U.S. Markets close in 46 mins

Edited Transcript of MNKD earnings conference call or presentation 6-Nov-19 2:00pm GMT

Q3 2019 MannKind Corp Earnings Call

VALENCIA Nov 17, 2019 (Thomson StreetEvents) -- Edited Transcript of MannKind Corp earnings conference call or presentation Wednesday, November 6, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Michael E. Castagna

MannKind Corporation - CEO & Director

* Steven B. Binder

MannKind Corporation - CFO

================================================================================

Conference Call Participants

================================================================================

* Brandon Richard Folkes

Cantor Fitzgerald & Co., Research Division - Analyst

* Dylan Edward Dupuis

SVB Leerink LLC, Research Division - Associate

* Oren Gabriel Livnat

H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst

* Robert Cummins Hazlett

BTIG, LLC, Research Division - MD & Biotechnology Equity Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Welcome to the MannKind Corporation Third Quarter 2019 Earnings Call. As a reminder, this call is being recorded on November 6, 2019, and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call until November 20, 2019. (Operator Instructions)

This call will contain forward-looking statements. Such forward-looking statements are subject to risk and uncertainty, which could cause actual results to differ materially from these stated expectations. For further information on the company's risk factors, please see the 10-Q report filed with the Securities and Exchange Commission, the earning release and the slides prepared for this presentation. Joining us today from MannKind are our 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.

--------------------------------------------------------------------------------

Michael E. Castagna, MannKind Corporation - CEO & Director [2]

--------------------------------------------------------------------------------

Thank you, and thank you, everyone, for dialing in this morning for our Q3 earnings call. I look forward to sharing our results and discussing our plans for the future.

Before I get started, I'd like to wish our founder, Alfred E. Mann, happy birthday. Today would be his 94th birthday if he was with us today. His foresight was 20 years ahead of the market in terms of predicting automated insulin pumps and the challenge that we can now see with continuing glucose monitoring in regards to the delay of insulin that has on controlling sugars post mealtime. His quote here is true more than ever as we just completed 35 interviews with health care providers, and I don't believe one of them understood that injectable insulin subcutaneously took almost 2 hours to start working to bring down your post mealtime sugars. The scientifically engineered particles that we create today will not only impact people living with diabetes, but will extend the many diseases, such as pulmonary hypertension, cystic fibrosis, oncology, migraine and allergies, which impact someone in each of our families. Despite the challenges and setbacks we have faced, our company had survived for over 20 years, and our growth is just beginning.

As we've talked about previously, these 4 pillars have fundamentally transformed our growth. As you look back, the partnerships highlighted in bold are important to our future. As you can see, this year alone, UT will generate more revenue than Afrezza. As we look forward over the next 24 months, these 4 pillars will be critical to our growth platform that we expect to drive shareholder returns over the coming years.

For Q3 update, first, I want to highlight international sales to Brazil through Biomm at $0.7 million. Second, as we announced on Monday, United Therapeutics' TreT is progressing as planned, and we received our second milestone payment of $12.5 million in November, we completed construction of our high potency manufacturing facility in Danbury, and we dosed the first patients with TreT back in Q3. The feedback so far in the study is very positive that we've heard from United Therapeutics.

We've also completed our recapitalization in August that gives us a solid financial foundation as we go forward, where we drew down $40 million of a $75 million credit facility. We've met our revenue covenants as of September 30 and maintained an open dialogue with our new lending partner about our sales trends and actions we're taking to improve them, some of which I'll discuss in a high-level detail in a few slides. I believe we have a strong relationship with MidCap, and we will successfully work together to resolve any issues that may rise throughout the term of our loan.

In third quarter, we had total revenues of $14.6 million or 225% year-over-year, and net revenue of Afrezza of $6.4 million or 46% growth year-over-year. We continue to reduce our spending and manage our employee base as we think about departures and not backfilling people continues to bring down our cost as well as reducing cost structure year-over-year in various functions throughout the company.

We're really proud that we now increased our coverage to 5 analysts, with the latest being Cantor Fitzgerald that initiated coverage in October. And we advanced 2 molecules for the next phase of development, which are sumatriptan and tadalafil, which is new today for many of you, and they're advancing to an animal PK study that will help us get some additional information as we think about dosing in animals and how that's going to correlate to bioavailability of the current available formulations.

So our pipeline slide here has been updated in orange to talk about the 2 next pipeline slides that went to nonclinical pharmacology that will help us give better understanding of the absorption through the lungs and really help us understand the dosage form as we continue to progress these in development. We will expect this data pretty much by the end of the year, but full study outcomes in Q1.

