MannKind Corporation (MNKD) Q4 2020 Earnings Call Transcript

MannKind Corporation (MNKD 1.71%)
Q4 2020 Earnings Call
Feb 25, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to MannKind Corporation fourth-quarter and full-year 2020 earnings call. As a reminder, this call is being recorded on February 25, 2021, and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call until March 11, 2021. 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 their 10-K report filed with the Securities and Exchange Commission this morning, the earnings release and the slides prepared for this presentation. Joining us today for MannKind are chief executive officer, Michael Castagna; and chief financial officer, Steven Binder. I'd now like to turn the conference over to Mr. Castagna.

Please go ahead, sir.

Michael Castagna -- Chief Executive Officer

Good morning, and thank you, everyone, for joining us today. We have never been busy and more excited about our future transformation. Let me start by acknowledging our founder, Al Mann, who passed away five years ago today. And it was also the day that I decided to join MannKind and take our journey forward.

We would not be here today without his generosity, of him, as well as his trustees, to have fully supported us through this transformation over the last five years. I want to thank everyone again and look forward to sharing with you the strategic direction we're laying out for 2021 and beyond. I want to go back to what we laid out in January of 2020, and that is our strategy around the focus of endocrine disease and orphan lung. Today, you'll start to see how that starts to shape out and what we did in 2020 to set us up for that direction in the future.

Additionally, you can see with our acquisition of Qrum, we'll not be limited by our current proprietary technologies, but we'll look for the best opportunities to bring shareholder value. And therefore, when we brought in clofazimine, it was an example of taking a nebulized product, and hopefully, we can apply our technology. But even if we can't, we believe it will be a great asset for patients in the future. And then, we will focus, execute and deliver to generate shareholder returns as we go forward.

The last thing I'd also add, as we begin 2021, I think you'll quickly see our technology is becoming a platform for us to partner with other pharmaceutical companies, a capability that we will be looking forward to exploiting as we go forward. I'll discuss this at the end of our presentation of '20. Now, let's reflect on 2020, where we had to deal with an unprecedented challenge of COVID. MannKind made tremendous sacrifices to ensure we came out of this stronger than when we entered.

We took extreme measures in terms of pay reductions, cost cutting. We developed ability to work from home and also revamped our commercialization model. All of this proved that we could make it through one of the worst pandemics in the country's history and also come out stronger and have a great Q4 here as we exited 2020. Additionally, when you look at our orphan lung strategy, United Therapeutics and MannKind delivered on all the key Tyvaso stability studies and clinical studies despite many clinical trials being shut down.

UniTher also purchased a priority review voucher for $105 million, which means we have to accelerate everything on our end by four months to get ready for launch at the end of 2021. And additionally, we were able to secure an opportunity to acquire QrumPharma for inhaled clofazimine in December. On the endocrine disease space, Afrezza had record quarterly net revenue of $10.1 million, up 30% versus Q4 '19, but sequential quarter growth, more importantly, of 38%, during a time frame that we told our full sales force would be out there but was not out there in full force due to the COVID shutdowns. Despite the decline in new patient starts in 2020, we were able to grow net revenue 28% versus 2019.

This is mainly due to the fact that we revamped our commercial model to ensure that patient onboarding experience was stronger, and we retained more of our patients and ensured proper dosing and training. That work paid off as you can start to see in 2020 a real transition versus 2019 in patient build and retention on refills. We also were able to engage with the FDA on the clinical protocol with our Phase 3 pediatric study. I look forward to sharing a little more insights shortly with you on that one as well.

And then, finally, we ended the year with an entry into a co-promotion with Thyquidity, which we're excited to be launching this week throughout our sales force. And not only is that the first time since I've been here as CEO that we have a full staff in all key leadership functions. Chief scientific officer, head of regulatory, medical, as well as reimbursement and access. We're very excited about the talent that's been joining the company and the direction we're going throughout all functions.

On the Tyvaso DPI time line here, you could see we completed all key opportunities there in Q4. UniTher just released the top line BREEZE and PK study results, which I'll talk about in a second. And the submission will be ready pretty much by the end of Q1 here. We expect hopefully that UT will get an ILD indication for their Tyvaso nebulized product here in April, and we'll be filing the NDA file with UT who are responsible with the BMF part of it, here in early -- in Q2 2021.

And we would expect the FDA to accept the NDA submission in the same quarter. In Q3, we'll be developing the manufacturing preclinical batches, as well as start to scale up our manufacturing facility as we expect the ILD of future indications will put constraints on demand. And therefore, we have to start expanding the factory now to hit those expectations. and then, finally, there will be a Q4 approval, if all went well with the FDA.

Let me talk about the top line results in case our shareholders and analysts have not seen them yet. First, the primary objective was achieved of safety and tolerability, which was a switch study from Tyvaso to Tyvaso DPI. Two things you'll notice is 96% of people completed this treatment phase, no serious adverse events. And also, we overenrolled at the end of the trial.

That's just great as we've had patients going on for a year, giving us great long-term data on dosing, as well as safety and outcomes. The secondary objectives were really around some of the efficacy and quality of life measurements around the six-minute walk test, overall satisfaction and PROs. In all three of these parameters, we improved over Tyvaso nebulized formulation, which really points to the fact that we get deep lung penetration, less variability and consistent dose-to-dose impacts when you inhale with our technology. The optional extension phase of 49 of 51 patients continue to go into that phase, and that's provided us great insights into what we think will happen in the real world when it comes to dosing and titration.

On the PK study, we didn't expect any changes there. But we had to confirm that the new manufacturing process on the scale-up versus clinical match each other, and that primary objective was achieved. And we look forward to getting that data out there with UT's future date. You do see patient variability continues to be less for Tyvaso DPI over Tyvaso nebulized formulation.

On the safety side, there were no significant findings, and these are all consistent with prostacyclin effects, as well as coughs that could happen with Tyvaso DPI or Afrezza. We're just now starting to see that some of the analysts are now looking to add the future Tyvaso DPI with this new data coming out into their models, and we recently had two upgrades in terms of price targets on our stock by Oppenheimer, as well as BTIG. I just want to say thank you for that. In one of these analysts, we saw that they increased their United Therapeutics forecast for Tyvaso revenue in the blue here.

