MannKind Corporation (MNKD) Q1 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation First Quarter 2015 Conference Call. At this time, all participants are in a listen-only mode. Later instructions will be given for the question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded today, May 08, 2015. Joining us today from MannKind are Executive Chairman, Alfred Mann; President and CEO, Hakan Edstrom; and Chief Financial Officer, Matthew Pfeffer. I will now turn the call over to Matthew Pfeffer, Chief Financial Officer of MannKind Corporation. Please go ahead.

Good morning and thank you for participating in today's call. I’ll be discussing very briefly our financial results for the first quarter of 2015 as reported yesterday afternoon. I will then turn the call over to Al. Before we proceed further, please note that comments made during this call will include forward-looking statements within the meaning of federal securities laws. It is possible that actual results could differ from these stated expectations. For factors, which could cause actual results to differ from expectations, please refer to the reports filed by the company with the Securities and Exchange Commission under the Securities and Exchange Act of 1934. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast May 08, 2015. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this call. Now, turning to the financials, the net loss for the first quarter of 2015 was $30.7 million or $0.08 per share compared with a net loss of $52.1 million or $0.14 per share for the first quarter of 2014. Total operating expenses declined 47.5% compared to the similar quarter in 2014. With the commercialization of Afrezza in the first quarter of 2015 and a reduction in non-cash stock compensation expense compared to the same quarter, research and development expenses were $9.4 million, a decline of 64.2%. General and administrative expenses were $10.5 million, a decline of 31.2% mainly reflecting lower non-cash stock compensation expense compared to the first quarter of 2014. For the quarter ended March 31, 2015, our portion of the loss sharing arrangement with Sanofi related to Afrezza was $12.4 million, which we financed by way of an advance under the loan facility with our partner. The amount outstanding under the Sanofi loan facility is now $15.4 million. During the three months ended March 31, 2015, we recorded $7.1 million in Afrezza product shipments recorded as deferred product sales from our collaboration with Sanofi and recorded $6.3 million as deferred product cost from the collaboration. Cash and cash equivalents remained at $120.8 million at March 31, 2015 and at December 31, 2014 respectively. In the first quarter 2015, we received $50 million in milestone payments related to our collaboration agreement with Sanofi as well as $6.2 million in proceeds from warrant and option exercises. This inflow offset our first quarter activities, which included building up Afrezza product inventory, purchasing additional machinery and equipment, and the pursuit of new product opportunities. We still have $30.1 million available to borrow under the amended loan arrangement with The Mann Group. And with that summary, I’ll now turn the call over Al. Al?