Additionally, UT has not made a decision on the undisclosed compound as they have a right to opt-in for a certain period of time, and they are completing a market assessment before making any decisions. Finally, our long-awaited Afrezza pediatric study protocol is now down to FDA for review, and we expect to have feedback by the end of the year.

Now bridging to Afrezza in terms of TRx and net sales growth. On the left side here, you can see, year-over-year, 17% growth in TRx increasing to almost $3,000 a month or $9,094 a quarter. And net sales gross -- growth basis of 46% year-over-year, $6.4 million is our highest sales ever of Afrezza when you include the Brazil numbers.

The next part of the equation as we've been thinking about the company and the history here with David Kendall joining has been around the scientific communication and really helping adopt what does the clinical profile of Afrezza look like and how do we get a lot of our data published, so that the guidelines that are out there can start to create a new ultra-rapid category as well as communicate the scientific value of Afrezza and why it's different from subcutaneous insulin. Here, you can see, we have 7 papers that we expect to be accepted and presented -- I'm sorry, 8 accepted and/or presented at upcoming conferences between publications and article -- journals as well as ATTD and the Diabetes Technology Meeting in Baltimore later this month. These journals help highlight everything around hypoglycemia, ultra-rapid profile, better early glucose control and really are meant to articulate the attributes of Afrezza that people are not all aware of, as we look in the marketplace.

The last 2 you see here are around BluHale, and as we get ready to launch this device, we're really excited about the data coming out of the trial we ran to get some feedback on user experience and how this would help better train our Afrezza patients out there and give our customers more confidence.

This scientific platform is really going to help us continue to propel growth for Afrezza as we go forward, and as I talk about our new strategy going into 2020 and the laser focus as we get into type 1 versus type 2 patients.

When you look at this year, we have had continued growth quarter-over-quarter with the exception that we always see in Q1, a small dip year-over-year. In Q2 to Q3, we saw sequential growth in prescriptions of 5%. And if you look at the marketplace of the competition and what's been happening, people have actually been having a decline sequentially quarter-to-quarter, and the infill market is flat to declining, depending on how you look at it.

In the end, as we look at cartridges, which is another way to look at our business, we weren't happy. As we looked into the summer, we made several changes in our marketing department. They had identified gaps that were highlighted on our market research, and we've rolled out several plans in Q4 around coverage and training and launched new reimbursement support materials. As well as our first pharmacy network in several key markets, we're piloting new CDE trainers. And we have an enhanced focus to move our free bridge program to paid claims as we expect to exit the free goods program and transition to a more cost-effective program during Q1 2020. Well, you can see here, our cartridges since we commercially relaunched the product ourselves in Q1 of '17 have almost tripled from almost $200,000 a month on a rolling basis to over $600,000 a month in October when we look at the latest data we have. This trend continues to demonstrate growth for Afrezza. And while we weren't happy where we saw where we were because we thought we should be ahead, we do believe making the appropriate adjustments will continue to propel us into Q4. And as we continue to fine-tune this going into 2020, we'll continue to see more growth ahead.

So what is that insight that we got as we look to 2020? We did research with over 200 providers between quantitative and qualitative research in Q3 up until, including last week, and we identified 3 areas for faster Afrezza growth. Number one, a one-stop hub that will provide reimbursement support, pharmacy fulfillment, coordinate patient training and help address any drop-offs that occur in the first 30 days. As we look at our data on drop-off, I know it's a big question. We get -- we did hear 30% to 40% of patients may drop off Afrezza for one reason or another. A big part of that is making sure we do the onboarding properly around cough and inhalation proper technique in the first 30 days, we believe, will address a lot of the issues. The second thing we heard was around type 1. When you think about our business, 45% of the patients are living with type 1 diabetes. Some of those patients may use Afrezza on top of their insulin pumps. This is not something that we market, but when you think about how they're using it, they're taking 1 dose when they get high on their sugars post meal, which could be once a week, it could be twice a week, but those patients are not refilling every 30 days, as one would expect. So that -- they may fill once a quarter, they may fill once a year, but those are prescriptions that we see one-time and wonder what happened on refills and wanted to provide that insight to our customers as we go forward and our shareholders.

