MannKind Corp

NASDAQ:MNKD

Earnings Call Analysis

MannKind Forecasts Stellar 2024 with Growth Drivers

MannKind Corporation celebrates a remarkable 2023 with revenue nearly doubling to $200 million and royalty revenue increasing by 361%. Tyvaso DPI's robust growth, contributing $72 million, has established it as the largest revenue source. The company closed the year with $302 million in cash and investments, emphasizing their capability to fund clinical developments and support their product lineup. The fourth quarter momentum continued with net income and positive EPS, despite anticipated fluctuating financials due to strategic investment in their pipeline. Looking forward to 2024, MannKind expects to maintain its growth trajectory, capitalizing on commercial products like Afrezza, Tyvaso DPI, and V-Go, and advancing assets MannKind 101 and 201 into later-stage trials. The company is well-positioned with solid financials and a multi-faceted pipeline to deliver increased shareholder value.

Introduction to MannKind and Its Prospects for Growth

MannKind Corporation, a biopharmaceutical company that has been around for 33 years, is firmly positioned for rapid growth in the healthcare industry. Looking forward, the company has a solid foundation and a clear trajectory aimed at driving commercial and clinical priorities, with the expectation of continued growth in shareholder value for the year 2024.

Revenue Performance and Financial Highlights

The company has seen total revenues double to nearly $200 million, a significant 99% increase from the prior year, largely attributed to growth in their Tyvaso DPI related revenues. Breaking it down, fourth quarter revenue alone skyrocketed by 62%, revealing a robust financial performance across the quarters. The growth was also spurred by a 29% rise in Afrezza net revenue and a commendable increase in endocrine business revenue. Such impressive figures underscore not just a strong quarter but a stellar year overall for MannKind.

Stability and Financial Health of MannKind

With over $300 million in cash and investments by December 31, 2023, MannKind concluded the year on a robust note. The company also has plans to pay off existing debts early, demonstrating a sound strategy for financial health and stability. The strong cash position and prudent liability management set the stage for the company to leverage its monetary leverage to further its clinical trials and development pipeline, enhancing the prospects for long-term growth and shareholder value.

Commercial Success and Future Expansion

Tyvaso DPI, one of MannKind's products, has exceeded all expectations since its approval, and this upward trajectory in its commercial performance is anticipated to continue. The product has also been affected by a recent sale of 1% of the company's 10% Tyvaso DPI royalty, which places a high valuation on the royalty stream, painting a promising picture of the product's market value and potential for future growth.

Pipeline Development and Clinical Priorities

MannKind has a diverse and promising pipeline, with multiple potential blockbuster products under the labels Mnkd-101, Mnkd-201, Afrezza, and a recently completed high-speed fill-finish line for Tyvaso DPI production. These milestones, along with anticipated data readouts from several critical studies in 2024, provide optimism about MannKind's capacity to deliver breakthrough treatments and drive future growth.

Bold Steps Towards Increasing Shareholder Value

The insider purchase of stock following a board meeting signals confidence in the company's valuation and its future. MannKind seems poised to counteract perceived undervaluation and reaffirms its commitment to realizing the true value of its offerings. By underscoring the importance of milestones and focusing on improving profitability through efficient cost management and solid revenue generation, MannKind envisages escalating its market position and bolstering shareholder returns.

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon, and welcome to MannKind Corporation 2023 Fourth Quarter and Full Year Financial Results Earnings Call. As a reminder, this call is being recorded on February 27, 2024, and will be available for playback on the MannKind Corporation website shortly after the conclusion of the call until March 12, 2024. 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 those stated expectations. For further information on the company's risk factors, please see the 10-K 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, Steve Binder. I will now turn the conference over to Mr. Castagna. Please go ahead, sir.

[Michael Castagna, executive]

