifts? Okay, this may all shifts as we get to TrepT production? And what does that look like when spending how much capacity reason for that and how much staff we need that that could shift a lot of things going into 2021.

Okay. Got it. And then very lastly you mentioned, obviously some of the initiatives you put in place on the cost for SG&A, it already did take a pretty big step down in the first quarter. Based upon the new steps you've taken should we expect directionally, but there's still some room to go down on an absolute basis sequentially here?

Yes. I mean our goal is to continue to improve this year we are -- I mean, we're trying to run the company very tight, there are sometimes one-off things that happen like in Q2, annual bonuses to get paid, so that year-over-year that's more relevant than quarter-to-quarter, insurance renewals happen for directors and officers insurance in August every year. So if certain onetime events each year, so it's going to be hard to look sequentially, but I think you can see we're continue to manage cash very tightly. The seniors done an amazing job of running lean, as people leave the company, we don't always replace them. It's kind of replace with new people. So we can encourage will keep your talent. And so I think we're trying to put every dollar we can into revenue generating opportunities, and as the further breaks trend, I think that's really our focus has continued to be able to get this product moving in the right direction the hands of patients.

Thank you, guys. Appreciate it.

Thank you.

Thank you. And we will take our next question from Thomas Smith with SVB Leerink. Please go ahead.

Hi, guys. Good afternoon. Thanks for taking the questions. I just had a couple. First, it's obviously difficult operating environment out there. Can you just give us a little more color on some of the things that you're doing to stay engaged with the existing Afrezza prescribers during this time? And then can you talk about some of the actions you're taking for patients, who are now facing unemployment have maybe lost their insurance coverage during this time, some of the actions you're taking to retain them as patients and keep them on Afrezza?

Sure. I actually have David Kendall in here, David, I don't know if you want to give a few words on what we're doing interact with our support leaders to stay engaged.

Yeah. Thanks for the question, Thomas. It's actually been a really unique opportunity for us to catch people when they've got a little free time, some breathing room in their day. For most it's not exactly what they were looking for with lower patient volumes. But I personally and our medical team had the opportunity to engage providers both who are active prescribers to review with them both how they can continue Afrezza safely. Many have asked questions, for example about how a Afrezza therapy can be utilized in the presence of usual upper respiratory infections, as well as supporting them on the virtual instruction on the inhaler as, and as Mike talked about getting devices to measure pulmonary function into the hands of patients. So that can be done remotely. So just making sure that providers have those key clinical interventions. Similarly, we're coming up on meeting season even though they're all virtual, getting additional information on a Afrezza dosing, Afrezza utility, and Afrezza effectiveness out to those providers. So all of those are things fortunately would have the opportunity to do over the last six eight weeks. As regards patient support, obviously, the virtual patient teaches that our commercial team can execute, as well as supporting the clinic systems with pulmonary function tests and these virtual patient start. So I think I've talked about them. We've been able to maintain that medical connection and coordinate with our commercial team, even though obviously all of them are out in the field.

And I can tell you, I have an email list of about 700 providers I email probably once every six to 10 days and thanks to hear feedback on the topics we're sending, for example, I did a telehealth webinar about two weeks ago on Friday and a lot of people today I'd love to hear it I just can't do it at that time. Can you do it again? We actually did it this past Monday have another hundred people join, which I found great questions, great thought leaders joining us and great interaction. We just had another one this morning with Steve Edelman and Dr. Nick Argento down in Maryland. So great, great, again engage with about 60, 70 providers. So I think we'll do everything we can to keep customers top of mind, and keep Afrezza top of mind, and also just bring value to them during this downtime as they start to think about how they re-engineer their business model and how do they start to think about reduced patient volumes or getting people more efficiently into a telemedicine and in person clinics. So, we're trying to bring value where we can in terms of information and I think so far that engagements in very, very high with our top prescribers and our top thought leaders, and I've actually been impressed just listening to some of them haven't talked to in a year to hearing your thoughts on the Afrezza and how much their attitude has changed towards adopting a Afrezza in the right patient population. So I've been more excited than ever, around how people are thinking about it and our growth as we go forward as we come out of this people are seriously considering Afrezza is a real mealtime alternative to pumps and…

Right. Okay. No. Thanks. That's, that's helpful color. And then can you just talk a little bit about the Paycheck Protection Program funds. I know, we've seen some companies in the space, who've received loans under this program actually return the capital based on their interpretation of the Treasury Department guidelines. Can you -- I guess just talk about how you're thinking about these funds and whether there is any chance that you have to repay the funds based on the updated Treasury Department guidance?