And you can get a future glimpse line of this that the majority of these sales we expect to be the Tyvaso DPI formulation versus nebulized. We think this provides a great patient experience, will help improve patient retention and also drive a great opportunity to scale up new indications and new populations. The acquisition of QrumPharma and inhaled clofazimine was a milestone for our company. We purchased Qrum in December of 2020 for $12.75 million in cash and stock, and you could see how that was accrued for in the accounting here in Q4.

The inhaled clofazimine is in development pre-IND. The initial indication we're looking for is non-tuberculosis mycobacterium, or NTM. There is significant unmet medical need with no effective medications treating NTM. This product and the team there has worked to obtain FDA orphan designation, as well as QIDP designations, which really helps put us on hopefully a fast track at some point as we go forward.

We expect to enter this into Phase 1 here in late 2021, and the NIH is currently funding the development in TB. And we just got an early readout in the rodent data, which looks very positive. I'm also excited about Thomas Hofmann, the founder of Qrum, joining us as our chief scientific officer. Dr.

Hofmann is a pediatric pulmonologist and has extensive experience with inhaled drug discovery and development and has been extremely helpful, especially as we went with the FDA on our inhaled Afrezza product. To have a pulmonologist on staff is a great opportunity. So why do we want to be excited about Qrum? I think it's really important to understand why we -- one of the questions I get is why do we buy such an early asset? No. 1, we could see it's highly potent in the minimum inhibitory concentration activity versus NTM in both M.

abscessus and MAC types of NTM infections. There's a really efficient lung penetration with the nebulized formulation over the oral tablet formulation, and it has a long half-life. And it penetrates your lung in about two-and-a-half-fold oral clofazimine. The low dose and noncontinuous dosing may be possible, providing a nice treatment opportunity for these patients who are going to have chronic administration for an antibiotic for a while.

And they probably will come in and out of treatment as this is a really difficult bug to treat. The positive animal efficacy data in mouse models with M. abscessus and MAC continue to look positive, and the GLP tox studies are ongoing in one schedule and has the potential for a DPI formulation that the team is currently working on. And we'll keep you posted on how that proceeds in our pipeline.

Let me walk you through some of the early data that the team generated there at Qrum. So we are now going to refer to this product as MNKD-101 going forward, just so everybody is clear as we look at the pipeline. But this product was superior to oral clofazimine after 28 days of dosing. So these animals were administered 14 treatments every other day.

And what you saw was oral clofazimine had a minimal reduction versus saline, which is what you use in these studies. And this is consistent with previous studies, likely no effect due to the short duration of the trial as it takes a while for the body to build up lung concentrations in the oral tablet formulation. However, you can see a 99.99% reduction in MNKD-101 versus saline control. So significant reduction in the oral delivery in terms of the lung nebulized formulation.

And we would expect this to be maintained if we weren't able to get this to a DPI formulation. We know from our research that the population will be happy with the nebulized formulation, and they'll be even happier with the DPI. So we don't think it's critically good to DPI. But if we can do it, it will be really nice for patients and their experience.

Now, let me talk a little bit about Afrezza, now that we've finished off the orphan lung area. No. 1, we really established Afrezza now and should continue to expand sales in 2021 and beyond. When you take a look back over the last three, four years, we've been able to generate a significant amount of publications and presentations on efficacy, safety and dosing.

The underlying dosing parameters of Afrezza have been one of the biggest hurdles that the market didn't clearly understand, as well as the packaging. And all of those things have now been fixed, are now established, and we can communicate now appropriate dosing, safety and efficacy information and reference publications that have all of our data out there. They have base of prescribers of almost 3,000 doctors that we can now build upon and grow year over year for years to come. Our commercial medical teams are now stable, and the talent base joining the company is expanding rapidly.

The safety profile now being on the market is well established, which was always one of the questions with inhaled insulin. And we can now see that for thousands of patients over the last five years, no surprised safety signals have arisen in all of our surveillance and monitoring. We are looking to move toward expansion now with indications in pediatrics and are also evaluating an investigator collaborative study for gestational diabetes here in 2021. Let me flip over and talk about the pediatric design.

We just recently received FDA feedback, as well as -- I guess, in the Zoom meetings these days with the FDA, and we were really happy and pleased with the interaction, the insights and discussion of how we take Afrezza forward with them, especially as it pertains to dosing and conversion, which we think is one of the bigger hurdles that patients and doctors have had out there in the marketplace. We are looking to do a usual care run-in with a switchover randomization to Afrezza plus basal versus multiple daily injections, and what's really important to us is that very first dose in the office and showing that patients can tolerate and not have any safety concerns on a higher dose rate at the start. This will be the first time we're running the study this way. We think based on all the data we've generated; this is warranted at this time.

Well, then at the end of 26 weeks, everybody in the study will be able to scroll over to Afrezza, and we're going to collect safety data for up to 52 weeks on approximately 260 patients. Then they'll be discontinued, and there will be a four-week follow-up for FEV1 at the end of this trial. We're really happy with the design. The FDA appears to agree with this design, and we're just finalizing the protocol based on the FDA feedback.

We expect to start this trial in late 2021. Now, what are we doing here to drive performance for Afrezza tomorrow? No. 1, increased awareness. There are several opportunities this year that we've already taken advantage of and sponsoring Taking Control of Your Diabetes, College Diabetes Network, as well as CME to educate the marketplace out there.

There's four CME events that will take place in Q1 and Q2. Additionally, we've been in many discussions with CMS on thinking about how Afrezza can have a better position on the Medicare population, including the $35 a month pilot program that CMS is running. And presenting all of our clinical data to the payers and making them aware of all the new data we generated has been critically important over the last three months. We're also looking to meet with the FDA and have a meeting set up for BlueHale for a consumer launch edition to make sure that this can go forward in a safe and effective manner for consumers.

Digital management of diabetes is here to stay, and the integration with CGM is going to be critical. And we believe that this is taking a long time to see the day of light in diabetes. But BlueHale dose detection and proper inhalation are all going to go very well, and you can see your CGM live. And this product is on its way to its success here in 2021.

