Good afternoon, and welcome to the MannKind Corporation's Second Quarter 2022 Earnings Call. As a reminder, this call is being recorded on August 9, 2022, and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call until August 23, 2022. This call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from the stated expectations. For further information on the company's risk factors, please see the 10-Q report filed with 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 Mr. Castagna. Please go ahead, sir.

Good afternoon, everyone, and thank you for listening in. Today, I'll give a quick update on our performance for the quarter. Steve will go through the financials, and then I'll close on the pipeline and company updates. As you can see, this is the quarter we've all been waiting for. We're super excited about MannKind and the growth story that's becoming. Overall, we had 58% quarter-over-quarter growth, and we have several new sources of revenue. As you all know, we closed V-Go in May. We booked sales starting in June. That product is off to a great start, and I'll give a bit more details on that. We also were able to book a portion of the DPI Commercial Manufacturing revenue, which Steve will go into more of $4.7 million and Royalties, which will not be broken out as a percentage, but more as a dollar value as we go forward of roughly $300,000. And then you can see Collaboration and Services and Other, about $1.2 million. You may recall, previous years and quarters, a lot of that was the amortization of the payments that we received from UT over the time period of that contract. So I think it's good to look quarter-to-quarter now as we look at the way the revenue is looking given that contract ended last October. Total revenues for the quarter were up 58% in Q1, and we think that as you continue to look out, we'll see more royalties, more manufacturing, more Afrezza, more V-Go. And so we really feel this is the foundation of the growth story that we've been working towards the past several years. So a couple of highlights here on the orphan lung side. As you all know by now, the FDA approved our Tyvaso DPI for PAH and ILD.…

Thanks, Mike, and good afternoon. I'm pleased to review select second quarter and June year-to-date financial results. Please supplement this call by reading the condensed consolidated financial statements and MD&A contained in our 10-Q, which was filed with the SEC this afternoon. As Mike pointed out, this is the first quarter for 3 new sources of revenue for MannKind. With the approval of Tyvaso DPI in May and the subsequent launch by United Therapeutics, we have begun to recognize manufacturing revenue and royalties in our second quarter P&L. In addition, with the purchase of V-Go effective May 31, we have recorded net revenue for the month of June. This slide shows revenue for the second quarter in the left table and June year-to-date revenues in the right table. Looking at revenues for the second quarter of 2022, Afrezza net revenue was $10.6 million versus $10 million in 2021, a growth rate of 7%. The increase was mainly driven by price, including a more favorable gross-to-net percentage. Growth in underlying paid TRx demand of plus 8% was substantially offset by a decrease in channel inventory. Year-to-date Afrezza growth came in at plus 13%, which was mainly due to favorable price, including a more favorable growth to net percentage, higher underlying patient demand and favorable cartridge mix. Next is our net revenue for V-Go, the newly acquired wearable insulin delivery device where we had $2.1 million in net revenue for the month of June. We expect V-Go net revenue for the 12 months post acquisition to be in the range of $18 million to $22 million. Moving to collaboration and services. Revenue for the second quarter was $5.9 million versus $13.3 million for 2021. The second quarter includes the sale of Tyvaso DPI commercial product to UT. The decrease in revenue from…

Thank you, Steve, and more importantly, thank you for keeping track of all the complexities we've established over the last few years here. So I'm super excited about the pipeline. This is something that -- these are decisions that we've made years ago. And every year, they take a little bit of time when they get closer and closer to fruition. And so just like Tyvaso, we made that decision in 2017. We did the partnership with UT in 2018 and expected an approval almost 3 years later. It's a little longer but still got approved. And now that's going to be a major growth driver for MannKind as we go forward as value creator. And I'm not going to go through the top half of Afrezza. And I'll talk about some of the Afrezza stuff in a second. But I want to focus really on the bottom end, which is really around MNKD-101, that wrapped up and that's going to quickly go into Phase II/III. And to meet with the FDA. And then nintedanib is early, but that will move very quickly, too, once we get to the FDA. You start to see an emerging pipeline that can drive value for years to come. And this is not something that we currently see a lot of value on when we talk to investors because the first milestone for a lot of people who've invested in our stock over the last 2 years has been getting Tyvaso DPI across the finish line. So as we continue to grow Afrezza, we continue to grow V-Go, we continue to see Tyvaso contribute to MannKind, I think you're going to see a lot more activity around the pipeline and readouts around the pipeline on safety and some of the animal models we're doing.…