Thank you, Matt. After approval of Afrezza by the FDA on June 27, we’ve been preparing for the launch. In September, we finalized a partnership agreement with Sanofi, who will provide the commercialization with sales and marketing, and also responsible for further clinic and regulatory activities, and that launch by Sanofi was initiated in February. We are getting reports post-approval Sanofi results and early use of Afrezza that we like to share with you, but it is too soon to have publication of any such reports and peer review journal. Therefore, all we have at this time must be considered anecdotal and cannot be presented in the earnings call. Afrezza’s unique characteristics and the comments from participants in the clinical trials lead us to expect a fairly rapid rise of its adoption, but it is taking more time. The adoption is a complex matter, but perhaps the most significant obstacle to uptake is derived from an imposed FDA test before a patient can start of Afrezza. The agency is understandably concerned for the use of inhaled insulin by people already suffering from serious pulmonary disease might cause them further harm. Before starting treatment, a patient must therefore be tested with barometry to make sure that there is no existing significant pulmonary disease along with the diabetes. To minimize any such risk, the label approved by the agency alerts prescribers with a boxed warning not to use this therapy in patients with COPD or serious asthma. That is a simple test, but although primary care physicians generally have spirometer instruments, very few diabetologists and only about 30% of endocrinologist do. Arrangements for spirometering and all other requirements in this leading therapy takes considerable time and those pose obstacles delaying initiation of therapy. Sanofi’s equipment supply organization is working on overcoming the testing obstacle and we at MannKind are investigating a possible different solution. We have found an improved very inexpensive non-recording spirometering instrument that meets the standard of the American Thoracic Society. We are evaluating a possible plan on which a doctor would purchase a device and [indiscernible] the patient. The cost of that meter is only about what today would typically be reimbursed on most insurance programs. It requires spirometering management will be informed by the patient with that instrument under the new provision of [indiscernible]. Hopefully, this will offer another approach to satisfying the regulatory requirements. The growth of [indiscernible] and implement by Sanofi and the arrangement will take time. The revenues for Afrezza reported last week by Sanofi really covered only a portion of the quarter, since the launch only started in February. We do expect this [indiscernible] to accelerate after the start of [indiscernible] before studying the real revenue performance. There are numerous endorsement to Afrezza on the social media from patients after some limited clinical usage, but we will still need more time to judge the quantity of prescriptions. Even though the enormous potential global diabetes margin is beyond our capacity or for that matter that of any company, some of you have wondered what MannKind will do after Afrezza. Our base technologies and system with a potential to formulate large molecules in stable powder form and then it is conveniently delivering into arterial blood very quickly with a tiny inhaler. There are many opportunities for this, for example, imagine the potential benefit of a pain drug, which so delivered can be effective in a very few minutes or drugs with side effect and complications can be avoided or at least drastically reduce by circumventing the first digestive pass through the stomach and liver. They are now used with [indiscernible] liver drugs to efficiently treat the lungs directly and has great effect. Very many potential uses of this technology to address [indiscernible] unmet needs and MannKind is committed to exploring several opportunities. However, with unlimited resources, we must be very selective and not pursue too much. It will be difficult for the company to undertake development of drugs requiring a long and expensive clinical and regulatory program, yet MannKind has actually been exploring , one is [indiscernible] approved [ph] drug with very exciting potential [indiscernible] delivered with our technologies to create substantial value at a relatively early stage. Beyond that we have only been exploring use for delivering already approved drugs, but still remaining significant benefit as they reach generic status. For such drugs, our already approved inhalation system offers a potential for a long additional period of product exclusivity with more desirable formulation and very convenient delivery. Our selection would depend on potential exclusivity and the expected length of the regulatory cycle. I will [ph] go into more detail on this. The launch of Afrezza may be getting off to a slower start than as been hoped. But we expect soon to see an acceleration. Certainly, the potential diabetes market is enormous and Afrezza will fill a substantial need. Afrezza is proved to effectively and safely address not only perennial [indiscernible] type 2 diabetes, but also for the huge early stage type 2 market. As we’re moving into drug delivery, early type 2 under as a almost or premier exclusively with alternative [indiscernible]. Waiting to start use of insulin, only at a rather late stage of the disease. To make sure rather than insulin for [indiscernible] many of the patients would rather swallow the pill per day or take a shot per week. However, some of them might instead like to inhale insulin discreetly and continently from a tiny disposable inhaler for less than a second z each meal thereby avoiding possible side effect, [indiscernible] got from patients or organic stressing often seen with other drugs. So, we see this as an incredible opportunity for us and we are looking forward to pursuing it very soon and I wanted to stock over now to Hakan.