The second part of this pillar will be an increased focus of resources on type 1 diabetes. When you think about Afrezza, we have roughly 6,000 patients on the product today, 3,000 type 1 and 3,000 type 2. And yet type 1s only make up 5% of all people living with diabetes. However, we do see that the unique attributes of the product are disproportionately benefiting a type 1 focus when you think about the challenges people with type 1 live with around hypoglycemia, weight, dosing, speed of action, CGM. These are all attributes that we've demonstrated Afrezza to be equal or better than the standard of care. So as we go into next year, you'll see sales and marketing efforts targeting advocacy. And future data generation will be more focused on type 1 versus type 2. We feel we're adequately prepared to continue to address the type 2 market. And as Afrezza grows, we will continue to go back into a larger penetration. But when you think about what we've done this year, we came into the new year with a big focus on type 2 with a big retail presence with our bridge program and co-pay card, along with the DTC campaign. We weren't happy with the results we saw as a result of those efforts through August this year, and that's why we did pivot a little bit here in Q3 and continue to expect to see positive impact on those pivots in Q4.

The third part of this was continued health care provider education and patient education. We did not believe that the large majority of our endocrinologists do not understand time action profile of injectable insulin versus inhaled insulin. They directionally understood that Afrezza is faster than any other insulin out there. However, they did not understand that subcutaneous insulin takes about 2 hours to start working. In fact, a lot of them thought, because it's subcutaneous, it starts working immediately or within 20 to 30 minutes. That's a really big difference, and we have lots of data on this particular topic to go out and educate the market.

The second part of Afrezza, as I mentioned, is around weight and latent hypoglycemia. David Kendall has done an incredible job of getting some of this data out there in the various publications and conferences throughout this year.

And then we think about the last part of Afrezza's unique ability to deliver insulin through the lung really creates unique attributes when it comes to understanding monomer and excimer of insulins. I want to provide you more clarity on this strategy as it goes forward, but I wanted to give you a preliminary glimpse of where we're going into 2020 because the next time we'll have an earnings call will be roughly in late February or early March next year.

And then finally, the last part of this that I think is important is something I mentioned earlier about BluHale. This slide on the left side, you can see very confident to confident was about 27% -- sorry, 37% of providers when it came to training on our inhaler. When you look at post using BluHale on 5 people [till these] get comfortable, you saw that number went from 37% to 96%, an improvement of 3.4 to 4.7 on a scale of 1 to 5. 80% of customers thought BluHale would reduce their teach time and 91% of customers believe this will be more successful with their inhaled insulin going forward. We expect to launch a BluHale Pro version, it will be called, for HCPs in Q1 of 2020. And we're very excited as this will really help demonstrate and set up the market as we get to Bluetooth Connected Care, hopefully, in late 2021.

Now I'm going to turn it over to Steve Binder.

--------------------------------------------------------------------------------

Steven B. Binder, MannKind Corporation - CFO [3]

--------------------------------------------------------------------------------

Thanks, Mike, and good morning. I'll be discussing preliminary financial results for our third quarter, which show total revenue growth of 225% for the third quarter over 2018, net Afrezza revenue growth of 46% for the third quarter, including our first international sale of Afrezza to our partner, Biomm, in Brazil, and continued improving gross margin as the year has progressed. We also announced Monday that we achieved the second milestone in our license agreement with United Therapeutics and received $12.5 million subsequent to the quarter end.

Let's start out with looking at the revenues for the third quarter. Total revenues for the quarter, which is the bottom blue line, were $14.6 million versus $4.5 million for the corresponding third quarter of 2018. The 225% increase is primarily generated from the recognition of revenue related to the United Therapeutics license agreement in the amount of $7.9 million as well as growth of 46% in Afrezza net revenue to $6.4 million. The Afrezza net revenue increase is favorably impacted by volume, including our sales to Brazilian partner, Biomm; cartridge mix; and partially offset by an increasing gross net deduction of $4.7 million.

The Afrezza gross net deductions were 43% for the third quarter of 2019, a decrease from 47% in the prior year. The third quarter 2019 gross to net percentage was favorably impacted by the sale of $0.7 million to Biomm, which does not have any gross to net deductions and accounted for approximately a 2% rate favorability, but was more than offset by unexpected increases in our product returns and rebate accruals of $0.7 million, having a negative impact on the gross to net percentage of approximately 6%. We continue to refine our gross net estimates each quarter, which can result in unexpected adjustments like these.

Also please note that wholesaler inventory levels did not significantly change from the second quarter, therefore, having no significant impact on the third quarter Afrezza revenue.

Inception to date, we have recognized $29.7 million from the United Therapeutics license agreement and $9.6 million from the United Therapeutics research agreement where our performance obligations are substantially complete.