We also launched a new reimbursement model in Q4 called AfrezzaAssist that was piloted in Q4 and launched in Q1. And you can see to the right here, in the first -- pretty much quarter and now in January, we estimated we received, in February and March, a pretty significant jump in moving our free goods from the marketplace, which was out there in the specialty pharmacies and retail, into a centralized pharmacy at a much lower cost, which is why you've seen a decline in prescriptions here in January. And you didn't notice it as much in December because there was only new patients last year. But starting January 1, all patients had to move to a closed pharmacy, which is not reported in Symphony.

And you can now see our cash pay and our free goods significantly jump in Q4 and Q1. We now have this new Afrezza. So we expect to be able to turn these patients into paying patients and will provide them free drug, if necessary. And if they can't get approved, at some point, we'll move them into a cash pay program.

This part was off to a strong start. We've had a lot of our reps have at least one patient come in. There's been almost 150 doctors in the first 6 weeks here in the new year come into new programs. So we're excited about what we see the in early days here.

We also want to strengthen advocacy for inhaled insulin. This is across patient advocacy organizations, the payers, as well as the doctors. We think it's time the thought leaders start getting on board and sharing the information and educate their peers around Afrezza, as well as the organizations to start lobbying for access to inhaled insulin with the payers. And I'll close out our endocrine focus here on the co-promotion with Thyquidity.

This is indicated for hypothyroidism. It's really meant to help the people that are struggling with dosing and precision of dosing, and this liquid formulation will be really important in the pediatric segment. We believe that's where the biggest opportunity is, and this allowed us to expand our sales force footprint into the pediatric endocrinology years ahead of our launch for Afrezza. Let me remind you, we are only focused on Thyquidity in the pediatric segment only.

And when Afrezza is approved, we will now have infrastructure and relationships to successfully launch Afrezza in a couple of years. On the financial impact, one of the questions we get is, what does this mean to MannKind? We receive quarterly payments for our promotional activity, as well as royalties on gross profit. This launched this week. And I can tell you, I've talked to a few providers, they're very excited.

They're identifying patients, and I love to see that our reps and managers are arguing over who got the first script. So at this point, we look forward to watching that launch and seeing the impact our sales force can have to help patients suffering from thyroid disorders. I'm going to turn it over to Steve to take you through our 2020 financials.

Steven Binder -- Chief Financial Officer

Thanks, Mike, and good morning. Very pleased to review our fourth-quarter and full-year 2020 financial results, which show record quarterly Afrezza net revenue, continued Afrezza gross margin expansion and our continued focus on efficiently managing our cash resources. I will also discuss some details of the nonbinding letter of intent we have entered into for a sale leaseback of our Danbury manufacturing facility. During this morning's call, I'll be discussing select financial highlights and ask that you supplement this call by reading the consolidated financial statements and MD&A contained in our 10-K, which was filed with the SEC this morning.

Let's start off by looking at revenues for the fourth-quarter and full-year 2020. Starting with the table on the left, which is our fourth-quarter results, Afrezza net revenue was 10.1 million versus 7.8 million in 2019, a growth rate of 30%. The increase was driven by volume growth from underlying Afrezza prescription demand, which was up 5% year over year, a more favorable gross-to-net percentage 38% versus 44% in 2019, the continuation of a favorable mix of higher insulin unit cartridges; and a 1.1 million accrual reversal related to the termination of our prior-year free goods program as of December 31, 2020. The termination of the program is anticipated to negatively impact of TRx by approximately 15% in 2021 versus 2020.

But remember, these were free prescriptions and not generating revenue in 2020. So our net revenue will be positively impacted as a portion of these patients will obtain insurance coverage with the help of our AfrezzaAssist patient hub or purchase Afrezza through our cash program. Please note that an increase in wholesale inventories in the fourth quarter of 2020, which levels are anticipated to be reduced in the first quarter of 2021, contributed approximately $0.5 million of Afrezza net revenue in the fourth quarter. Additionally, the COVID-19 pandemic continued to impact our sales and marketing efforts in the fourth quarter.

Physician access, including both face to face and digital interactions, continued to be constrained to varying degrees across different geographies, which impacted the effectiveness of our sales and marketing efforts. Looking at full-year 2020 comparisons for Afrezza on the table to the right. During the pandemic year, Afrezza net revenue grew 28% versus 2019, driven by volume, favorable cartridge mix, price, decreased gross-to-nets and the reversal of the free goods accrual that I just mentioned. Moving to revenue from collaborations and services, which for the fourth quarter was 8.4 million versus 8.2 million for 2019, while full-year 2020 revenue was $32.8 million versus $37.7 million for 2019.

The reduction in the 2020 revenue year over year was expected and was mainly due to the recognition of the $10 million United Therapeutics research agreement over the period of the fourth quarter of 2018 through the second quarter of 2019, when our performance obligations were substantially completed. This slide shows the success of our efforts to lower our gross-to-nets. The gross-to-net reductions were 38% of Afrezza gross revenue for the fourth quarter of 2020. Normalizing the fourth-quarter Afrezza gross revenue and net revenue for the exclusion of the free goods program termination accrual reversal, the non-GAAP gross-to-net percentage is 41%, consistent with the third quarter but favorable to the first and second quarters.

The favorable trend in gross-to-net percentages primarily resulted from our strategy of shifting business to specialty pharmacies as opposed to wholesalers with higher fees, a decrease in the Medicare rebate accrual and the downward trend of our co-payment assistance program as patients face lower deductibles in the second half of the year. As Afrezza revenues have been increasing, so does gross margins. This table shows gross margin for the first-quarter 2019 to the fourth quarter of 2020, where our gross margin reached 64%. If we adjusted for the $1.1 million accrual reversal due to the termination of free goods program in the fourth quarter of 2020, the non-GAAP gross margin for the fourth quarter would have been 59%, still a healthy increase from the third-quarter gross margin of 51%.

Moving on to operating cash efficiency. In the next slide, we compare the full year of 2020 versus 2019 and 2018. The top of each vertical bar is Afrezza net revenue, which has almost doubled in two years to 32.3 million. And the bottom is non-GAAP net cash used in operating activities, which has decreased by almost half in two years.