[Operator Instructions]. And our first question comes from the line of Gregory Renza from RBC Capital Markets.

[Indiscernible] on for Greg. Congrats on the quarter. Maybe just a couple on Tyvaso DPI. Could you provide some clarity regarding the agreement with UT regarding the manufacturing margin? Understanding you have to keep the royalty rate confidential, but just wondering about the manufacturing margin there. And then secondly, just wondering how has the macro environment regarding inflation, labor and supply shortages may have impacted your manufacturing capabilities?

I think the first one on UT manufacturing margins, we're not going to provide that clarity yet. I think let's get full manufacturing for a full quarter or 2. And we'll continue to discuss internally whether or not we provide that particular markup on those manufacturing revenues that are coming in. It was too early in Q2 as well in the full quarter, and it was a partial quarter of production. So we don't want to create any confusion. That's why you have too much there. The second question, Steve, I think -- I didn't capture, but I think it's around inflationary impact.

Yes. So let me touch on that. So this year, we are seeing a mix of some rising costs, in particular, around energy. We're also seeing some savings as we increase our volumes of purchases of certain supplies that go into making our products that drive the cost per unit down. So this year, we don't see a significant increase in costs. I think next year, you probably will see a little bit of an increase. But so far, nothing significant or material to our balance sheet or our P&L at this point in time.

And closing on that, I think the only area we continue to see is the people side, we've been very fortunate to not have a lot of turnover at company, a lot of excitement amongst our employees. They're all shareholders, so they're all committed to our journey and what we're doing. And so I think that's the area that we see a lot of inflation across society, but we've kind of tried to manage that through efficiencies and delay hiring and things like that to make sure we're not incurring additional expenses anticipated this year.

And your next question comes from the line of Brandon Folkes from Cantor Fitzgerald.

Congratulations on all the progress. Maybe 2 just for me. Maybe just, Steve, just any commentary on channel -- sorry, inventory in the channel for Afrezza? Where does that sit now relatively? Is it at a normalized level at the end of the second quarter? And then secondly, how should we think about product priority going forward just in terms of Afrezza versus V-Go and kind of maybe where you can move revenue quite quickly? Just any commentary in terms of those 2 products in the reps' bags going forward?

Sure. Let me take the first one, Mike. I'll take the channel, and then I'll drop it off to you for the revenue. So yes, the channel inventory moves around as much as $0.5 million quarter-to-quarter. It's not up to us. The wholesalers are the ones who are managing their own inventory levels. So we see it. It happens in some quarters, not every quarter. Is it normalized now? It's in the right ballpark. I don't see material changes happening. Yes, we had an offset this quarter that, say, offset our growth in patient TRx increase. It was unfortunate, but we did have an 8% growth in the prior year in paid TRx. But I don't think, again, it's going to be material quarter-to-quarter, but it will fluctuate.

Another thing I'll add, Steve, is we did see a 13% decrease in days on hand, so they did drop a few days of inventory. So that impacted Q2 a little bit. But if you normalize for inventory, there'll be slightly higher sales on the present. I think your second question, Brandon, was how do we think about V-Go versus Afrezza as we think about the future. Is that what I heard?

Correct, yes.