This slide shows U.S. versus international revenue mix for the third quarter. Our U.S. Afrezza net revenue of $5.7 million grew by 31% versus the third quarter of 2018 and was impacted by the gross to net accruals just discussed. Our year-to-date gross debt rate for the U.S. Afrezza revenue was 42% and was favorably impacted by lower rates in the first and second quarters as compared to the third quarter.

Below the U.S. Afrezza revenue line, you can see that in September, we had international net Afrezza revenue of $0.7 million for the sale to our Brazilian partner, Biomm, in preparation for their launch. As mentioned before, sales to Biomm did not have any gross to net deduction.

On the left-hand side of this slide, it shows our cartridge mix and mix favorability versus the third quarter of 2018. We grew our 12-u cartridges at the fastest rate of 33%, followed by the 8-u cartridges at 15%. The faster rates of growth had a positive impact on revenue growth due to our 12-unit being priced 3x the 4-unit and our 8-units being priced at 2x the 4-unit.

The right-hand side of the slide shows the same data, but in 4-unit cartridge equivalent, which is our lowest priced cartridge. The growth rates are still the same, but it shows visually how the sale of 12-unit and 8-unit cartridges are more impactful to our Afrezza revenue growth. For example, on the left, the 12-unit cartridges had approximately 400,000 unit sales in the third quarter of 2019. And when equivalized to 4-unit cartridges on the right, it becomes approximately 1.2 million units.

The top table on this slide shows Afrezza gross profit or loss and gross margin for the third quarter. We had Afrezza net revenue of $6.4 million and cost of goods sold of $7.1 million. Included in the cost of goods sold is a $2.75 million one-time charge related to an amendment fee for our insulin supply agreement with Amphastar. You may recall that we amended our insulin supply agreement in August, which allowed us to move $46 million of insulin purchases out of the 2019 to 2023 period to better align our insulin supply with Afrezza demand. Because of this onetime charge, the GAAP reported gross loss was $0.7 million.

On a non-GAAP basis, without including the onetime charge in cost of goods sold, the gross profit would have been $2.1 million and would have produced a non-GAAP gross margin of 32.1%.

In the third quarter of 2018, we had a gross loss of $0.9 million, which reflected a lower level of sales and included inventory write-offs of $0.7 million.

At the bottom of the slide is our gross margin trend for 2019, which has been increasing each quarter from 20.8% in the first quarter to 32.1% in the third quarter, as we continue to increase Afrezza revenue, while holding manufacturing cost at a fairly steady level quarter-to-quarter. We expect sales increases to outpace cost of goods increases in the near term as excess capacity costs are absorbed into inventory, which is expected to produce increase in gross profit at -- as revenues rise.

One last item to note. We ended the third quarter with $50.4 million of cash, cash equivalents, restricted cash and short-term investments. This balance is prior to the United Therapeutics milestone payment that we received at $12.5 million in early November. Thank you.

Now I'll turn it back over to Mike for some additional comments.

--------------------------------------------------------------------------------

Michael E. Castagna, MannKind Corporation - CEO & Director [4]

--------------------------------------------------------------------------------

Thank you, Steve.

If you go to the next slide here, you see that our TRXs have continued to grow, just like I just previously showed you, our cartridges, and this is on Symphony PHAST data, so this is not adjusted for gross to net. And what you continue to see is quarter-over-quarter growth in prescriptions and revenue. And we expect to see this in Q4 as we go forward, despite some of the challenges in sequential growth Q3 to Q2.

I want to talk about some of the next near-term milestones that we look at for the company. Number one is a Brazil launch. They just recently had a conference there -- down there in Brazil with all the thought leaders where they showcased Afrezza and the introduction of Afrezza into the marketplace. Number two is initiate our Phase III clinical trial in India, which was recently approved a few weeks ago by the SEC, which is the equivalent of the FDA here in the U.S. I want to remind you, this is actually a robust study where we're going to generate data in another 200 to 300 patients in the type 2 setting against oral placebo products -- placebo against oral product standard of care. We look forward to using our new dosing protocol that we saw in Phil Levin results back in Q2 that we think are going to demonstrate in a much larger study really clinically strong results for a market where 81 million people are living with diabetes, with the large majority having an A1C of 10 and out of control. When you think back to the Phil Levin study, the average A1C was a 9 when we saw 1.6% A1C reduction in 12 weeks. So we look forward to using that protocol in our next Phase III trial here.