The increase in Afrezza net revenue helps drive down the cash burn. But to a larger extent, we've been focused on managing our operating spend, and it shows in the reduction to 53.1 million for the full-year 2020. The bottom of this slide, we show our average quarterly non-GAAP net cash used in operating activities. We have been running fairly steady without large fluctuations on a quarter-by-quarter basis in 2020, resulting in a quarterly average of 13.3 million.

And lastly, we ended 2020 with $67 million in unrestricted cash on the balance sheet, bolstered in the fourth quarter by a 12.5 million milestone payment from United Therapeutics and 10 million related to the funding of the tranche two of the MidCap credit facility. During the third-quarter earnings call, we discussed that we were considering a sale-leaseback of our Danbury manufacturing and R&D facility. We have now entered into a nonbinding letter of intent to sell Building 1, which is our manufacturing facility. Please note that we are not slowing the manufacturing equipment contained the building, just the improved structure and land.

We are currently in the due diligence phase, which is expected to be completed by the end of the first quarter, resulting in a signing of a definitive agreement. The expected sales price is between 95 to $105 million with a 20-year lease term, four five-year extension options and an annual rent at the start of the lease of between 10 and $11 million annually. We plan to use the proceeds for general corporate purposes and may partially pay down the mid cap senior secured debt. There is no assurances that we'll be able to sign a definitive agreement on the terms described, and finalization is also subject to satisfactory completion of due diligence by the buyer.

Before handing the presentation back to Mike, let me summarize our financial progress. First, we had record quarterly Afrezza net revenue even when we continued to experience the headwinds in the COVID-19 pandemic. Second, we continue to see improving Afrezza gross margin and gross-to-nets. Thirdly, we remain extremely diligent in managing our cash while supporting commercial efforts to grow Afrezza, manufacture Tyvaso DPI through United Therapeutics and move our pipeline forward, which Mike will discuss in a moment.

And lastly, we are progressing on an approximately 100 million non-dilutive financing using a previously secured asset. Thank you. Let me turn it back over to Mike for some additional comments.

Michael Castagna -- Chief Executive Officer

Thank you, Steve. And for those of you who don't know, we've invested over $250 million in Danbury building out the infrastructure to scale for Afrezza, and as well as Tyvaso DPI. We feel it's the right time to maximize the value of this asset as the market is ideal for these types of transactions, given the COVID headwinds that are experienced in office and traditional retail real estate. This is a long-term commitment not only on our part but the part of investors to look out 20 years and believe that this will be a technology here to stay with multiple revenue expansion opportunities in order to pay back the terms that we're signing up for.

This does not change our day-to-day operations. We will still be investing with UT to expand the facility for Tyvaso DPI. This provides us the capital to hopefully run the company toward cash flow breakeven. Now, let me talk about the pipeline and collaborations.

First, in the endocrine, you'll see a new view here of what we laid out versus traditional, and this should be updated on our website today, if not already. No. 1 is Afrezza is approved in the U.S. and Brazil, and we continue to progress there in those markets and grow.

No. 2, we expanded with Thyquidity to give ourselves more opportunity with our current sales force infrastructure that we invested in. The third part is around indication expansion. We're currently focused on the pediatric segment and excited to get this off and work with some very reputable third parties to get this successfully launched hopefully in pediatrics in the coming years.

I can tell you the early feedback from sites and the CROs that we've interviewed, it is very exciting to get this product into pediatric candidates as soon as possible. And then there's international expansion with India and Cipla, where they started a Phase 3 trial this year that should wrap up pretty quickly given the population size in India. And we're trying -- we're experimenting there -- or executing, I'll say, with a new dosing protocol that we did here in the U.S. as a pilot study, and that dosing protocol would be Type 2 patients in a larger study.

And we look forward to getting that data out there in the public domain as I think it will really show aggressive titration drives dramatic impacts with Afrezza in inhaled insulin. and then, we expect our partner in Australia, AMSL, to also file Afrezza there this year in the first half of 2021, if we can. In the orphan lung space, you see five opportunities here. No.

1, we've talked about Tyvaso DPI with United Therapeutics in hopefully not only PAH but PH-ILD and future indications that they're working on. MNKD-101, which is also known as the clofazimine/Qrum, in NTM will rapidly progress to Phase 1 in Q4 of this year. Then there are three other programs that we've now prioritized to focus on MNKD-201 in our idiopathic pulmonary fibrosis, which we are not disclosing for competitive reasons. MNKD-301, which was previously disclosed as DNase alfa for cystic fibrosis; and MNKD-701, which, again, will not be disclosed for competitive reasons.

So you can now see that we have five shots on goal with orphan lung disease that has really bolstered up over the last couple of years as we focused on building up core Technosphere programs. The other thing I want to highlight, and we don't talk about it in a while, is the cannabinoid space and the Receptor Life Sciences partnership. In this agreement, we will receive milestones and royalty payments as it moves forward toward progress. And we expect to be the CMC backbone for RLS as they move forward.

You may not have seen, but they recently have a new CEO named Mark, who joins us with tremendous pharmaceutical industry knowledge. We've already had our first couple of meetings with them, and we're excited about the direction and the feedback they've received with the FDA to bring a cannabinoid Technosphere product forward to the market through an FDA regulated pathway. Their first focus is on panic attack, and there's a proof-of-concept study. And we look forward to working with the team there to move this product forward.

The second program people may not realize was something that we sold to Fosun a few years ago, and MannKind is eligible for royalty payments. This is a small molecule enzyme inhibitor for oncology, for solid tumors, in particular, which was fast-tracked by the FDA. We will get mid-single digits in royalties if that continues to progress and get approved ultimately by the FDA. So we see-- you see multiple shots of revenue -- expansion opportunities over the coming years between our current marketed products, our orphan lung pipeline, as well as third-party programs that we partner out over time.

One of the early indicators of the future for us is how many formulations we're working on. So we don't always disclose exactly who or what we're working with. But you should know in 2020, we worked on 5 different formulations, several of which were COVID-related that we never announced. But we do know that we worked in several therapeutic opportunities there.