Thank you, Valerie. We have never seen a better time for MannKind than we do today. As we look at our future, it's extremely exciting, and I never more motivated to ensure we deliver on all key operational opportunities in front of us. As we think about today, Steve and I will go over the operational pipeline highlights, the financial review. And I'm also here today with Lauren Sabella, our Chief Operating Officer for Q&A. We will drive shareholder value by making a difference in the lives of the patients we serve. We will make over 25 million doses and devices in 2024 and helped roughly 25,000 patients take a MannKind produced product in 2023, the most in our history. In Q4, we had record revenue for Tyvaso in both royalty and collaboration manufacturing, along with record production on Tyvaso cartridges. We advanced our pipeline in both the orphan business as well as the endocrine business, and our endocrine business had its second consecutive profitable quarter. We finished the year in the strongest position we have been in, in terms of financial ability as well as by selling the Tyvaso 1% of our teas royalty for $150 million upfront and $50 million in revenue milestones. Many of you asked, could we have sold more? Why didn't we sell more? And the reality is we didn't need to sell more. We wanted to make sure we were comfortable with carrying the level of debt and cash on the balance sheet to control our future. We're very excited about Tyvaso DPI and what it's going to bring to patients and anticipate hopefully positive milestones for Tyvaso in the future and therefore, want to preserve 90% of that value for our shareholders. At the same time, we want to derisk on the debt side of our company. We've also restructured our insulin purchase commitment and reduced our near-term cash outlays by $50 million. The EBU will be the foundation for our future launches and currently makes up about 37% of our revenue in 2023. As I presented at JP Morgan in January, our ability to grow double digits for the foreseeable future looks bright. When you see in 2023, our total revenue approached $200 million, almost 100% growth year-over-year. I'm going to spend a few minutes on Afrezza and the EBU because we are at a pivotal inflection point with our future. Innovation takes time and disruption is even harder. When you think about the weight loss craze today, GLPs were 20 years in the making to what you see today, the pods in Type 1 diabetes, 10 years in the making, and pens took a huge time to convert from bias back in the early 2000. I believe we can make this business a core pillar of our growth story. When you look at the endocrine business, it grew 32% year-over-year or $70 million in '23 and greater than $20 million in Q4, the second quarter in a row of profit contribution as well as on a run rate of $80 million. We've made a lot of changes in 2023 and delivered despite those changes to set us up for a transformation once we see the new data from Inhale-1and Inhale-3 this year. As I look at the revenue, Afrezza net revenue grew $12 million or 27% year-over-year. This is our largest jump in 7 years and is the most we've seen driven by volume alone as opposed to price balanced by historical standards. Several clinical readouts in 2024 may expand our market potential. And I'll talk about those in a minute. One of the questions I get is what is different this year than prior years. Our focus this year is incredibly different. We've been waiting for this moment where we have people, money and data. Many times, we had 2 out of 3, but not all 3. So number one, we've got to maintain our persistent in Medicare and commercial to grow our base business and leverage the $35 insulin co-pay that currently exists for Medicare and commercial insurers. So coverage we know is the #1 objection. Number two, we optimized our sales force footprint here in January to build capabilities for the future growth. And what that means is we were able to reallocate some headcount to create key account managers, reimbursement specialists as well as virtual and in-person training across the country. We also have new insights on market research, which I'll share with you shortly that suggests by executing effectively we can increase prescriber adoption. And finally is around data and education. We want to focus on KOL development, education at conferences and publications to elevate the support and awareness, especially among academic centers. Here's some new market research as we go forward called the emotional engagement mindset model, which is done by a company we deleveraged for market research. This shows a significant shift in perception by the various groups we tested with our new data. And you can see at baseline just unaided awareness of Afrezza and what people's perceptions were in terms of unattracted epithetic attracted or passionate. And by exposing them to our core visual age as well as some expectations of what inhale-3 could read out, you can see we shipped almost 2/3 of our key target audiences are attracted for passionate about our future. This is really important because the first time we can see this big of a shift from where we started to where we end up with the new data coming. People don't want flow acting insulin in a world that moves as fast as we do. When I look at the future here on our studies, Inhale-3 and Inhale-1 going to talk a few minutes about these. We have 60 U.S. sites and KOLs, sites like the Mayo Clinic, the Jobs and clinics, some of the foundations of diabetes treatment in this country. Irl Hirsch is our top-tier thought leader here on InHealth Reis a principal investigator, and he's done a great job ensuring this trial is dosing properly and enrolling quickly. We have over 300 patients in both of these trials, and both of them are on track to read out this year. On the left side of the slide, Type 1 diabetes Inhale-3 is the largest switch study away from AID pumps. There'll be about 120 some patients in this trial, half of them will be on MDI, half of them will be likely on AID pumps as we look at the data. The reason this data set is important is that's utilizing a new dosing conversion upfront to ensure proper efficacy is maintained or approved. We are also doing meal tolerance test at baseline in week 17, so we can see how people's dosing may have changed over this time frame. And another thing to remember about this trial is the first time we're enrolling almost 25% of the patients are Level 7 A1c when they enter. So we're also showing you hopefully that tight control and remain by switching to Tresiba plus Afrezza or degludec is the generic name. So a lot of people ask me, what is the goal of Inhale-3. Our goal is equal efficacy who was perceived to be a standard of care, including an AID system. No mealtime insulin or AID system has ever been another system head-to-head. And we think this is an important metric that is successful and if we see a clinical advantage on highss or lows, that's upside to our expectations. We also plan to use this data to hopefully update conversion Figure 1 in our Afrezza label and we've been in discussions with the FDA since the start of the PETs program around how do we update that initial dose conversion. We hope that Inhaler-3 will be part of that data set. On the right side of the slide, you can see, sorry, on the bottom of the slide, the different data readouts. First dose will be at ATTD in March, the 17-week data we expect to present at ADA in June and the 30-week data will be complete in the third quarter and will be presented at a future conference. On the right side of this slide is Inhale-1. This is a pediatric study, and we think this is a watershed moment in order to transform the induction of Afrezza will be through pediatrics. When we look at diabetes innovation today, whether it's CGM, insulin pumps, this started with children and worked their way into adults because the patients are more in social media, the parents are more progressive and the doctors are more progressive. This will be the largest study done on Afrezza over 10 years. And so far, we don't have the data, but I can tell you the conversion dose has appeared to cause less dropouts relative to our original trials on Afrezza. There's also a meal tolerance tested baseline using CGM, and hopefully, this study will be used to secure pediatric approval in 2025 and beyond. This is how we believe we will accelerate rapid growth of Afrezza, and this will ultimately spill over into adults. The one hangover is still the lung, so we think it's time to move forward beyond this. When we look at the data today, we've been on the market 10 years. We've helped tens of thousands of patients. We are building up USK well support, and we have this new data coming out. We will not be going to the children if we're worried about the safety of our products. So when I look at the future and the growth opportunity, we look at 4 segments of our future. Number one, we're already approved for Type 1 and Type 2 adults. Inhale-3 will be using a new dosing with CGM and an upfront conversion. We're super excited about this data set as it will also include the head-to-head data I just mentioned. GLPs will continue to be the bolster of the units there in Type 2 diabetes. However, those patients will still need real-time insulin and we'll continue to promote Afrezza and V-Go in that segment as are millions of people who require mealtime insulin over the coming years. However, in order to be a leader in Type 1, we need the data from inhale free to set us up for Inhale-1, which is the pediatric segment. Because when we do finally get that data, we know insulin pumps will be the indirect competition of when it comes to a doctor, a patient or a CDE making an educational decision for a patient, they want to know what Afrezza looks like against insulin pumps. So we started that study within Inhale-3, we're excited to hopefully wrap up Inhale-1 a few months here. And once we see that data, we will have 1, 2 punch this year as we wrap up 2024. And now as people are starting to see the first dose data, we're getting questions on gestational diabetes. And we think there's an unmet need there that we want to fulfill over time because there's only 2 drugs that can be used today. metformin, which crosses the placenta and slow acting injectable insulin. And for anyone that knows anyone suffer from gestational diabetes, keeping your time in range really tight is critically important. I'm going to bridge over to the pipeline very quickly, NTM nontuberculous mycobacteria with our clofazimine suspension. So some of you may not be aware, but one of the competing products in Phase III had a progress week enrollment. And people ask me, why am I excited about our program and why am I confident? Well, the reason we are excited is, one, when we purchased a product, there was preclinical data showing an improvement in bacterial recovery in the lung model that they used. Number two, there's Worldworld data, the product is approved today indirectly through a market access program by the FDA in Novartis. So we see world-ware data being generated from patients taking clofazimine here in the U.S. as well as Japan. Third, there's KOL support for this, along with guidelines potentially. And finally, there's no near-term competition for trials now for patients. So as we look forward, we have 100 sites we're going to target across the world, and we see no other option really for these patients to enroll besides the current drug that's on the market ARIKAYCE. So here is the design of our Phase III study called the ICON 1 study, which was designed post our FDA feedback along with the quality like group there at the FDA. We've taken their feedback, we've incorporated that into this design, and it's 120 patients on active arm and 60 on the placebo arm. We'll do an interim analysis at 50%, and we'll continue to watch enrollment as we saw the competing program enrolled relatively quickly over the last 6 months of the year and last year into this year, and that gave us even more excitement for the speed of enrollment that could happen with this trial. We're excited to get this trial going, and we expect to file the IND here in March and kick off the trial in June as we've had a lot of dialogue with the FDA on the trial design, and we expect quite quick approval on the central IRB. It's exciting to us that this will be over $1 billion market with only 2 players in the next 5 to 10 years. We have the potential to be the second approved NTM product, and the market research indicates we will be a potentially preferred option for patients, whether it's because of our favorable safety profile relative to oral clofazimine that's utilized or the toxicity and tolerability challenges that some people face with ARIKAYCE. We also know that we'll have convenient dosing. What does that mean? 28 days of treatment followed by 2 months off, followed by 28 days of treatment. So if you're doing well, you'll potentially be treated for 4 cycles a year. That gives patients a large bareback from what they did every single day to where they are. We also know that current treatments are not highly efficacious and that patients need more options in order to keep this disease in control. It may be a disease that goes away and comes back over time, but it's one that they're popular with chronically for a long time. We have an opportunity to expand a brand within the brand as we think about clofazimine in the future. The next quick pipeline highlight I want to talk about is idiopathic pulmonary fibrosis 201. This is going to be known as an intent TPI as we go forward. The reason I'm excited about this program is our 28-day tox data was very clean. We know 80% of these patients die in 5 years. There's a huge unmet need in this disease state, and Ofev is the market leader marketed by Boehringer Ingelheim, and we have a decreased risk relative to the landscape that has failed in IPF development because we already know this molecule works in IPS. What we do also know is that there are severe GI toxicities, which limits patients' acceptance and uptake and prescriber adoption. There's roughly 15,000 active patients in treatment in this country, and we believe bringing a more tolerable product that could potentially be dosed higher and be maximizing value for this population relative to what's out there today. Additionally, our bleomycin study on 201 appeared to mitigate the inflammation of fibrosis comparable to oral patentini at substantially lower doses. As we go forward in our IND will be filed, we'll be studying this in 201 in our next slide, we'll be studying this in our Part 1 a single ascending dose as well as our multiple ascended dose to show can we tolerate higher doses over 7 days. This will be an important study that gets done here in Q2 with data expected to read out in Q3. Our goal is to show lower GI side effects in safety and healthy volunteers. I want to acknowledge, as we go forward, the hard work that Steve has done in landing our royalty financing deal as we worked on this for over 6 months. We're in a great position because of this vision and leadership over the last 7 years and before I turn over right, you want to acknowledge all the hard work Steve has done for us and our shareholders and our employees. With that said, I'll turn it over to Steve to go over the financials for the quarter.