Thank you, Alf, and good morning. While I think we can all agree that the first two of Afrezza sales have been very modest, however, what is very encouraging is patients’ overwhelmingly positive response once they get access to Afrezza. This can be seen in many of the social media source and the very high number of emails that we have got from patients directly to us expressing a very positive result and support for Afrezza. It is very clear, reviewing the reasons for the current sales value that is larger due to some administrative issues encountered during the launch of Afrezza, doctor appointment, Spirometer scheduling, the 10-day patient sample use, doctor follow-up [indiscernible] and managed care prior authorization processes have initially slowed down the penetration of Afrezza. Endocrinologists, being the initial primary target physician do not have that spirometers in thus they are forced to locate the pulmonary testing lab where spirometer could take place. This fact also significantly delayed the patients 10-day sample trail process, which is required before they can get their first prescription. And there has also been some delays in patients even getting an appointment with an endocrinologists, particularly if they were not a patient of that doctor earlier. The requirements of prior authorization in short PA from the managed care companies have significantly delayed and completed the prescription process. The PA process itself is administrative demanding and it takes time before one have backed from the managed care company with an approval, so a prescription can be written. Many plans now actually have a more – PA prior to decision of [indiscernible] once the patient has performed this Spirometer test and completed the 10-day trial period, the doctor may be ready to write the prescription. At this time, the doctor may and most likely does not know whether a patient’s health plan requires a prior authorization. So what happens is the patients go to the pharmacy to redeem their prescription, gets denied because of the lack of PA from the health plan then the patient must go back to the doctor and request the PA, the doctor requests and fills out the [indiscernible] document and either faxes or mails the PA to the health plan. The health plan then reviews, rejects, or accepts the [indiscernible] based on the submitted paper work. That information then goes back to the doctor’s office, who informs the patients and now the patients can get their prescription. And this process is properly issue. The doctors do not like the process, it’s time consuming, administratively challenging, and the process is different for every plan. So, this process is what has significantly impacted the early uptick of Afrezza and is causing patients and doctors frustration. Well, having recently returned from the trip to Paris and a meeting with the management team at Sanofi, I know that Sanofi is well aware of these obstacles and having put in place a number of initiatives to address them and I had the opportunity to review these initiatives with the Sanofi leadership and I believe the measures to be effective and we will totally follow the results closely over the next few months. In addition, we will see the start of a [indiscernible] program in the beginning of the third quarter. I’m convinced this would very quickly change the dynamics, since Afrezza clearly is a patient pull type of a product. And the introduction of the 12-unit cartridge would further more make the therapy even more convenient for the patients. The wireless start was slower than expected. I’m convinced that we will see markedly improved prescription data going forward as the measures implemented will take hold. You know even such as ubiquitous device as the iPhone own the stores 2.5% of today’s volume in the first year. Likewise, AFREZZA is holding up a new treatment paradigm in diabetes and yes it may take some time before we reach iPhone volume, but the opportunity is totally there. A few other updates, the FDA mandated studies are progressing as planned and also, international planning is underway and on manufacturing operation in Danbury is ready to start manufacturing of 12 new cartridge in time for a launch. And on a final last note in this section, there have been some concerns expressed over my 10B5-1 plan. To eliminate this as an issue, I have cancelled my plans. So, now let’s transition over the next phase of the MannKind Corporation story. The Technosphere technology is unique and proprietary to MannKind Corporation. This drug delivery technology is based on the approved aspartame succinyl diketopiperazine or in short SDKP, which is covered by expensive IP prediction for protecting and manufacturing know-how. The Technosphere technology has a number of unique properties. First, they have the PH dependence micro particle, when the PH of an SDKP solution is made a critic, SDKP micro particles forms spontaneously and it is on these particles that an active drug substance is absorbed. The result in drug particle suspension is then free dried and the dry powder producing the product is the material that the patient/staff administered. Second is price range of the particle that are formed. Technosphere particles have a mean diameter of 2.5 micrometer which falls in the middle of the ideal size range for delivery to the deep line, so that no additional process over the micro particle is required. And third, the PH dependence that forms the micro particles also enables the rapid dissolution of dry powders, when the powder is inhaled into the deep line, whether [indiscernible] PH is about 6.5. Under these conditions, the powder dissolves immediately with both the drug and the [indiscernible] now in solution and from which they are independently absorbed into the blood. From a medication point of view, this pulmonary delivery technology is very beneficial for delivering a number of important API because absorbed drug does not immediately go to the lever and thus avoid first phase liver metabolism, which makes more drug available to the body. The PKPD character of Technosphere delivered [indiscernible] due to the drug rapid absorption into the blood is another crucial benefit. When seeking an effect from [indiscernible] where an immediate response has just died like pain, rapid absorption is critical. Finally the convenience of this dosage for us at times been demonstrated to improve compliance of the patients to the treatment regimen. And having enough day approves dry delivery we have the potentially to significantly reduce regulatory hurdles and timeline, especially if combined with an already API. We mentioned in our prior earnings call that we would contract with the major consulting firm to assess applications for our technology for not only in inside out perspective, but more importantly from an outside introspective driven by the basic exemption that the application would satisfy an unmet medical need. That activity did occur and discussed with the Board of Directors a short while ago that w are now in the selection process for assembling our portfolio of development projects. We expect eventually run handful projects internally and in addition identify opportunities for collaboration. We are focused on bringing production to markets is either important or exclusive arrangement. As mentioned earlier the Technosphere technology lends itself to a number of therapeutic areas, pain management is [indiscernible] very relevant treatment area as it is associated with a number of diseases like migraine and break through cancer pain. Because of the speed of onset afforded with the Technosphere technology and pulmonary delivery, we can offer significant treatment benefits. We will also evaluate potential opportunities in other areas. Pulmonary diseases such as pulmonary hypertension and cystic fibrosis and the accompanying antibiotic treatments may provide a commercial opportunity. Our therapeutic [indiscernible] has regions that draw considerable attention is nicotine replacement and this accompanying management of nicotine addiction. And for diseases like epilepsy, the unique PKPD profile of [indiscernible] agents could translate into significant benefit for those patients. And to ensure the portfolio of concourse of commercially attractive projects that we continually interact with the marketplace, we are currently recruiting both ahead of business development and a Chief Medical Officer and we expect to have them in place by this summer. Obviously, we cannot pursue all potential lead at front, but we will assemble a portfolio of projects and be specifically on the development so that only continued scientific success will drive the project forward. Most of the growth will be maintained to risk mitigated program. So, it will be our initial focus as we begin to build a pipeline of new product candidate providing different types of product offerings with a revenue opportunity in between $500 million to $1 billion. Currently, we have identified five new products to be further assessed, and we have a good idea of where to find fertile ground for product opportunity. They are a good fit between our technology and unmet medical needs. And now, let’s go to the operator for the Q&A session. Operator?