We also expect a data readout any day now on a type 2 study where we use Dexcom and switching people on insulin that were out of control on to Afrezza. This is referred to as the Kipnes trial, and that data we expect to be presented early to late -- mid-next year.

I previously just talked about the BluHale Pro launch. We're in the process of manufacturing those and getting those into the market in Q1.

We've had several conversations with our partner, AMSL in Australia. We expect to file Afrezza regulatory approval there and start to work on ways to build a pharmacoeconomic registry that we can launch successfully in Australia at the appropriate time.

International market expansion is also one of the things, as we've demonstrated with the partners we have and continue to new partners we look to add Afrezza into other markets around the world. Every time we make a decision to go international, we know it's a 12- to 24-month time line lead time by the time you file all the way to getting approval. And so it's really important to (inaudible) to identify partners as we think about our growth plans over 2022 to 2024.

Another part that's been important is around short-dated product and inventory management on our side is that we expect approval on expiration dating, which will allow us probably another 4 to 5 months of dating on our inventory by the time it gets to the wholesale channel. Fortunately, with our volumes where they are today and our manufacturing improvements we've made, we don't expect to have any inventory write-downs as we continue to go forward.

FDA feedback on our pediatric Phase III trial will be important. We've wrapped up cohort 2, and we submitted several comments to the FDA to confirm that we're comfortable closing out Part 1 of the study before we begin Part 2. And Part 2 is the Phase III protocol, which we've given FDA our draft for comments, and we expect those comments back by the end of Q4.

I'm really looking forward to moving the company forward, as we think about 2020 and beyond, refocusing our efforts in 2020 to drive more growth faster. And the team is currently working on closing out Q4 strong, and making sure we have a very successful 2020 and beyond.

I want to thank everyone who worked hard for this quarter, and we'll open up for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We will take our first question from Brandon Folkes of Cantor Fitzgerald.

--------------------------------------------------------------------------------

Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [2]

--------------------------------------------------------------------------------

And congratulations on the progress during the quarter. Firstly, can you just talk about the data you have generated that you're using to help prescribers with a better understanding of how to convert patients onto Afrezza from the current insulin and any feedback you have received from the prescribers since you began this effort?

--------------------------------------------------------------------------------

Michael E. Castagna, MannKind Corporation - CEO & Director [3]

--------------------------------------------------------------------------------

Yes, Brandon. First, thank you for initiating coverage last week. I really appreciate it. And thank you for also visiting our site up in Danbury. That's a great question. And one of the things I'll tell you, the research that I think we're really happy with is we always feel like sometimes we're moving our scripts at a snail's pace, which is true, because this is a large market and we should be growing a lot faster. But I'm really proud that some of the insights we've gained is around the clinical profile of Afrezza. We don't need additional data to convince doctors that Afrezza is a great product. That's the good news. A lot of doctors understood the profile. They actually believe it's better. A lot of their objections to adoption were related to managed care reimbursement, patient onboarding, patient dosing, patient training. That's very different than talking about clinical data and clinical considerations.

The second part I'll mention is what you just asked about was the conversion from current insulin to inhaled insulin. And as some of you have been following the company, for those doctors that we target, I was really happy to hear doctors actually understand that conversion feature a lot more because when you look at the latest data on Afrezza, it's somewhere between a 1.5 and 2. And you really got to use each individual patient's results to make that judgment call. And that's one of the things you'll see in the Kipnes trial, where we took people on injectable insulin and we converted them at a 1.5 to inhaled, and we'll get those results shortly. And we think that will be very compelling to reinforce this exact nature. But a lot of the doctors we talked with actually understood how to do the conversion, and our messages are resonating with customers in regards to the clinical efficacy and the dosing of the product to appropriate dosing, which was a major issue historically. So we feel good about that. I think the proper training around inhalation, cough, probably a lot more noise on that than we've seen in the trial, I think that's really important to address. But I think it's a great question. I'm really happy that the customer feedback actually did call that out and confirmed that they're starting to understand that more and more.

--------------------------------------------------------------------------------

Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [4]

--------------------------------------------------------------------------------

Great. And one follow-up. You actually just -- my next question is you called out the coughing in your prepared remarks. Can you just give us some color in terms of how you are going to manage that feedback and how you manage those patients to make sure that they don't drop off Afrezza?