And already in 2021, we have about 10 formulations on goal that we're working toward. Some of those have been completed. Some of those are in the process, and many of these programs are partnered with external partners that we hope will turn into future business development deals that we'll announce later in 2021 and beyond. Additionally, there are four assets that you probably saw in our pipeline slide before around epinephrine, Palo, sumatriptan that we will look to license out to a partner -- our partners over the next few months, if all goes well.

The other part of this you start to see is our Dreamboat family here on the left and our single-use Cricket family on the right. We believe Cricket provides a real nice opportunity for some of these pipeline compounds, as well as the formulations we're currently working on for other companies. So I think you'll continue to see more on the Cricket side. And we think this is a great opportunity for acute use products, especially like the RLS opportunity.

As we look to 2021, I highlighted many of these milestones. But you can look here and see, we have a busy year ahead of us, and it's only February. We continue to progress very rapidly on many fronts in terms of the pipeline, the endocrine end market and products, as well as just corporate priorities. The only thing I didn't talk about is new data coming out at ADA and ATTD, which will have data coming out in the June -- late Q2 or June time frame.

And we're very excited about this data looking at time and range in Afrezza, as well as the pediatric data in terms of the PK studies generated so far. I'll just remind people that we also have a $25 million debt tranche available upon Tyvaso DPI approval. So I hope what you see is the company is in a solid financial position. It's taken us a while to get to where we are, but we're really proud of the work that the team has done here across the company in all functions.

And I just want to thank Steve for being a fantastic partner and his team as we really have transformed MannKind from a struggling company to a major growth company as we go forward for years to come. Thank you for all of your time today, and we look forward to taking questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] And we'll take our first question from Brandon Folkes with Cantor Fitzgerald.

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Hi. Thanks for taking my question, and congratulations on the progress. Maybe just three from me. Firstly, just on Afrezza.

On the gross-to-net, how should we think about this in 2021 and beyond? And maybe I'll just ask all three upfront, if that's OK. Danbury, you talked about general corporate and debt paydown. Can you provide some color in terms of how much you expect to reinvest in the business from that should it go through? And then, lastly, on business development, is the priority in-licensing at the moment versus out-licensing? And with that pipeline, I know in the past, you had talked about sort of getting some of the early programs to proof-of-concept and then looking to partner. Has that changed now, just given all the progress you have made over the last maybe 12 to 18 months?

Michael Castagna -- Chief Executive Officer

Just to make sure I heard your question, so I got one on gross-to-net, which Steve will answer. Another one is use of proceeds and how we think about that. and then, the third one is around the pipeline and how we -- our previous communication around getting to Phase 1. Did I capture all three?

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Yes.

Steven Binder -- Chief Financial Officer

Yeah. So let me take the first one on gross-to-nets. So our expectation for 2021 is that we'd have gross to nets between 40 and 42%. So we continue to work on strategies to drive down our gross-to-nets.

Sometimes in the marketplace, there may be transactions that happen that help us, and sometimes they may go against us. So that's why we're estimating between 40 and 42% for 2021.In terms of Danbury reinvestment, Mike, I mean, do you want to take that?

Michael Castagna -- Chief Executive Officer

So I think on this, we'll continue to be prudent with cash burn, and just because we have more cash doesn't mean we want to spend a lot more money. I think we really want to make sure the company is in a secure cash position for the long term and that it provides us opportunities as we see if we could grow the business faster or redeploy capital to advance the pipeline faster. We're in a position to do that. So back to your question on the BD side, if we want to take something now to Phase 2, Phase 3, we believe we'll have adequate capital resources to do that between the cash on hand, plus the royalties coming in, in the future.

So we haven't changed our strategy. We continue to want to fund the pipeline. But you see the narrow focus on orphan lung disease is we do expect to continue to bring those products forward and probably build out commercial infrastructure down the road for clofazimine, as well as the other ones we're working on. There are -- the four molecules I recommended out-licensing, we are still debating internally.

Do we go ahead and fund the sumatriptan to Phase 1? And do we have a partner lined up that will take that on and partner that out? So that's under discussion right now. So I won't speculate on what happens. But I'll just say those programs, we believe we can partner with somebody at this point, let them fund the Phase 1 and collect the upside. And we'll share in the success on those products.

But the orphan one that we announced today, most of those we would look to bring forward. Maybe one or two of those will go into a partnership, but we'd probably keep one or two for ourselves. So that's how we're thinking about it, but we'll always be opportunistic and open-minded. But right now, things are looking pretty good for the company to be able to fund our innovation.

And our job is to make sure we deploy capital efficiently and effectively to grow shareholder value. So that's our main focus right now.

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Great. Thank you very much.

Operator

And next, we'll go to Oren Livnat with H.C. Wainwright.

Oren Livnat -- H. C. Wainwright & Co. -- Analyst

Thanks. You've got a lot going on, all of a sudden or at least, it seems like all of a sudden to us. If I could just follow up real quickly first on Afrezza to follow up on Brandon's question about gross-to-nets. I guess I just want to clarify.

Separate from the actual gross-to-nets, just in terms of realized value per script in terms of the scripts we see, given you're fully transitioning now, what started already, it looks like in 4Q now fully into Q1, the switch of free drug into the specialty pharmacy. We should expect to see an additional incremental increase in Q1 and then going forward, the sort of realized net value reported revenue per like IQVIA script, correct?

Steven Binder -- Chief Financial Officer

Yeah. So basically, I wouldn't worry about as much Q4, Oren. But starting here in Q1, because a large majority of these patients were refill, not new patients, and starting in Q1, January, they shifted either out of the market because we're no longer giving them for drug at retail, or they'll find out when they need their -- a lot of patients bought Afrezza and any insulin. So once they run out of that supply, they'll hopefully come in back into our reimbursement hub.

We'll now make sure -- one of the No. 1 things we found was PAs were not being done. So we're providing free drugs that would have been reimbursed by insurance. So we changed that process to ensure that PAs are now done, and we can see transparently why the patient is getting rejected and what we need to do to help get that insurance coverage.