Yes. Thank you. [Operator Instructions] Our first question comes from Steve Byrne from Bank of America Merrill Lynch. Please go ahead.

Hi, I wanted to better understand that $12.4 million loss from the Sanofi arrangement. Is that include more or less two months of selling expenses or was that pretty well steady throughout the whole quarter?

Steve, yeah, that would include our share of wallet loss this quarter. Obviously, the expenses were higher after the product was launched than before, but there were expenses before that as well.

And would you expect that number to go up from here as a result of the research and development efforts for the post-marketing studies? And then couple of quarters out when the DTC campaign kicks in, do you have an estimate of what your share of the cost of this arrangement might be a couple of quarters from now?

We have some ideas, but we are not going to project Sanofi’s spending. I think that’s probably imprudent. Remember that’s not cash out of pocket for us because it just goes against our line of credit for them. So it’s a reported number, but it doesn’t appear in the P&L.

Okay. And then for products sold, do you get reimbursed for the cost of goods in that quarter and did you have any recorded in this quarter?

Yes, we do and we did. So that was in my part of the talk. We talked about what was sold to them and we will report that on an ongoing basis. We do get reimbursed on a current – roughly currently. We’ve had some typical payment terms, but we give them a little over a month to pay us, but they do reimburse us on a current basis, so – and we’ll continue to do that every time.

Well, you mentioned the $7.1 million, Matt, that $7.1 million of deferred sales and the $6.3 million of deferred costs. Is that essentially product that was delivered in investments in inventory versus what was sold?

Okay. So those are actual sales to Sanofi. Those are the numbers we are reporting. They are not shown on the P&L because all of those things are deferred. They are hung up on the balance sheet. You can think about it as a sales and cost of goods number related to products transferred to Sanofi during the quarter. But that’s all sales for them, including things like samples and potentially in the future clinical supply. So, some of it was sold to end-users, some of it’s in their inventory, in Sanofi’s hand, and some of it’s been given away for free.

Okay. And the difference between those two numbers is that your mark up on cost of goods?

It represents – you can think of it that way. There is not technically according to the contract a mark up on cost of goods, but we are allowed to recoup some cost that we’ve previously expensed as part of this process. So from an accounting standpoint, we show a slight margin in the near-term, but technically it’s considered to be for Sanofi’s purposes at our cost. So we make the money from selling things to them, when they sell it, we make a profit later on down the road. But for example, it’s well known that we have a lot of insulin in inventory and we did buy that once upon a time, but we expensed it when we did to the extent we now use that in manufacturing of our products. We can charge Sanofi for what it cost us originally so we kind of recoup it now and it shows up as margin. So we have an accounting margin. And we’ve always have positive cash flow. Of course, in the production of products, you include things like amortization or depreciation of facility, which is a non-cash charge. We get that recouped at this point, but they are substantially paying for the past production and cost of building the facility as part of the margin here. So it generates cash for us, but it’s still technically considered at cost for the contract.

Okay. And just one last one, Matt. Your underlying business outside of the Sanofi partnership you had operating expenses in that $21.7 million, is that a number you would say is reasonably a good number to model on a going forward basis?

I would. I think when we talked about this last quarter, I hedge my best a little bit and said both R&D and G&A would be in the $10 million to $12 million range going forward and these certainly fall within that range, actually a little bit closer to the low end. We had some cost that were kind of manufacturing related, kind of start up associated costs as you start up things that we could not pass on Sanofi that you see in there. We broke it out for clarity, but we typically would have covered that in R&D previously, but it falls within that range. And I think it will continue to be so.

Okay. Thank you.

Thank you. Our next question comes from Adnan Butt from RBC Capital Markets. Please go ahead.