--------------------------------------------------------------------------------

Michael E. Castagna, MannKind Corporation - CEO & Director [5]

--------------------------------------------------------------------------------

Yes, yes. I think the first thing is reminding doctors of our clinical trial data, which we have thousands of patients have used Afrezza in trials. And in that, you saw a 3% cough discontinuation rate. So any doctor says, "Oh, I lost a patient for cough," it probably means if they lost 1 patient out of 3 that they've written, there's a problem. I mean they probably either didn't train them properly or the patient coughed and they felt they weren't getting their drug. And we've got to give clarity that it's okay to cough because 1 out of 4 patients will get a cough in the first 30 days, but really getting patients at a 30-day adjustment period where very few people have a cough after 30 days. And if they do get a cough, it's an intermittent -- it's not a hacking cough or mucus-producing cough. So I think it's really just clarifying because a lot of doctors are writing their first script right now, and they don't understand that sometimes. And so the experienced doctor, it's not as big of an issue. The less experienced doctors, it's building their confidence. So I think that's why I highlight this because it just came out of the research a little bit more than we expected, but we know from all of our clinical data that it can be addressed and controlled.

The second part of -- I'll answer your question is, we've actually put things in our Kipnes study as well as our Indian trial on how to address cough if it does occur. For example, take a glass of water before and after, evaluate split dosing. If it's 20 units of insulin at a mealtime, take 2 8s and a 4 or break down the inhalation. And BluHale, I think, will give proper inhalation technique, where someone's trying to inhale too strongly, they might try to get more force than is required. So all those things are going to our retraining as we think about our business model next year. It will be really important that a trainer that goes out educates that patient face-to-face on those particular issues. And I think that's going to really reduce that dropout rate.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

We will take our next question from Oren Livnat of H.C. Wainwright.

--------------------------------------------------------------------------------

Oren Gabriel Livnat, H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst [7]

--------------------------------------------------------------------------------

So a few questions. Just -- you did speak to the growth in this quarter and some of the pushes and pulls. And I'm just wondering, going forward, especially as we head into Q1 2020 and beyond with the (inaudible) changes to the free drug and maybe copay fitness program, can you just talk about how we should model scripts translating to revenue with your best guess at this point going forward?

--------------------------------------------------------------------------------

Michael E. Castagna, MannKind Corporation - CEO & Director [8]

--------------------------------------------------------------------------------

Yes, Oren, I wouldn't -- until we identify the new program that we're going to be launching, I wouldn't adjust your model yet. We're getting a feedback. Give me one second. Okay. So I wouldn't adjust your model yet because Q4, we wouldn't expect any major shifts from Q3. And I think by the time we get to the Q4 earnings call, we'll have clarity for you on how to interpret that.

I could tell you one thing we're considering. We used to have a -- we still have a program, we just don't promote it as much, is a free goods program and that was managed through our reimbursement hub. And that's at our cogs as opposed to a retail prescription cost. So the cost dramatically dropped by 2/3 just by moving it from one platform to another. But before we do something like that, we want to make sure all the kinks are worked out, and that's going to be able to launch successfully. So I wouldn't change anything yet, but know that will bring you clarity either in term before -- as it gets implemented or as we get to the earnings call.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

We will now take our next question from Pasha Sarraf of SVB Leerink.

--------------------------------------------------------------------------------

Dylan Edward Dupuis, SVB Leerink LLC, Research Division - Associate [10]

--------------------------------------------------------------------------------

This is Dylan Dupuis sitting in for Pasha. Want to try to get to a little more clarity around Brazil, what the early market looks like, what the potential ramp looks -- might look like. And then walk us through a little bit how you guys are recognizing revenue as part of the partnership.

--------------------------------------------------------------------------------

Michael E. Castagna, MannKind Corporation - CEO & Director [11]

--------------------------------------------------------------------------------

On Brazil, they just got the products through customs a couple of weeks ago, so I don't want to comment yet on their launch plans. I know they're finishing up pricing negotiations with the government. And I think until all that happens, we're just -- we know there's a lot of excitement down there. But I think we need another month or so to get the feedback on how that flows out. But otherwise, product's down there. It's gotten through customs into their warehouse.

--------------------------------------------------------------------------------

Steven B. Binder, MannKind Corporation - CFO [12]

--------------------------------------------------------------------------------

Yes. And I'll take the second piece of that, Dylan. So we recognize revenue when we ship the product or hand it off to our partner, Biomm. They take possession of it as it ships out of the United States. There's no right of return on the products, so that's why we recognize it right away. And we also don't have any growth to net. There's no rebates or anything associated with it.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

We will now take our next question from Bert Hazlett of BTIG.