[Steven Binder, executive]

Thank you, Mike, and good afternoon. I'm pleased to review select fourth quarter and full year 2023 financial results. Please supplement this call by reading the consolidated financial statements and MD&A contained in our 10-K. 2023 was a year of substantial revenue growth for the company in terms of both percentage and dollar growth. Total revenues doubled versus 2022 and reached nearly $200 million. Let's break this down by starting with the fourth quarter total revenues at the bottom of the table. Our total revenues grew a robust 62% versus fourth quarter 2022 and 99% for the 2023 full year period, primarily due to the growth in our Tyvaso DPI related revenues. Going back to the top of the table, you will see that Tyvaso DPI royalty revenue for the fourth quarter was $21 million, which is 132% increase versus 2022 and the result of the continued growth in use of Tyvaso DPI for patients suffering from PAH and PH-ILD. Please note that $2.1 million of the fourth quarter royalty revenue was sold to a third party, and I will review the accounting for the royalty sale in a few slides. Collaboration and Services fourth quarter revenue was $17 million, which was an 81% increase over 2022, was primarily representative of strong Tyvaso DPI production volumes in the fourth quarter. For the full year 2023, Tyvaso DPI royalty revenue was $72 million, an increase of 361% versus 2022, which is primarily due to the increase in patient demand for the product and the start of commercial sales by United Therapeutics late in the second quarter of 2022. Royalty revenue has now become our largest single source of revenue, which allows us to fund and progress our clinical development and product pipeline. Collaboration and services revenue for the 2023 full year period was $53 million, an increase of 90% versus 2022, which was primarily due to the start of commercial manufacturing in the second quarter of 2022 and the increase in production and sales of Tyvaso DPI semi-finish product to United Therapeutics in 2023. Moving down the table to our endocrine business. Total endocrine revenues were $20 million for the fourth quarter and $74 million for the full year. For the fourth quarter, Afrezza net revenue of $15 million compared to $12 million in 2022, a growth rate of 29%, which was mainly driven by higher patient demand with underlying paid TRx growth of 29% year-over-year, a lower gross to net deduction as a percentage of gross revenue and price. Compared to the third quarter of 2023, there was a $2 million increase, which represents half patient demand and have increased channel inventory due to wholesalers purchasing an extra week of product in late December. This additional wholesaler purchase in late December will likely impact our net revenues for the first quarter of 2024. For the full year 2023 period, a 27% increase in Afrezza net revenue was mainly related to increased volume from higher patient demand with underlying paid TRx growth of 25%, price and a more favorable gross to net adjustment as a percentage of gross revenues. Net revenue for V-Go was $5 million for the fourth quarter of 2023. Revenues were 13% lower versus 2022, primarily due to lower patient demand and higher growth to net as a percentage of gross revenues, partially offset by price. V-Go net revenue improved versus the third quarter of 2023 by $0.2 million, mainly due to improved gross to nets. For the full year period, the 48% increase is primarily related to the purchase of V-Go on May 31, 2022, reflecting a 7-month versus 12-month comparative. The next slide shows our revenue growth by source and basic earnings per share on a quarter-by-quarter basis in the first quarter of 2022 through the fourth quarter of 2023. I'd like to show this graph because it highlights how dramatically our business has changed in 2 years and how we're executing against expectations. For the fourth quarter 2023, total revenues increased 14% sequentially versus the third quarter of 23 and are up 62% versus the fourth quarter of 2022. Fourth quarter 2023 total revenue of $58 million was almost 5x the total revenues recorded in the first quarter of 2022. Below the graph were our quarterly basic earnings and loss per share. The fourth quarter was the second straight quarter with net income and positive earnings per share. As I stated during the third quarter earnings call, we are in a period where we expect to bounce back and forth between earnings and loss per share as our revenues increase. but we will also be increasing our spending on our pipeline as we move MNKD-101 into a Phase III global clinical trial and MNKD-201 into a Phase I clinical trial. In addition, we will wait to see the results from the Inhale-3 and Inhale-1 clinical trials for Afrezza before deciding whether to increase promotional spend behind that product. For now, we will continue to focus on growing the profitability of the Endocrine business unit, which has had a positive contribution for 2 straight quarters. Moving on to our GAAP to non-GAAP reconciliation. I will first focus on the fourth quarter, which is on the left-hand side of the table. We had GAAP net income of $1 million, which when adjusted for select noncash items for stock compensation, gain or loss on foreign currency transactions, which is related to our insulin purchase commitment, loss on available-for-sale securities, a sold portion of the royalty revenue and the interest expense on the liability for sale of future revenues, which I'll discuss in more detail in a minute, provide for a non-GAAP net income of $7 million versus the 2022 fourth quarter non-GAAP net loss of $11 million. For the full year 2023 period, we ended with a net loss of $12 million, but when adjusted for the select noncash items becomes non-GAAP net income of $6 million, which is compared to a non-GAAP net loss of $78 million in 2022, an $84 million year-on-year positive change. Now I'd like to take some time to explain the accounting that resulted from the sale of our 1% of our Tyvaso DPI royalty. To set the stage, we sold 1% of our 10% relative for $150 million plus up to $50 million more of certain net revenue numbers are attained within a period of time ending in September 2027. This puts a third-party valuation on the 10% royalty of approximately $1.5 billion to $2 billion. After we announced the Royalty Sale in early January, I heard back from investors that we could have done a better job explaining how we recognize this transactions in our financial statements and how we got to our accounting conclusions. So let me try again. First, we looked at all of the GAAP guidance. Reviewed all similar relevant transactions we could find in the last 5 years and then consulted with our auditors. The conclusion we arrived at, amongst other things, is that MannKind has a continuing involvement in the generation of Tyvaso DPI revenue through activities to protect the intellectual property of Tyvaso DPI such as attending the patent estate protecting the product and the continuing involvement in the manufacturing of the product for United Therapeutics. Thus, the upfront proceeds recorded as a liability for future sales of royalties, not as revenue. The table on the slide reflects how the accounting works. We record the cash consideration received net of issuance costs and a related liability for the sale of future royalties on our balance sheet. To recognize interest expense related to liabilities, we forecast the future royalties to be received through 2042 and calculate the return that would be needed when receiving a $150 million upfront payment for 1% of the royalty over this time period. This rate came to just over 11%. In future periods, we will continue to estimate the future royalty stream based on royalty trends, commercial success of Tyvaso DPI competition for the brand and other meaningful inputs. The outcome of these future estimates may adjust to prospective interest rate using determining interest expense and amortization of the liability. Each quarter, we will charge our P&L for noncash interest expense based on the interest rate and credit liability. We also recognized 1% royalty as noncash revenue and reduced the liability by this amount. In addition to the noncash attributes of this transaction, we also earned cash interest income of approximately $7.5 million annually. The slide shows how the accounting should work for 2024, if nothing changes in our forecast of expected royalties. The balance sheet would end 2024 with $153 million in cash and $153 million of a liability for the sale of future royalties. The liability balance will increase as long as the noncash interest expense is greater than the noncash royalty revenue, which is likely to occur over the next few years. Once the noncash royalty revenue becomes greater than the noncash interest expense, assuming the sales of Tyvaso DPI continue to grow, then the liability balance will begin to decrease. Focusing on the 2024 income statement on the right side of the table, we will record noncash revenue of $10 million and cash interest income of $7 million, offset by noncash interest expense of $17 million. As discussed on a previous slide, we expect to isolate the noncash aspects of this transaction in our quarterly GAAP to non-GAAP reconciliation of net income and loss. With over $300 million in cash and investments on our balance sheet as of December 31, 2023, I want to share our near-term priorities for using the cash to increase shareholder value. First, focusing on our development pipeline, we expect to fund much of MNKD-101 and MNKD-201 clinical trial expense over the next few years through operating cash flow. As these assets advance through clinical trials, we will prioritize their funding. In addition to MNKD-101 and 201, we have 2 clinical trials for Afrezza nearing data readouts. We will wait to see the results of these trials before deciding whether to invest more behind this asset to grow revenues. In addition, we plan to do the following with our debt. Our mid-cap senior secured debt has a balance of approximately $33 million as of December 31, 2023, and currently carries an interest rate of 8.25%. We expect to pay off this debt in the first half of 2024 to take advantage of the interest rate arbitrage between debt interest expense and cash investment returns and release our assets from MidCap's security interest. Manned convertible debt with a balance of approximately $9 million as of December 31, 2023, is expected to be paid off early in cash or in a mix of cash and stock. By doing this, we would be reducing future shareholder dilution. Our senior convertible debt with a balance of $230 million as of December 31, 2023, carries a low fixed interest rate of 2.5%, and we do not expect to buy back bonds prior to maturity in March 2026. When maturity arrives, we expect to reduce future dilution by paying off of the debt with cash of our stock prices below the conversion price of $5.21. Additionally, we do not expect to access the ATM. To summarize a very successful 2023, we doubled our total revenues to almost $200 million versus the prior year. Fourth quarter was the second successive quarter for positive contribution from our endocrine business unit. Fourth quarter was the second successive quarter of net income for the company. We sold the worsen interest in our 10% Tyvaso DPI royalty, which values the royalty stream alone at between $1.5 billion and $2 billion, and we ended 2023 with $302 million in cash and investments. 2024 should be another stellar year for MannKind as we are financially primed to drive our commercial and clinical priorities and deliver increased shareholder value. Thank you. And now I'll turn it back over to Mike.