Yes. So there's a very big difference in margin to the company as well as how many scripts it takes to breakeven on one versus the other product. And we knew that when we purchased it. But I think when you combine, it's really about trying to get doctors to try something different because we know 80% of people on mealtime insulin are not a goal. And yet they're just not progressing these patients to better solutions. And so that's really our focus is how do we start to at least let the reps close those doctors. If they're not going to write Afrezza, they can write V-Go. If they're not going to write V-Go,they can write Afrezza. But we really need to do something different, number one. And more importantly, offer patient choice. I think after 6 years of us promoting this, we're just finishing up research right now. And what we're hearing is, the doctors -- the patients are asking for Afrezza. The doctors aren't offering it. And I think we've got to really shift that mindset going into next year about patient choice and giving the patients some right around that. And I think that will be really important as we go forward when it comes to Afrezza and V-Go for that matter of that. And let the patient pick, especially type 2s, there are so many of them, what do they want best to manage their lifestyle and their mealtime control. And so we will continue to watch. We don't expect to cannibalize one product or the other. And that's why we remind you guys to see, we don't have 98% of patients on a MannKind product. And that's really the focus of how do we bring more of those patients into our portfolio and our family. And so with V-Go now, for example, we can add a nurse trainer in certain markets because there's no volume to support. A nurse trainer keeps them busy enough. That's not always been the case when you add just Afrezza. So I think as we go into the end of this year going into '23, we're just starting to talk about how do we best maximize that impact, how do we best support the sales force so they can maximize their effect. And I think we'll see always a dedicated V-Go sales force because these are the top accounts, top reps, top experienced at V-Go. And I think the question is on the Afrezza side, when and how do we integrate, what does that look like? And do we have overlapping accounts or separate accounts? All that work is just starting. So I wouldn't give you much guidance until we probably get to the next quarter. I think we'll have it [indiscernible].

Great. And congratulations again.

Your next question comes from the line of Thomas Smith from SVB Securities.

Congrats on the progress. Just on Tyvaso DPI, can you comment on kind of the early days supply chain as you guys manufacture the drug product? Any challenges you see on the supply chain side of things here as UT gets out there and launches DPI into the market?

Not right now. Fortunately, we have some time to build up some inventory while they were launching, right? So they -- I don't know how much you know about the pulmonary market, but basically it takes 2 to 4 weeks usually to start a patient between getting them started, getting insurance done, getting the forms in, getting the patient trained properly. They have a -- these are lifelong treatments usually. So that process is on UT side. And so they can see every week referrals coming in. And I think they said on the earnings call, the initial launch was really about [indiscernible] it was really about conversion. So those people on 48, 64 micrograms converting over one-to-one. And then the next part was the titration pack, which launched in July. And that's going after the naive patient population. So how do you start to see naive bucket come in next? And then later in the fall will be the next packaging. So UT has a multi view of the world how they're launching this and what they're doing. So we don't expect any supply constraints as everything is past validation. Everything is on track, and we don't see issues there. We got no inventory build that we shouldn't be any stock out or how fast it goes, we should be a good spot. And then the second part, which you may not realize is we're actually the distributors. So we also ship it to the pharmacies every week when those orders come in. And that process is going smoothly as well. That's another area we worry about hiccups as it's the first time we were doing something like that. But everything is built. We've got a big, large storage refrigerator and trucks come every week, and we're very excited about it.

Okay. Great. And just a couple on V-Go. Appreciate all the color on the acquisition and the strategy. Can you just help us understand how you're thinking about longer-term revenue potential here? And then can you also help us understand how you're thinking about the cost structure a little bit? Are you planning to make additional investments here on [indiscernible]. And I guess help us think a little bit about the longer-term gross and operating margin profile and how that compares versus Afrezza.