Yeah. We've been following the news covers about the Paycheck Protection Program unless I looked around 340 public companies got funds, and about 42 of them returned the fund, but 99% of the money went to non-public companies, partially because public companies would naturally not qualify either because they're not based in the U.S. so they may not meet the criteria laid out by the FDA. In our case, [Technical Difficulty] that we're the sort of small business that was meant to protect, we have 233 employees were well within the 500 employee limit that they defined as a small business back then they increase the number of what the definition of was a small business. And the PPP loan was necessary to support our ongoing operations of the business given the economic conditions, especially when we think about 50% of our cost here, MannKind our people, and by the time we were making the decision on what to do, we were seeing our new NBRx's drop we were seeing our NRx's drop. So we knew what things weren't going to look that bright for Q2, and we had to make some choices. As a stay at home order started to be implemented, outside of those trends, we were facing those decisions, and we honestly were getting concerned because you're supposed to try to get a clarification in the week before we did. But the system just wasn't opened up in a way for public companies. So instead of for a loan people we are able to preserve our cash offset the declining revenue, right off the downturn, which we thought would simply be detrimental to our business if we had to lay off people. So we're excited that we're able to protect jobs, keep people employed, and the PPP…

Right. Okay. Great. Thanks, Mike. Appreciate the color.

Thank you. We'll take our next question from Bert Hazlett with BTIG.

Thanks. I doubt it later. Maybe I missed this, but my apologies, but it seems as if United Therapeutics is increasingly bullish on the prospects for [inaudible] and expansion beyond the current market that they're focused on in a number of different ways. Could you just remind us about how TrepT specifically can participate in that and the plans to do so in the expanded market?

Hey, Bert. I mean, look, when we entered a deal with United we knew that trial was coming obviously with early window the readout was and having a positive read on this I think a WHO three criteria literally expands the market dramatically for Tyvaso. And we would expect our TrepT program to be able to participate in that market expansion. In fact, it will probably help penetrate that market because of the easier delivery platform that we have in an administration time and backup supplies you need et cetera. So, we're very excited we went into this expecting Treprostinil and PH, we felt that alone was a good enough partnership to make this worthwhile endeavor for both companies. And now this is all upside we got to think through that forecast. We are thinking through that as a manufacturing capacity. Think about that in our packaging. So it definitely changes and we're working closely with an eye every week to make sure we continue to supply patients in BREEZE, but also think about the interstitial lung disease indication and how we prepare for that with Tretti. So we're very excited about Tyvaso. We think that will provide the future capital of the company to ensure continued acceleration of growth as we get out there. And just to remind investors, we will receive double digit royalties upon approval. So this data today does a little over $400 million. These are significant when you look out and see where further revenues will be and place on top of it some, we are excited. Are there other questions Bert, you missed our record revenue.

Oh! Sorry. I muted are you are you contemplating additional? Are you additional expansion even, beyond the type 3 patients in your manufacturing plants? Again, they're talking fairly substantial even about beyond the most recent data. So I'm just kind of curious as to what extent that's being contemplated in MannKind?

Yeah. I mean, we are the CMO hope for just have for Treprostinil DPI, so obviously we're in discussions with then. We'll work accordingly we have time on our side to scale up where we need to. So we think about a filing within the next couple of 12 months or sooner. Plus the FDA review time that gives you 20 time to continue to figure out what you need to scale manufacturing, sales supply the market, but if I recall Martin maybe JPMorgan does mean in the fall. But she probably it’s a $1 billion product that gets us very excited as we think about our future. So as we always felt this is a great program, a great opportunity to help patients. And I think the patients in the BREEZE study are demonstrating the success of this product. As we know there's a rollover phase and we're seeing what people are doing in the rollover phase and they're staying on the product and they're happy. So I'm excited to help more patients with our technology and I think it just continues to help demonstrate the platform what else it could do for other diseases beyond page, ILD [ph], diabetes, migraine, et cetera so anything, it just reinforces we got to continue move this pipeline in the company forward and find additional partners to move the company down the road and expand the technology.

Thanks.

Thank you and that does conclude today's question and answer session. I like to turn the conference back over to management for any additional closing remarks.

Yeah. I just wanted to thank everybody again. We have ADA coming up, which has now moved to a virtual meeting as well as Endo 2020. I know David Kendall is setting up lots of one on ones with all videos. We have some datasets that will be released at these conferences as well as ongoing publications, working on the launch to move BluHale patient edition, as well as in office professional editions. So as people get back out there but some new tools to train patients. And so we remain excited about our future. We know PPP is important aspect of Q2 for us COVID is something we want to manage like every other drug company. And I think just watch the weekly scripts and hopefully see them stabilize over the next three, four weeks as the markets open up and patients come back into treatment. But otherwise, I think we've caught up remarkably well considering where the world was four to six weeks ago. So I am generally optimistic about where things are headed and just want to thank our shareholders, our employees and everyone that's been here to support us. It’s looks like we're going to come through this and hopefully be stronger team and company come out of it. So thank you again.

Thank you.

Thank you that does conclude today's conference. Thank you all for your participation. You may now disconnect.