[Michael Castagna, executive]

Thank you, Steve, and I appreciate the explanation of all day coming. I never want to know. They know I appreciate you. So next slide. So MannKind has been around 33 years. And I want to give a special thank you to our founder who passed away 8 years ago on February 25. The reason that's important is the day I decided to join MannKind and I'll forever be grateful for Aman. He was a special prime who can care about society, our patients and making a difference. We have the foundation he left us within 2016, and we built this into a major self-sustaining growth company against all on. When you look at the history from '16 forward, we announced our United Therapeutics collaboration, we've acquired Quorum, which is now our Phase III asset with clofazimine or MannKind 101. We purchased V-Go, which made our endocrine division more sustainable and brought us a couple of thousand new prescribers and Tyvaso DPI has been ahead of all expectations since its approval. As I look forward, we are just getting started. Expected 2024 milestones alone between Afrezza and the study readouts, MannKind 101, MannKind 201, not to mention the Tyvaso DPI, which has 2 major trials going on in TTM and TTI, which I heard this last week were 70% enrolled. Once they finish up enrollment, they'll have 12 months here, we should expect to see data from United Therapeutics. Additionally, our team just today completed the high-speed fill finish line in terms of qualification and will now be in the PPQ, hopefully producing much higher volumes at Taveso out of that line as we exit Q1 going into Q2. As I look at our future, we have several key value drivers. As you can see, our insiders picked up some stock in the last few weeks post our board meeting because we believe we're undervalued and we're very confident in our future. Analysts have expenses in for our pipeline, but no revenue in the next 5 years. We think this is an unfair valuation of our company, given that we do expect to launch clofazimine in the next 5 years and move NTM -- I'm sorry, to move to the IPF asset in terms of MannKind 201 into patients and then hoping the Phase III by then. When we go back and look at another successful company in time, InterMune was similarly valued at $800 million at 1 point and 18 months later was $8 billion once they got a positive data readout. Our job is to not react or overreact day-to-day to swings in the stock market but to lay out a firm foundation for future growth. And as we look out there, whether it's the pipeline with MannKind 101, every 1,000 patients is approximately $100 million in revenue. 201, we're going to start patients dosing there as you think about IPF, every 1,000 patients is roughly $150 million in annual revenue. And then we get into Tyvaso DPI, which as you can see this past year, was when you add up the collaboration and services revenue in addition to the royalties, we know there's roughly 5,000 patients on Tyvaso DPI and that's about half of the $250 million revenue that we experienced this past year. On the endocrine side, we have several major upcoming opportunities within Inhale-1 and Inhale-3 as well as Afrezza International. V-Go is being managed for improved profitability as we continue to focus on improving our margins by reducing COGS as well as improving gross to nets. As we take a step back, we have multiple shots on goal to create significant shareholder value across 3 commercial products when you think about Afrezza, Tyvaso DPI and V-Go that are already approved as well as 2 assets coming up quickly in the pipeline between MannKind 101 and 201. We have multiple shots on goal within these assets, and we are completely focused on delivering shareholder value sustainably for years to come. We have several upcoming presentations and engagements at conferences. I'll be to an onto roadshows with Steve over the coming months to get the word out as we feel like MannKind as at the best inflection point with the best team in the industry, cash on the balance sheet and multiple shot-on-goal in terms of data readouts to drive future growth. We're super excited about our future, and I will stop there, Mary, to take questions. Thank you, again.