Yes. I'll say on the V-Go device, they've lost half their volume roughly over the last 2 years, and that's obviously hurt the margin of that product. And so I think that's one of the things we'll be looking at is as volumes start increasing, how do those markets have proven to what extent? And is there anything we can do to improve them even further? At this point, we don't have plans to add any additional cost. There's enough production there to handle a lot more volume. Now if we decide to move production or make it more efficient or automated, that's a different story. But we just got the product less than 60 days ago roughly. And so I think there's still a lot to learn, but the team there is doing a great job in managing the supply chain at V-Go. Think about them making almost 3 million V-Gos a year. So maybe more than that by now. So there's a lot of device production that happens with V-Go into the marketplace, and it's a pretty complex supply chain. So I think it's how we'll manage. We'll continue to look at it. We want to be comfortable that it was at least stable in the short-term, and then we'll look at ways that maybe volume drives it, the automation drives it. We have a good team at MannKind as well as former Zealand team that really understands device manufacturing, device scale up. So I think that's something we'll look at in the second half of this year. On the long-term expense base overall revenue, I do think V-Go will show some growth in the near-term. I think there's a lot of pent-up demand. There's a lot of people thought that, that was going away. So I think you'll see that come back a little bit faster than one would expect. We'll see in the coming months how the -- noise on the street at least is very positive. On the expense base, we expect to pretty much manage our expense base tightly. We're not looking to increase our cash burn as it comes to Afrezza and V-Go combined. We're looking to build efficiencies as we go. We see ways to grow faster. We are welcoming those opportunities from the marketing sales team to do that. But as you know, we've tried so many different things over the years. We really want to see productivity out of the existing investments we're making before we add more. And so that's how we're thinking about it. If we see something that's growing or an area that's growing, and we replicate that nationally with [indiscernible]. But at this point, we're buying the brands to cash flow breakeven and ultimately cash flow positivity as we look at '23 and beyond.

And our last question comes from the line of Steve Lichtman from Oppenheimer & Co.

Congrats on the quarter. This is Amir on for Steve. And I just had a question around the pump switch trial. And just to be clear, were you guys expecting to get the data in the second half of this year? And then can you remind -- and as a follow-up to that, can you just remind us what your goals are once you have the data on hand?

Yes. Yes. We always expect -- it's a 12-week trial. It's only 28 patients that are randomized. So we actually went a couple above just to make sure we hit our end points of 25 patients. And so that randomized -- I think the surprise for us was how quickly that enrolled. Usually, these things take a little longer. But it's a small trial, very manageable, 2 sites. And those 2 sites did an incredible job in about 45 to 60 days. They complete enrollment. And so therefore, we'll get those results much faster than we expected because the enrollment went so quickly. But now everyone's enrolled, just multiply it by 3 months. And we should be able to get those results roughly in September, October time frame. And then we have not yet -- we make sure get the results and then do they come out in a late winter or somewhere. Do they come out at ATTD [indiscernible] next year. But we'll decide at the appropriate time do we put out information on those results when they come. If you know this market, the entire market is all about insulin pumps on pipelines, and no one is really looking to run a switch strategy away from insulin pumps or adding Afrezza in a multitude of ways [indiscernible] on top. So this is a pretty groundbreaking study. Albeit small, it's going to give us some really, really important insights to think about as we go into 2023 and beyond. So we really hope to shape our strategy with the previous question, what do you do from investments. If we get superior results then that's one thing. If you get an equal result, that's a different strategy. If you get a suboptimal result, that's another strategy. So our overall goal is change in A1C, and the working assumption is no difference between the control arm and the 2 others arms. So if we see an improvement in hypo, improvement in time and range or improvement in A1C, then that would be the upside scenarios that we're looking for. But if we can demonstrate that people can maintain A1C control and safety by switching off a pump, I think the market does not believe that's possible. And so that's something we'll be looking at very closely.

Yes, we don't have any questions for now.

Okay. Okay. I see a couple other analysts. So okay. Well, we'll have one-on-ones. People need any questions or comment, you can reach out to us. And otherwise, thank you for your time today. I look forward to really getting to [indiscernible] in Q3 and sharing with you further results and growth as we go forward. So thank you, everyone, for your time. Have a great week.

Thank you, presenters. And this concludes today's conference call. Thank you for participating, and you may now disconnect. Have a good day.