Because when we talk to insurance companies, they want to see the demand. So long story short, here in 2021, majority of the scripts, I'll say, 98%, will be paid prescriptions. So you should see our average revenue per script go up in your models. The free goods and cash do not show up in Symphony or IQVIA.

Oren Livnat -- H. C. Wainwright & Co. -- Analyst

OK. So if the volume went down 15% all else equal in Q1 versus Q4, your revenue would be flattish, correct?

Steven Binder -- Chief Financial Officer

Correct. Roughly correct, yes. There are some equal percentages but not enough to make a difference.

Oren Livnat -- H. C. Wainwright & Co. -- Analyst

OK. and then, on to more exciting things. Tyvaso DPI, I know you're limited in what you can say, given that you have a partner here. But just, it seems like a crucial part of this exciting revenue story is both in the expansion of the indications in the April time frame for Tyvaso and also UniTher's ability to file the DPI formulation with both indications included, PAH and the PH-ILD.

Can you just remind us why UniTher is so confident in the ability to sort of immediately after the PDUFA include both indications in the DPI? Did you not need -- or do they not need the study, the DPI in that PH-ILD population at all? Is it just a bioequivalence pathway? Or did they in fact include some of those patients in that work in BREEZE or other places?

Michael Castagna -- Chief Executive Officer

Yeah. On that one, there's two things that I think are relatively easy. No. 1 is we actually went to the FDA in a pre-meeting -- well, UniTher did.

And they went to the FDA and asked in the pre-NDA filing, can we expect to get the ILD if it was approved? For Tyvaso, would it be extrapolated to Tyvaso DPI? And the FDA came back in that response and said yes. So that gives us the confidence of why. The second part is, to your question, is we did include ILD patients in our human factor study so that we know they can handle the device and inhale properly. and so, that was something that we did proactively to make sure we were able to file with ILD.

But we did that study back in Q3. So there are two things we did to make sure there. And when you think about the products, whether it's Tyvaso being equivalent for PH or ILD, it's the same molecule. It's making sure we deliver consistently and that the dosing is roughly correlated.

And I think that you can expect as UT goes forward with other indications, we would continue to hopefully file those for the Tyvaso DPI formulation is the expectation. So yes -- and I've done this in other biologics in previous lines where we can extrapolate these situations, whether that's 505bs, or NDAs.

Oren Livnat -- H. C. Wainwright & Co. -- Analyst

OK. So the fact that in their increased study, they saw higher dosing, let's say, higher micrograms per day, in this population versus PAH. That's fine because your product essentially -- the DPI is essentially bioequivalent. So if they dosed higher on Tyvaso and they dosed higher on yours, that's still apples-to-apples and all good in terms of dose proportionality with their product?

Michael Castagna -- Chief Executive Officer

Correct. And remember, we proved that we could dose much higher than Tyvaso and nebulized up to 150 micrograms with no safety concerns. So I think what you'll see is even as patients dose higher, you're probably going to see better tolerability. And we can see that already with UT.

And I think we'll publish that -- present that data as what happened in the extension phase, how high did patients go and how tolerable was it. And it's really good to have that. now, we have patients going on over a year in our extension phase. So we're very excited.

UT is very excited. They're a great partner, and we look forward to continuing to work with them.

Oren Livnat -- H. C. Wainwright & Co. -- Analyst

All right. And I won't hog any more time. I'll jump back in the queue. Thanks.

Michael Castagna -- Chief Executive Officer

Thanks, Oren.

Operator

And next, we'll go to Thomas Smith with SVB Leerink.

Dylan Dupuis -- SVB Leerink -- Analyst

Hi. Good morning. This is on Dylan Dupuis sitting in for Tom. Just a couple of questions just real quick, first on the United Therapeutics partnership.

Can you give us a little bit of a sense of the differences in tolerability profiles between Tyvaso and Tyvaso DPI? And how much of an opportunity you're expecting to see based on patients now being suitable for the DPI formulation? And then a follow-up question on the pediatric study. Can you give us an idea of how large of a study you're considering and what the titration plan is for these patients? And what are you going to be incorporating from Dr. Levin into this?

Michael Castagna -- Chief Executive Officer

Dylan, the last question you got there on the –

Dylan Dupuis -- SVB Leerink -- Analyst

On the pediatric study, how large of a study you're anticipating this being and whether -- what the titration strategy is for the program? And whether you're incorporating the findings from Dr. Levin's study that was presented at ADA a couple of years ago?

Michael Castagna -- Chief Executive Officer

Perfect. OK. So on the tolerability, I would say, you can see that the majority of patients on switching from Tyvaso to Tyvaso DPI, I think it was 49 out of 51, we're able to complete the three-week switch. So that shows you the majority of patients will tolerate dried powder who are already taking a nebulized formulation.

So that's pretty well established at this point. And not only that, you can see the percent of people -- you will see very shortly that a large majority of patients who can tolerate the Tyvaso DPI are going on over a year. So we don't expect -- the eligible patient population that cannot tolerate Tyvaso DPI, we think, will be very low. And then there's a separate question here that we don't have data on with UT, which is how a naive patient does who's titrating up feel in terms of tolerability versus Tyvaso nebulized versus Tyvaso DPI.

And I think that will be work that UT works on over the coming years. But in general, we haven't seen any signal or concerns between the two formulations people get cough on nebulizers. They get cough on DPI. They get treprostinil-related flushing and things like that.

So the same thing happens. So we do think that less variability is important. And we do believe, hopefully, better lung activity will result in great outcomes. And I think that's what you saw in the early release of UT.

So that good lung penetration, we think, will be great. And if we can have less systemic absorption, that's even better. So that we think is really important. The next part of this is peds.

and so, on that one, it's roughly a 260-person study. We expect about 20% dropout rate. So that'll tell you, we got to get to but 210 to 220 in the final numbers. We are down to two finalists in terms of CROs which will be selected very shortly.

We're waiting on FDA feedback to make sure we didn't have any other major protocol changes. And I can tell you, the FDA has been very collaborative on this study. And the titration protocol is probably the most important discussion we had with the FDA as we basically reinforced that we don't want patients to under-dose. We've seen that consistently in some of the trials we've run either historically as MannKind or even in the PK dosing, as well as the Yale study we did on integrated within insulin rhythms, the under-dosing of Afrezza really does not cause a strong reduction in postprandial control.