--------------------------------------------------------------------------------

Robert Cummins Hazlett, BTIG, LLC, Research Division - MD & Biotechnology Equity Research Analyst [14]

--------------------------------------------------------------------------------

Just with regard to Biomm and the revenue there. I have a couple of different questions. Should we be considering the gross to net being exactly the same as it was this quarter? Or how should we think about gross to net with that particular component of revenue going forward?

--------------------------------------------------------------------------------

Michael E. Castagna, MannKind Corporation - CEO & Director [15]

--------------------------------------------------------------------------------

I'll let Steve answer that.

--------------------------------------------------------------------------------

Steven B. Binder, MannKind Corporation - CFO [16]

--------------------------------------------------------------------------------

So Bert, we tried to identify the U.S. Afrezza-only gross to net on the slide, which was at 45% for the quarter, so it's a little bit higher. So it actually created a 2% favorability for us. And also we talked about this quarter having some unexpected accruals that we took into the gross to net. So we don't project out and we don't try to do that as a general rule. So I'd say, you can look at the prior quarters, which, on a year-to-date basis, we had a 42% gross to net. They're going to jump around a little bit. So I hope that helps.

--------------------------------------------------------------------------------

Michael E. Castagna, MannKind Corporation - CEO & Director [17]

--------------------------------------------------------------------------------

I think it's safe to say we don't expect it to continue to be as high as it was in Q3. But until we get to Q4, we can't really discuss it.

--------------------------------------------------------------------------------

Robert Cummins Hazlett, BTIG, LLC, Research Division - MD & Biotechnology Equity Research Analyst [18]

--------------------------------------------------------------------------------

Okay. Then with regard to United Therapeutics, what are the particular -- the pacing that we can -- that you're expecting from the Treprostinil Technosphere program? How long will the clinical effort take? And anything more you can provide along the trajectory of the time line, that would be helpful.

--------------------------------------------------------------------------------

Michael E. Castagna, MannKind Corporation - CEO & Director [19]

--------------------------------------------------------------------------------

Bert, I can say a couple things. Everything is on track to date, so there's nothing that -- from what we've laid out a year ago to today, we've been actually ahead of schedule on certain manufacturing attributes. Products, they're up on stability. The plant is built. We're ready for FDA inspection whenever that occurs. That's all very strong. The clinical trial that's ongoing with TreT, I don't know if they have 7 sites or 12 sites, but they have enough sites up and rolling. Patients are enrolling. I know the preliminary feedback that we're hearing anecdotally is extremely positive. Some of the quotes I won't get into here, but the quotes from the patients are heartbreaking at the end of the day of how this is impacting their life. So we remain very, very excited about getting this to patients because we believe being able to dose higher level of Treprostinil will be important. And this trial will actually allow people after, I think, a couple of weeks of dosing to go to higher doses in the trial and follow up for a while. That's the pivotal trial and the switch study.

The next part we'll be running here in a few weeks will be the human factor study. MannKind is running that based on our history of our Dreamboat device. Our team is fully capable of doing that study. I don't expect a lot of risk. It should be relatively easy to do. That will be happening here in L.A. in a few weeks with people living with pulmonary hypertension.

And then after all this is done early next year, we'll run a PK study, and that will be the pivotal PK as a result of the dosing we're doing now and the preliminary data we had previously. And once that's done, we'll pretty much start to wrap up final -- any final attributes of the product and get ready to file.

So not a lot left. It's really just time-consuming, more than anything, but there's nothing here that's freight limiting beyond what we had to do first was get manufacturing batches up on stability.

--------------------------------------------------------------------------------

Robert Cummins Hazlett, BTIG, LLC, Research Division - MD & Biotechnology Equity Research Analyst [20]

--------------------------------------------------------------------------------

So just to follow on. There's discussions on Union Therapeutics call about material label expansion for Tyvaso. Are you expecting to be able to participate in that label expansion? And if so, how? And if not, if you have to do additional work, could you just describe the plans for that additional work as well?

--------------------------------------------------------------------------------

Michael E. Castagna, MannKind Corporation - CEO & Director [21]

--------------------------------------------------------------------------------

I think we're just saying you may need a bigger boat. So depending on label expansion, what they're going after, we built our plant to serve the current capacity of what we expect the Tyvaso market. If that label expansion dramatically improves their population penetration, such as the COPD and early treatment of PH, then that will dramatically increase the potential TreT royalties that we would expect at some point.