[Operator]

Thank you. [Operator Instructions] One moment for our first question. Our first question comes from the line of Andreas Argyrides of Wedbush.

[Andreas Argyrides, analyst]

Congrats on the progress. Just maybe 2 for us here quickly. Despite an evolving competitive landscape in PAH and ILD, the Cigar royalty puts a $15 billion valuation on Tyvaso DPI. A key component of DPI's advantage [indiscernible] convenience of the low resistant device compared with other high resistance devices. So the question here is, could you elaborate on the differences with the DPI device compared with the competitors and how that plays into DPI safety and efficacy profile? And also, how do you see the DPI device playing a key role in the delivery of the techinib and IPS?

[Michael Castagna, executive]

Andreas let take that second question. Can you repeat that one?

[Andreas Argyrides, analyst]

Yes, yes, sure. So back to the advantages of the DPI device. How do you see it playing a key role in the delivery of [indiscernible] and IPF mostly from a delivery and safety perspective.

[Michael Castagna, executive]

I think that's what gets us excited, right? I'll start with that question first. When you think about our platform, it's the same device being used in the same audience that we're currently moving forward in orphan lung disease that United Therapeutics is also using, right? So the familiarity of the training, all that and the comfort of bringing inhalation into this patient population with our current technology gives us that much more confidence because most of the powder is our novel exciting FDKP. So if they can tolerate that in the PAH market, we know some of those patients overlap with ILD as well as IPF. And being able to show that our powder at 90%, 99% FDKP should be able to tolerate it in nivatetinib as we go forward. And so far, the animals, dissolution and all that looks positive. We're doing a chronic tox, and we'll have that done by the end of this year at the same time we get Phase I. So I think this year, should feel like it's even more derisked than it already is, given it's an own asset and a non-technology that will be a positive contribution for there. On the other side of the equation, you're asking me how do we differentiate our platform. I think our powders are built to fly with our devices. They're going hand in hand. We're not taking a novel powder and thrown into an off-the-shelf device. I think that it's about that deep lung penetration. It's about the velocity of those powders coming out and how consistent and deep lung penetration you're getting across the bed. And so I think that's number one. Number two, we know that the powder we need is very low because we're probably records are filling the smallest volume for the 16-microgram all the way up to 64 micrograms or higher. So as people want more, they don't need to inhale that much more powder to get additional effect size, which should help chic should help on absorption as well as just safety. When you think about a lot of FDA had questions on hormones and devices and asthma. How do you steroid use -- these are questions that come up with the FDA. It's really important, right, that there's not excess pattern coming around, especially when you get to these narrow therapeutic drugs. You want the proper dose delivered with minimal powder containment happening or powder extraction happening outside of the cartridge itself. These are all important things that come up. And I also think patient satisfaction was very high in the trial that UT ran in pivotal and we also know from cath patients we've studied Afrezza and the device is relatively easy to use from 4 years old to roughly 80 years old. So those are just the well-known comfort, the dosing and the consistency of those will be important factors as we go forward.

[Andreas Argyrides, analyst]

All right. Appreciate that. I'll jump back in the queue. Congrats also on all the progress.

[Operator]

One moment, please. Our next question comes from the line of Olivia Brayer of Cantor Fitz.

[Olivia Brayer, analyst]

Can you talk about how NTM fits into your strategic priorities, just as you grow into a more mature company. And there is some competition in this space, although maybe less so these days, as you pointed out. So how should we be thinking about where MNKD-101 could fit into the treatment paradigm? And last question is just can you remind us on what the time lines are for expected enrollment and data readouts there?

[Michael Castagna, executive]

Sure. So I think there's a couple of things that help fit in the company. The first will be a decision on licensing outside the U.S. So we'll run the trial in the key countries where NTM exists but we may choose to partner out Japan, for example, where we saw in the mid went independent. And we haven't made those decisions. We don't have to make those decisions. We are looking for partners talking to partners, but it's up to us and we're a little bit in control of that process there. In terms of how it fits into mMannKind, I think there's core capabilities that we have today around reimbursement support, patient training and how do you treat specialty product from distribution, things like that, that we have that will be applicable to the NTM space. And then when you think about where it fits into the treatment regimen, there's 2 points there. Number one, we're going after the refractory patients first. And in that population, right, the only drug approved is our case. And we think there we have a significant clinical advantage as well as a convenience advantage that we should be able to displace or grow that market opportunity very quickly as we enter it. The other part is we are actively working on a dry powder version of clofazimine, and we expect that, that will be used for a naive population so that can be used earlier in lines of treatment. So we do intend to cover early and late stage, and that's one of the benefits of being where we are as a company is when that opportunity presents itself and we choose to want to fund maybe a second trial at that point, we can decide and part of that will be how fast is the Phase III enrolling on the refractory population. If we look at Inhale-2 as the lead example, right, they got about 180 patients in 15 months. And so that's about what we need. So if you really think about where we are today, 15 months from now, we could be fully enrolled. But we only need half of that population to do our interim analysis. So we hope to have that interim analysis sometime in the second half of next year, and then we would just be waiting for the full patient population to get there in order to hopefully file on 6-month data. So that's our goal. It's a primary point of 6 months. And when you think about the grand scheme of life, we're not that far away from hopefully kicking this trial here in the second quarter. And more importantly, we're sitting here next year at this time, we should be quickly enrolling halfway if everything goes as planned.

[Operator]

Our next question comes from the line of Steve Lichtman of Oppenheimer Company.

[Steven Lichtman, analyst]

And congrats on the progress. Just level setting into ATTD, what is the data exactly that we're going to see there? I know we'll see the 17-week at -- this is on Inhale-3, excuse me, what -- I know we'll see the 17-week at ADA. But what's the anticipation at ATTD.

[Michael Castagna, executive]

Yes. So we have a presentation there by Irl Hirsch, which will be the first dose on the meal tolerance data. And Steve, what I think that will allow is the opportunity to, obviously, have a present a podium there in front of everybody. But I'm sure Irl will be presenting some of the data and the rationale why Afrezza deserves a more fair chance in treatment. And he'll show that first dose data, and that will be the primary focus there. As you know, it's a technology conference with lots of innovation, and that's really a Type 1 community that comes in there. I think the other part of this is starting to talk about do you go to Europe, for example, is there another opportunity once we see the full data set to expand to other markets in a meaningful way. So that we're there for that reason as much as anything in terms of showing the data in meeting global flyers.

[Steven Lichtman, analyst]

Got it. Okay. And then just on the endocrine business, in general, I know you've been balancing growth and profitability, and you noted in your prepared remarks, optimizing the sales force footprint. So I guess have you been reducing the footprint being more strategic there? Can you talk a little bit about what you've been doing? And then what are the range of commercial investments you would consider assuming positive outcomes in Inhale-3 and 1. Would you add more of the sales force would be something else?