So we really want to show that the first two hours post-inhalation, you have really strong postprandial control. And we think that first dose in the office is really critical. And I believe we have a path forward with the FDA. We literally just got comments back last night, and I have not gone through all of them.

But the high-level feedback from my team has been -- we got a great path forward. We have some work to do on the titration, but we believe we'll get to a good solution with the FDA. And it's really starting out the trial right. So as long as we can start off right, we believe we'll have really fantastic results.

If we continue to under-dose, we're not going to be as happy, and we're not fully going to let that happen. So I hope that answers the question on peds, but we're excited. We've done enough small pilot studies over the last three years to show what the dosing should be, and we've done a lot of retrospective analysis. And we believe the study and really the first head-to-head large trial with Type 1s with new dosing will really show significant improvements in outcomes versus what we've seen historically.

Dylan Dupuis -- SVB Leerink -- Analyst

Great. Thank you very much.

Michael Castagna -- Chief Executive Officer

And kids is where it's at, right? So we got to make sure we do great in kids for the future of the franchise. That's where you're going to transform the standard of care over the next 10 and 20 years.

Operator

Right. And next, we'll go to Steven Lichtman with Oppenheimer.

Steven Lichtman -- Oppenheimer & Co. Inc. -- Analyst

Thank you. Hi guys. Mike, you've been putting pieces in place around Afrezza with AfrezzaAssist and BlueHale. Wondering if you could just update us on the commercial side, any perspective on the changes Alejandro has been making and any impacts you're seeing on the ground?

Michael Castagna -- Chief Executive Officer

Yeah. I think the No. 1 thing Alejandro has been bringing is I call them -- he calls it a muscle reflex. We're really starting to get everyone in tune across all territories, all geographies, all managers moving in the same direction to the same sheet of music.

I think that's one of the big things that we weren't always consistent across the field, that we really spend a lot of time on the new year -- we just had our sales meeting, which was like a couple of hours each week over many weeks. And so, I think bringing that discipline and bringing the business acumen down to each manager and helping them understand this is their business to run has been a very nice shift that I've seen. I think the second part of this is having the ability to invest when we see opportunities. We do not always have that opportunity.

In fact, it's always been a cost reduction mode, whether it was last year because of COVID or the year before because we didn't see the DTC. So I think right now, what we're telling the team is, hey, show us what's working. You have your budget, but we have capital, though, to deploy if we could start to see things work. And I think that's really what he's trying to show is, hey, this works really good.

For example, we got telemedicine we launched. How do we show that that works? As that works, we can scale it up. But if it's not working, we're not going to continue to push money there. But we think these are the opportunities now.

For example, we just scaled up to more than half the country on a pretty large digital campaign. We had these pilots in five states in Q4. It looked great, and the team just scaled it up last week. So I think you'll see a lot more opportunities of what's working and what's not working and then how do we disproportionately invest there.

So I think that's where you've got to run the business. I think the second part of this would be the overall reimbursement process, so having a smooth process, getting the insights out of the AfrezzaAssist program and being able to share that back with payers. Jen Lendon just joined us on the payer side. She's a great asset and a great leader.

And I think just having somebody full-time dedicated to building those relationships with the payers and taking all these data in place and showing them how their PAs aren't helping patient care and streamline those will really go forward there. So I think you'll see quite a few -- not everything is going to happen in Q1. So we're not trying to over-project an immediate bump here. But I think what you're seeing is that transition from Alejandro in the second half of last year getting his grounding to now starting to implement his plans here in Q1, and we should see a steady growth.

The No. 1 thing we're all dealing with is COVID. And I think just seeing that our reps can get out there and make impact is the No. 1 thing we're waiting on is -- they're out there, but there's still restrictions across the country.

So I think just as we get out there and as we scale up, we have exponential growth opportunity expansions that we're looking at.

Steven Lichtman -- Oppenheimer & Co. Inc. -- Analyst

Got it. and then, Mike, you mentioned ADA. I wasn't sure if you mentioned some of the areas of focus that we could see in terms of paper presentations. What should we be looking for generally?

Michael Castagna -- Chief Executive Officer

Yeah. I think there's two things. It's interesting because one of the things we learned with our interaction with the peds program with the FDA is they are not there on time in range and using CGM to measure some of these, I'll call them, new ways of looking at diabetes control. The FDA does not feel like these metrics have been validated.

And therefore, they're still at the traditional A1c reduction mindset, finger sticks for hypoglycemia, which was unfortunate because we had designed the peds study to really show significant advantages with CGM. But that is not where the FDA is. So we're happy to revert back. We still think we're in a good spot.

We will still have CGM data. And they also agree that in the next two, three years, they will likely shift to physicians who collect the data. And we'll deal with the statistical plan as -- right before submission. But at this point, they're not correlating time in range to outcomes or time less than 70, for example, on how we measure that.

So that, to me, is a big surprise in terms of where they are. But they'll catch up to the market. They just need to see more and more data surrogates to correlate it to. But I think what you'll start to see is we're ahead of this one.

We started doing CGM studies with Afrezza over the last three years. I think we've had three studies presented and almost published now. And I think you'll see here at ADA -- one of the interesting insights we got is around nocturnal hypoglycemia, and we think that's going to be critical for children. But we did see some opportunity there to improve or reduce nocturnal hypoglycemia with Afrezza.

And that's one of the data sets that we generated, as well as improvement in daytime time in range. So those would be the two areas that you'll start to see the headlines here at conferences.

Steven Lichtman -- Oppenheimer & Co. Inc. -- Analyst

Great. And just lastly, Steve, gross margin continues to push up higher here, obviously. Can you remind us sort of the runway here? Anything we should be thinking about in terms of any step-up in cost of goods required over the next several quarters? Or should we continue to see a nice pickup?

Steven Binder -- Chief Financial Officer

From Afrezza's perspective, we'd expect the cost of goods to remain within the same range as we saw in 2020. We will be scaling up manufacturing for Tyvaso DPI. So there will be some shifting of costs within the manufacturing operations. So I will put that question out there.