I can walk you through just how that happens. So they'll get their label update for Tyvaso and TreT. And then our label will be a 505(b) to that label. So when -- if you look back in growth hormone, I did this where we got improved with 2 indications. Our competition had 5 other indications. Because we were 505(b), we filed an amended application, got all 7 indications. It will be very similar process here. The question is, does it happen before or after trustee approval. And that's going to drive the strategy. Meaning, if their expanded label happens before our approval, by default, we should get that label. I'm not aware of anything that's different that wouldn't apply to us. If our approval happens and then their label approval happens after, we'd have to file an amendment to our application and get the label expansion. But it would apply to TreT is the short answer.

--------------------------------------------------------------------------------

Robert Cummins Hazlett, BTIG, LLC, Research Division - MD & Biotechnology Equity Research Analyst [22]

--------------------------------------------------------------------------------

Okay. That's helpful. Just one more for me. Could you give a little more granularity on the changes in marketing effort that you were referring to from Q3 to Q4? Just a little bit more granularity in -- on what you were discussing in the prepared remarks.

--------------------------------------------------------------------------------

Michael E. Castagna, MannKind Corporation - CEO & Director [23]

--------------------------------------------------------------------------------

Yes. I think Bert, when we did research in late July, August, we got the results in. I think I presented one slide back in September, which I'm happy to share with you offline. But it really showed that on 11 out of 13 attributes, doctors understood Afrezza was as good or better than the standard of care. The 2 areas that came in a little weaker were around dosing and the second one was around managed care coverage. And managed care coverage is way more important than dosing because the dosing one is solved with experience. We haven't updated to support that one. The managed care one was frustrating for us because we had launched several programs this year that we felt addressed this objection. And so when we went out and talked to some of the customers, we've realized, while we may have the right tools, how they were being communicated and how they were being marketed through the sales force was off a little bit. And so that's where the marketing team quickly came together with the change in marketing that we made. We have several new members in the marketing team in Q3. They came together and relaunched a set of new materials, predominantly focused around reimbursement support, prior authorization checklist, simple things like that, remessaging around our co-pay card and the bridge program. And we saw an immediate impact of that the following 3, 4 weeks post sales meetings. So in September, we actually retrained all of our sales force in 2- to 3-day meetings in separate weeks across the month of September. And so they have all their new materials that they can now roll to their customers. And some of it was additionally around messaging, around patient type 1, type 1 and a patient type 1, type 2 and getting more specific of who is the appropriate patient for Afrezza. So all that information literally rolled out in second and third week of September was being implemented. And we saw some nice trends as we exit September and came into October.

So I hope that gives you some clarity, but I was really focused on managed care and how to make sure that patients are covered. And that's one of our frustrations as doctors give you this excuse. And I understand why. And then we don't always have no prior authorization, but that -- when you look at our PAs for CVS or UnitedHealthcare Optum, they're pretty much a prior off the label. And given that 80% of the people on insulin aren't at goal, it pretty much get approved. And then we've been talking to payers about removing those PAs completely as we go into 2020, and we'll continue to enhance the managed care situation as we go forward. And like I said, I've talked to Prime Therapeutics, Optum, CVS, ESI all in the last 3 weeks. So we're continuing to look at how we enhance Medicare coverage and how we get these prior off perceptions removed or reduced. So including last week, I was at a payer ad board with 15 payers, getting really direct feedback on our budget impact model and how we can move this forward as it's been 3 years. And it's really ridiculous that some of these criteria is still out there. But we've got to remove the barriers that exist for the providers, either creating a better mousetrap to get them through and help them or just getting them completely removed from the marketplace, so that there's no prior offs at all.

So we think that's possible. We've seen that happen in a few plans. And we know 70%, 80% of scripts should go through within a couple of days upon PA submission. So we feel good about the ability. There's much more around the communication.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

There are no further questions.

--------------------------------------------------------------------------------

Michael E. Castagna, MannKind Corporation - CEO & Director [25]

--------------------------------------------------------------------------------

Oren, I do apologize. If you're still listening, we lost you on the queue. So we could talk offline if there's any other questions. Thank you.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

I would now like to turn the call back over to our speakers for any final or closing remarks.

--------------------------------------------------------------------------------

Michael E. Castagna, MannKind Corporation - CEO & Director [27]

--------------------------------------------------------------------------------

Thank you. No other questions?

--------------------------------------------------------------------------------

Steven B. Binder, MannKind Corporation - CFO [28]

--------------------------------------------------------------------------------

Yes, I think we're good.

--------------------------------------------------------------------------------

Michael E. Castagna, MannKind Corporation - CEO & Director [29]

--------------------------------------------------------------------------------

Thank you, everyone. Have a great afternoon and evening.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

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