[Michael Castagna, executive]

Yes. I think on the sales force footprint, you have to rewind back 18 months. When we bought V-Go in May of '22, we dedicated roughly 20, 25 FTEs to that brand alone. And one, it was on a 2-year decline not being promoted and we have to stabilize it. And two, we didn't want to disrupt the Afrezza field team. So we held overlapping expenses for quite a while in both of those businesses. And really, our focus going into July and January this year was a 2-step process around integrating V-Go into our commercial footprint on Afrezza. And then the second step was integrate the sales force into one voice, one team. And that took place in January of this year. There were some headcount that were freed up as a result of that process, and we reinvested some of those headcounts into the field reimbursement support, the training and the key account managers. We think the key account manager is critical as we go into pediatrics and academic centers, that's not where Afrezza has been widely adopted. So the first step is getting to key account managers to make sure we stabilize those big accounts. And then the second step will be hopefully filtering in some reps underneath them but they can maintain accounts or grow accounts day-to-day while those key account managers take on the next group of accounts and get us ready for Pets. So we have a multistep process here. It's not going to happen overnight, but the first step was getting the one field footprint, one voice with one team and one new marketing campaign, which we're actually rolling out this week. So I think the team will see that. We've invested a lot in training, and we have a couple of field trainers now. And that's going to be the #1 focus this year is can we grow faster than we have been with the current footprint and the current infrastructure you put around that footprint. And that model is working, I think we'll have conviction to go ahead and expand that model further. We could easily add 50 to 100 more people. I wouldn't really do that until we saw groundbreaking data and that some of our current model is working with KOL support. I think the #1 thing with the data will be the KOL support around that data because we have to be able to penetrate the academic centers, which are very pump based. And I think that the pump data within Inhale-3 is going to have to hold up in every objective way in terms of producing highs or reducing lows or improving A1C or timing range. So visit the data needs to look like. It's got to be very compelling for us to be willing to spend money and that compelling investment will be commensurate with the data. We're not going to -- we've been through Afrezza a long time. We were very excited about the data. We love the product, but we have to be objective around our investments and our ability to drive success. And I think the data is going to help support that.

[Operator]

One moment please. Our next question comes from the line of Gregory Renza of RBC Capital Markets.

[Gregory Renza, analyst]

It's Manish on for Greg. Congrats on the quarter. I just wanted to parlay some questions on Inhale-3 there. How should we be thinking about clinical bars for HbA1c over the 17-week period in June? And then just considering real-world translatability of the trial design, maybe if you can just remind us on the foreseen pushes and pulls for getting patients to switch between injectable insulin or pumps to Afrezza.

[Michael Castagna, executive]

I think the first question was kind of the noninferiority margin maybe in late between the 2 arms. And I think that's a 0.4%, which was consistent with our pivotal trials in Type 1. And so that was -- those trials were done with a different conversion. And so we're hoping one of the things we saw in those trials was we got to the right dose. It just took 12 weeks. We're hoping by starting at a better roofs upfront. We have 12 more weeks of benefit. And we saw the other part, this year, if you may or may not recall this, we did a small study called ABC, which was a pilot trial on 25 patients to show. Could you switch off an insulin pump, how do you adjust the basal? What happens over the 12 weeks of that study. And that's body give us a lot of insights on things we had to correct for this larger trial before we spend the money. For example, one site titrated basal very well the other site, we learned that you could be a little more aggressive in their basal titration. And so those are the types of things we try to get more guardrails around this trial to ensure proper titration, proper conversion. And obviously, doctors now use the insulin pumps. And so that was the other thing we saw in the original trial was they know have nnipulated pump very well because these doctors use pumps all day long, where Afrezza was new to them, they didn't know how to use it to its advantage in terms of dosing and follow-up dosing if necessary. So we kind of feel pretty good about the trial design, the controls within the trial. So now we should wait for the data. So that gives you some perspective there. So we didn't design it for superiority. Those will be secondary endpoints that we'll watch out for. And then your second question around how do you think about this in the World world, existing with pods and pumps and physicians. And I think this comes down to patient motivation. At the end of the day, I think we will have KOL support. I think we will continue to see guideline support. We saw some updates this year and the standards of care for Afrezza. People are starting to understand the lower rates of hypoglycemia, the better time in range. And they're seeing they want a real-time acting insulin as they've kind of adjusted every AID system and pumped together. What's next? And what's next is really tightening control even further, and we're the best pool to help that. So that's a lot of what we're talking about is how do we look at data on Afrezza on top of pumps potentially. We know that's an FDA challenge. We're also thinking about GLPs. And if you still have mealtime popping on GLPs, do you add Afrezza to those populations. So we're starting to look and say if we were to get positive data in Inhale-3 as an early readout and we anticipate any want to look good, then what's the next leg up that we should really start exploring for more continued opportunities for Afrezza. If you think about it, it's the pump market, it's the pediatric market, it's the stational diabetes market, GLP market. There's a lot of niche areas that are quite large, and we think this brand can grow pretty rapidly over the coming years relative to where it's been in the last 5 years.

[Operator]

One moment, please. Our next question comes from the line of Oren Livnat of H.C.

[Oren Livnat, analyst]

I got a couple one-on-one questions. Can you just help us better understand how you arrived at the pivotal study sample size and powering? What's that based on? And with regards to the PRO endpoint, I guess, since that's a new subjective endpoints in the space, what is the bar there? What does that need to look like to be effective competitor in the view? Then I've got a follow-up.

[Michael Castagna, executive]

Oren, these are 2 great questions, and I think it's the biggest challenge to developing products for NTM, and that's why I think you're going to see continued lack of investment because you have to be -- you the enough capital to go through with it. In the case of InMed which spend many years building out this space and working with the FDA as well as the patient communities. And we know that the physician KOL population really wants clofazimine the patient population really wants clofazimine. So -- and even FDA, I will say he's been nothing about collaborative along this whole journey for 5 years and going back with Quorum. So I think the market forces are aligned to help support us with the wins in our backs to push us forward. And then you get into risks of running these trials. And I think the reality is there are risks in this population. But given the efficacy on clofazimine, we estimated about I think a 20%, 30% effect size delta between us and placebo. And that's going to be the interim analysis to see are we on track for that? If not, we might have to increase the sample a little bit. That's number one. The second part is the PRM. We went back and forth with the FDA for years, not just months on the PR endpoint, the PRO division and the feedback from the Pure division for 2 reasons. One, we weren't comfortable running a placebo-controlled trial, given that you can pretty much know what the active arm is, and we think that makes the PRO a difficult tool. And therefore, we try to make it a secondary endpoint. The FDA was insistent. It should be a primary or co-primary endpoint. And so around the rand among story short, we landed where we did, which is a co-primary endpoint with the understanding that this is a little bit of a risky endpoint, but that they agree we've done the best we can to create the baseline measurements and the improvements in those key measurements that we've aligned to with FDA and that the efficacy is going to have to matter in terms of sputum conversion as much as the PRO tool by itself. And so just like I know I listened into that call, I mean, what they're going through with the FDA. We've had a lot of those questions. We've worked with them. We've gotten a lot of their feedback already incorporated into our trial design. So now it's about the data and then what happens with data and how you analyze that data once it comes in, will be really important. But again, we'll work very closely with the FDA. I think they understand where we are. They understand the pros and cons. And rather than keep debating it, we thought it was more important to get the data and help get this drug pros finish line.