We haven't totally calculated what that will be, but there should be more absorption going to Tyvaso DPI. But we'll see that in the year. So I would expect 2021 to be very similar to 2020 for Afrezza.

Michael Castagna -- Chief Executive Officer

Yeah. And the great thing about that, Steve, is the majority of the first three quarters will be Afrezza still in terms of production. And in Q4, we'll start ramping up. So there won't be a significant shift from where we are, but we're working on the commercial supply agreement with UT.

And that will -- once we get all that finalized, that will bring some clarity that we'll share with you. But no significant -- you'll see a little bit year over year on employee cost, but nothing as to the scale-up with sales force last year. So you'll start to see that flow through this year, but nothing significant this year. We continue to look at managing the costs very prudently.

So we'll watch that closely.

Operator

OK. Next, we'll go to Bert Hazlett with BTIG.

Bert Hazlett -- BTIG -- Analyst

Thanks. Just a couple of quick ones in terms of timing. If everything goes well with regard to the sale-leaseback, at what point do -- should we actually start modeling the impact of that? And then, with regard to RLS, when should we get the data? Again, I was cut out, so apologies if you've addressed these already. And I have one or two more.

Steven Binder -- Chief Financial Officer

OK. On the sale leaseback, pretty much after you see it's announced, you could start amortizing the monthly repayments. Pretty sure we estimate it there. So that's where -- once you see that finalized, then you can start --

Bert Hazlett -- BTIG -- Analyst

3Q -- 2Q. Any sense of the timing?

Steven Binder -- Chief Financial Officer

Yeah. Roughly Q2, mid-Q2, I'd say, late -- early to mid-Q2.

Bert Hazlett -- BTIG -- Analyst

OK. Then RLS?

Michael Castagna -- Chief Executive Officer

On RLS, I don't want to speak too much for them because I know they're going to have a lot to come out. But we'll be a partner here. We talked about what CMC could look like, what the device will look like and how does MannKind continue to play a strong support role in them as they go forward. So I think you're just going to see a lot of renewed positive information coming out of them, and I think that will be great.

So not much to share at this point, but I think you'll see more and more from them.

Bert Hazlett -- BTIG -- Analyst

OK. Just one or two more in partnerships then. Thyquidity, obviously, a nice deal. Could you just discuss whether or not you have an appetite for more of that type of deal in the near term? And then with regard to UT, and there are other elements, discovery as well as research elements to that deal.

Do you expect any visibility on either of those components in 2021?

Michael Castagna -- Chief Executive Officer

On Thyquidity, I think, look, this is our first time leveraging our infrastructure with the second product. There are other products I've looked at and companies I talked with that we could bring in another product and maybe even hire more reps to get more coverage of Afrezza. I'd like to make sure we handle this one appropriately. We do a good job on launch, and our team executes well and that they can walk and chew gum by selling Afrezza, as well as Thyquidity with two products.

So assuming we see some nice continued focus here in Q1 and Q2, yes, we'll have a bigger appetite to take on more in later this year or early next year. So that's something that we'll continue to look for. Having single product companies is very hard, as you know. and so, we think diversifying our revenue base and bringing in more products and leveraging the infrastructure is a good thing.

And I think we want to just show that there's opportunity that we could take advantage of. I'm pretty happy. I mean, honestly, we went into this pretty quickly with a partner here. They know we have the infrastructure and expertise in this particular segment.

They're actually focused on, just so you know, primary care. They're going to have another sales force out there covering a larger audience than ours and, as well as all the other -- not going to expect. So we're really just focused on endocrinology as -- they're responsible for starting a lot of patients, but they don't always maintain patients. and so, that's exciting there, and I'm just trying to show that we can make an impact in another product outside of Afrezza.

So that, to me, is a critically important. On UT, I think the main thing there with our conversation with Martine and the company is there is additional opportunities to work on. Her and I have talked about many ideas, as well as our teams. So we feel like there are.

I think, No. 1, two and three is we don't want to mess up on treprostinil. So nothing is more important than both sides of this equation here, making sure Tyvaso DPI is filed in early April and that this is moving forward. That's critical to their future.

It's obviously a large impact to our future. and so, once all that's off the ground, then I think you'll start to see additional opportunities to work with them on the research side that we've previously disclosed an agreement there. But we do have discussions, and we expect that there'll be more partnership opportunities beyond just treprostinil.

Thank you.

Operator

And that does conclude today's question-and-answer session. I'll now turn the call back over to Michael Castagna for any additional or closing remarks.

Michael Castagna -- Chief Executive Officer

Thank you to all the analysts for your coverage or comments and questions. I appreciate it. And the team here does appreciate your reports and the insights you provide, which kind of gives us the guidance that we're looking at and then make sure we're all aligned in the right direction here. I just want to say thank you to everybody.

It's been a long journey to get to where we are. We know we were always placing the right decision and the right bets, and there are some twists and turns in that road over the last couple of years. But I think you can see the foundation we've laid out, which is really commercial infrastructure in endocrinology, an orphan lung-focused pipeline and leveraging Technosphere that's going to provide multiple revenue streams for the company over the coming years. And now we have the capital to deploy to grow the company faster.

and so, that's really our focus is making sure we're prudent. We execute successfully, and we now take a measured approach on how we take the company from here to the next level. So thank you, everyone. Thank you to all of our employees.

I know 2020 was a tough year on everybody. But we got through it and came out with flying colors, and everyone here made huge sacrifices on behalf of shareholders. And I just want to say thank you to everybody. It all worked, and we came out of this stronger as a company.

And hopefully, for society's sake, things calm down and COVID gets behind us, and we can march back to a normal world in the second half of 2021. As it goes faster, we'll be ready to go faster here in 2021. So thank you again, and I hope everyone has a great day.

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Michael Castagna -- Chief Executive Officer

Steven Binder -- Chief Financial Officer

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Oren Livnat -- H. C. Wainwright & Co. -- Analyst

Dylan Dupuis -- SVB Leerink -- Analyst

Steven Lichtman -- Oppenheimer & Co. Inc. -- Analyst

Bert Hazlett -- BTIG -- Analyst

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