[Oren Livnat, analyst]

Okay. And just so I'm clear, you're going based on some clofazimine experience efficacy wise? And are you assuming an improvement on that with your powering assumptions? Or are you being conservative on that?

[Michael Castagna, executive]

No. I think when you look -- if we're going after naive patients, we think we'd see a much higher efficacy rate. But because we're focused on refractory, we think it will be a little less, obviously, than naive patients. And I think you saw that in the med RCA data out there. There's only one study to really judge NTM endpoints on and that's our case. And so I think when you go back in their development program, they had a 20%, 30% delta between the control. And there is -- I'm not sure they had a placebo, I could go back and double check the data. And so that's some of the work that we were going back and forth on is incorporating the placebo could have a placebo effect and how much more do you have to be and how do you power a trial with that potential risk. And that's a lot of back and forth with FDA. So we've done the best we can. We'll have an interim analysis. We think that's the most important aspect that we will get to in this trial. But assuming that's on track, then we feel very good about the -- wrapping up this trial to bring this to patients very quickly.

[Oren Livnat, analyst]

All right. And then just with regards to the Tyvaso DPI situation, we're seeing a lot of headlines with regards to potential competition and lawsuits. I'm sure you couldn't or wouldn't comment directly on anyone else's litigation. But if you are willing, I'm curious if you're able to comment on whether your orders coming into this year and your efforts at inventory or manufacturing capacity expansion reflect, I guess, any possible assumptions or risks around competition? Are you like potentially waiting to do anything? Or is it pedal to the metal, so to speak, on that front?

[Michael Castagna, executive]

Yes. On the Tyvaso DPI, I mean, we are making as much as we can around the clock. Nothing slowed down there. We know we want to build up inventory as well. So between the demand and the current amount we can manufacture, there's no slowing down where we are with Tyvaso DPI. In terms of competitor coming, I mean, we've been hearing about this for years and whether it was the higher dose, it was the indication. Everyone's been telling us about, is this going to get approved? When we did get approved, then you're going to have ILD, we got ILD. We've been very honest with the market ever since this drug was under review. And everything we've said has come true, right? We said we would expect ILD. We got ILD. We said we manufacture, we've manufactured. We said that we have a nice conversion. It's had a better conversion than anyone expected. So from my perspective, Tyvaso DPI is delivered on all parameters above and beyond expectations. Despite an under forecasted launch, which put a lot of pressure on MannKind, and we did not miss 1B to make sure every patient had every day supply. And that we did a lot, our team worked incredibly hard this year to make that happen. And we had record production in Q4 and we'll hopefully equal record production in Q1 and even more production in Q2. So if you look at their story, they were after ILDs, they're differentiated for some reason. And I'll be honest, if a patient can't tolerate a dry powder for ALD, I don't see how they're at tolerated theirs, which has 3 or 4x more powder, if I recall. So it's really about the patient tolerability. It's about the titration, it's about the powder load and it's about how you coach a patient, train a patient. All these are really equally important things. And any time you launch a new drug, you find things out as you go along and you modify and you go forward. And that's pretty much what I think I hear you to is obviously, DPI strong, it's doing great in ILD as much as PH from what I heard on their call, and our conversation with YUTIQ continue to be very positive. I do want to mention another thing, Oren, is Japan, so far is okay with a put of conversion. So we'll do one trial on MannKind 101 for clofazimine, in terms of U.S. and Japan, it will be one global study, but we'll cut the data in 2 different ways, one for Japan for Span dual primary for the U.S. or co-primary. So that will be an important aspect that we did struggle with the FDA saying, why are you the only country in the world that wants this Spuds PRO, where we don't have the same demand yet in other countries around the world. So that's why I think it's Butta. We still got to kill the bug at the end of the day, and I think that becomes king in this disease and can we do that really well. It's the question. The PROs will work out. But when you look at the labels of PROs, they're not really strong claims at the end of the day. So I still think efficacy is going to matter in terms of sea conversion.

[Oren Livnat, analyst]

Okay. And I look forward to talking to Steve some more about this accounting.

[Steven Binder, executive]

I'll stay out of that conversation.

[Operator]

Our next question comes from the line of Thomas Smith of Leerink Partners.

[Thomas Smith, analyst]

Let me add my congrats on all the progress. Just a couple on our end. I guess first on MNKD-201 the inhaled intendment program. Just walk us through your expectations for the Phase I data in Q3 and how quickly you think you could turn this around and advance it into a Phase II trial in IPF patients. And then just remind us how you're planning for clinical supply and scale on 201. Sure.

[Michael Castagna, executive]

On the Phase I study, because it's a pretty quick study, we were actually were going to do IPF patients, the FDA who pushed us to consider healthy volunteers. So we actually switched from, I'll say, IPF patients to healthies, which saved us a lot of time and money. So that's number one. So that turnaround time should be pretty quick in terms of wrapping up Phase I and filing an end of Phase II meeting with FDA, hopefully, by the end of the year. And then we're having good discussions internally. We just hired a new gentleman, Dr. Basin, who will be pivotal in meeting our development program beyond Phase I for 201. And we're having good discussions internally, for example, that we do a Ib study to get data sooner in parallel, why we continue to wait to kick off the trial for the next phase. Is it a 2 study going into a Phase III. So that work is happening as we speak, and I don't want to prematurely guess where we land. But just like clofazimine, where we push to not do a Phase II trial, one could argue that that's a little risky. At the same time, we know these drugs work. We know the approximate dose we're trying to go after, and we know that dose has produced a signaling effect that we expect. So in the case of 201, we actually want a dose higher and that's where we need the chronic tox data in Q4 to help support that higher dosing. And assuming a patient can tolerate that higher dose, and we think that's going to be one of our clinical differentiators for 201. So that will be the things we look for in the trials. Can we dose higher? Is it tolerable? And do you have any of the GI side effects that we see with the oral formulation?

[Thomas Smith, analyst]

Got it. That's helpful. And then just on the pipeline strategy and the priorities here. Obviously, you have a lot on your plate across the inhaled studies for Afrezza and the clofazimine in the 201 programs, but now you have the financial flexibility. I'm just wondering if you could talk about how you're thinking about balancing external business development opportunities versus advancing sort of the internally derived candidates on your platform?

[Michael Castagna, executive]

Yes. Now, that's a great question. I think the team is bursting at the seams on everything we're doing today. And the good news is we have a great team who's working extremely hard to make sure we get these INDs in to get the Inhale-1 and 3 study wrapped up. And so from a financial flexibility, people don't realize we probably spend -- don't quote an exact numbers, but over $30 million between Inhale-1 and Inhale-3 between people and trial costs. So those trials are ramping up this year going into next year. As you think about clofazimine, there'll be a little bit of overlap with the 101, but these other trials wrap up and so you kind of see that phased in. People also missed that we have been funding tox trials and other data sets in R&D over the last couple of years on 101 and 201 as well as 501. So there's been other investments in our idea that aren't as transparent because don't talk about them as much. But again, some of those are wrapping up, and those extra funds will be used to fund the Phase III trial. So I think we have the financial flexibility to ensure if we can't fund it out of cash flow generation that we are today, that we have the cash on the balance sheet if we needed to. But our goal is to continue to run the company lean like we have been and not get too far ahead of our skis until we continue to show consistent delivery as we go forward. Steve, I don't know if there's anything you want to add there?

[Steven Binder, executive]

No, Mike. I think the other original question was also around BD versus internal. I think you're exactly right. We're going to focus in on the internal priorities that we have. And if opportunities come along, we'll certainly assess them, but the focus will be internally first.

[Michael Castagna, executive]

Yes. And on the BD side, we get lots of inbound these days. we're just busy. And so if we see something compelling, we'll look at it, but we're not actively trying to pursue anything we want to work with what we have and maximize the value that we have on our plate right now.

[Operator]

Our next question comes from the line of Anthony Petrone of Mizuho Group.

[Anthony Petrone, analyst]

Congrats on strong results. Also condolences on Alfardan passing to the team. Maybe Steve, a couple on Tyvaso, just the royalty agreement. This high level, why was 1% sort of the right number to Oren's point, there's potential competition. So what was the calculus on settling on 1%? And can you -- is there an option to further monetize Tyvaso royalty under a scenario maybe where you want to fast track 101 and 201 or even add to the portfolio for future growth investments, would you consider monetizing the royalty further as a source of funds? And then I have a couple of follow-ups on diabetes for Mike.

[Steven Binder, executive]

Anthony, it's Steve. So what we did is we looked at what the value was for the Tyvaso royalty in a very competitive environment. We had originally over 25 different purchasers come to the table. And we wanted to keep a vast majority of the royalty to MannKind. So we thought 1% was right to get to about $300 million on our balance sheet, which would fund not only our pipeline but put us in a good position to fund the convertible debt when it matures in 2026. So yes, we can further monetize the royalty if there was a need for it, but we don't expect there to be a need for it at this point in time.

[Michael Castagna, executive]

d Steve, I'll just add 2 things, Anthony, to your question. The thing that drives royalty valuation is interest rates and the calculation you're using for expected interest rates. And so over time, if interest rates come back down, the overall value of this royalty may go up even further even if the sales came off a little bit of trend for some reason. But we think that when we started this process, the royalty rate was not transparent to the public when you look back in June, July of 2023. And we wanted to bring value to our company around what is 10% of the royalty work because we thought we ended value, and that 10% felt the right way to demonstrate that clearly to investors. In the meantime, and when we're midway through that process, we disclosed the royalty, so we didn't have to kind of work around that issue, number one. And then number two, the interest rates are high, and that does create a bigger discount factor into that future cash flow. So those are things going in our favor hopefully over the coming years. And the thing about a competitor coming, we know there's about x percent converted from nebulizer to DPI. However, if there's another competing product out there that may help drive more adoption and earlier adoption of DPI, which indirectly may help us, right? As you think about the future. So we're pretty bullish on DPI and whether there's 1 or 2 priorities out there. It only helps more patients that can hopefully use the product more in earlier lines of treatment as well. So that's kind of how we look at it, and we're -- we think MannKind indirectly benefits as more competition does come.

[Anthony Petrone, analyst]

Appreciate that. And just on Inhale-3 and Inhale-1, just from a combined outlook there for phrase when you think about using phrase with automated insulin pumps and then the pediatric indication, just to kind of level set again, from the MannKind standpoint, how it's looking at those 2 opportunities from a market expansion standpoint for the product? And actually, which of the 2 indications are you most excited about? Do you think you get faster traction pediatrics? Or would it be in the combination use? Thanks again and congratulations.

[Michael Castagna, executive]

Yes. No, I think the challenge with adding your preso on top of the pumps, besides the FDA, I'll just put that out there, is really the need that a patient sees -- and are they always going to carry all these extra supplies with them? And do they use it on special occasions to use it when they get home. It's not a full-time patient when you think about that value. And that's one of the things I think I've seen when people used to criticize our refill rates, but we knew roughly 20%, 30% of our Type 1s use Afrezza intermittently, which kind of hurts your refill rates, right? And then we know Type 2s are as compliant as we want to be. So that's why it's so important to make sure that we are a front and center of choice for patients who have real-time control or one improved their A1c as we look out there. Can we improve A1c, can we improve time and range. So that's what we're hoping to see with these new trials versus when we got approval, it was just to show that the drug is as good as a standard of care. And we think that's good enough for peds approval. But to cause an inflection, right? We want to show that, hopefully, we're improving something on the product. If you ask me which is going to be more critical. I think Inhale-1 will be the study that causes Afrezza to become the next standard of care. And what I mean by that is, can we grow faster by putting more people out there, more marketing, more advertising? Absolutely. I think we can. Is it going to be an inflection point that looks like a rocket. I think it's going to take another launch into a new market. And the good news about kids is there's only about 500 doctors in the country that are meaningful Petendos and they're mostly academic centers, and they're mostly about 40, 50 centers in the country. And when you think about the study, it's only 40 centers in the U.S. So we are covering the majority of the key academic centers in this trial. So they will have first-hand experience once the results are unveiled or finalized at least. And so we kind of really make sure would've gone faster by making it in a global trial, absolutely. And we thought in order to have a major inflection, you better have the right experience with clinicians in the U.S. And that's really what we're doing. Unfortunately, we cannot go against pumps in that trial. We wanted to at the time switch off in phone pumps and include them, the FDA would not allow us. And that's one of the reasons we kicked off Inhale-3 we felt once we did the ABC trial, it was safe to switch [indiscernible] pumps. And even the FDA agreed at that point that we could add that to the trial, but we thought by the time we change Inhale-1 and get all that through the RMB was it more the distraction. So we feel very good about where we are on a 1 2-punch with Inhale-1 and Inhale-3.

[Operator]

I'm showing no further questions at this time. I'd like to turn the call back over to Michael Castagna, CEO, for any closing remarks.

[Michael Castagna, executive]

Thank you, Valerie. Thank you all for the analysts coming in. Look forward to seeing hopefully a couple of you at ATTD. Also will be on the non-deal roadshow opening some key cities, meeting with our investors. I just want to say thank you to everyone. It's been a great year so far. We're super excited. Everything is off to a great start, and we're looking forward to making 2024 another record-setting year. So thank you again for everything. And Steve and Dave and everything else. Thank you for all the work everyone is doing. Have a great day.

[Operator]

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all participating. You may now disconnect. Have a great day.