Hi. Thanks for taking the questions. I have a couple. So first, Hakan, you met with the partner recently. Are you able to share some practical steps that the JV might be taking to facilitate the station flow by either when it comes to lung function testing or kind of prior authorization?

Well, what I can say is that on a regional basis, Sanofi has assigned specific responsibility in terms of bringing these separate activities together and in helping the physician, helping patients, and helping the reps, get it all together. So it’s almost like you could say you have kind of a concierge service within the region, within the territories that are healthy to streamline decision and also going forward in regard to what Al mentioned on the spirometer side in making sure that at least administratively we make it as convenient as possible and not a major obstacle.

Okay. I guess what I am trying to understand is that, this is something that you expect to see that the JV expects to be able to address overtime or is this something that will just get addressed naturally overtime? Have you seen any changes in these flows in the more recent weeks or months?

Given the preliminary launch, it is too early to say that. But I would say this is kind of addressing the onset of the program because once you have your prior authorization and particularly say six months to nine months from now when you have a tier placement, I mean, a number of these issues goes away. So, I would say this is right now in the beginning, so I would hesitate to give you a status at this point in time more than the fact that at least I certainly see that number of prescriptions did increase recently rather significant over the last couple of two weeks.

And then if I could just – Adnan, if I can just add a little bit to what Hakan was saying…

Sure.

…if I understood your question correctly, I think that’s going to be a blend of both things. We certainly know very specifically what Sanofi is planning to do, but we can’t disclose all of those things. Unfortunately, some of these issues will go away naturally. They have a very large reimbursement organization; they are working with the insurance companies, you should expect that to the extent to get [indiscernible] position. Some of these prior authorization issues will naturally go away. In the mean time, there is a lot of things they can do to make it easier for the doctors than you would expect they would do that. And there is other things they can do as well that we are not allowed to talk about, but we’re quite pleased that they are taking a very stance and working on them.

Well, yeah, Matt, I mean, as Hakan mentioned, obviously the launch lacked expectations, but there is some uptick recently. So I was wondering if that’s reflective of anything specific or if that’s just the nature of patient flow throughs?

Hopefully, it’s a combination of both.

Okay.

I think we said all along that it’d like – off to a slow start. Some of these hurdles seems to be a little larger than we anticipated, which means the early months are going to be naturally even slower than we expected. But the first quarter just reflects less than two months of activity, it’s not a full quarter. Please don’t forget that. So we expect the numbers to be low than they were, we expect them to improve. And we expect it would be as a result of all these things. Some of it just could be naturally – if there is delays and people are working their way through, they will start to see and to the extent we have things specifically intended to address these delays and make them cumbersome you will start to see more that and they will build on each other.

Yeah. I would have to in taking to a number of patients that certainly calls me, if you look at the scheduling of the doctors [indiscernible] the 10-day sample, the follow-up and [indiscernible] I mean many of the patients that are looked at a four to six week kind of a time in terms of getting into the drug. So the startup process from a timing point of view have been certainly longer than we anticipated.

Yeah, I think you know these are kind of anecdotal, but we get people calling and talking about this a lot. I have a close member of my family just trying to get Afrezza themselves and I’m actually supported her to do that, because I like to hear her direct experiences and she doesn’t have it yet because of a lot of these delays. Getting the – she had to find an endocrinologist, she didn’t have one previously, it’s take some time to get the appointment and just working through all these various step through that we are talking about. No matter how anxious she is to use the drug, she doesn’t have it yet. So it happens out there. We hear about it a lot. I know about it from people I’m close to or experiencing as well, so I know it’s real, and hopefully it will continue to get better.

Yeah, and I can give you a personal testimony of – because I believe that I’m a candidate for Afrezza and I just called my endocrinologist and I got the appointment on May 26. So that [indiscernible] the timing of getting in.

Okay. Matt, if I can have a follow-up, it’s balance sheet related. Would you be able to give us the brand for not just for all the – for both JV and non-JV related items in the first quarter, what’s the cash burn?

It’s complicated. Because there are a lot of elements to cash burn. Obviously, [indiscernible] cash and we [ph] didn’t change, that was completely coincidental between the end of the year and the start of this year. But obviously there is not a cash burn from the collaboration per se because all that just goes into the line of credit, which is why we set it out. But we do have a lot of other things happening. We are paying some fairly major financing cost, we have some – remember that when we did the – arrangements, we had a series of milestones, one of them were the launch milestone and that was to [indiscernible] some of which was accrued and some of which was not. But you need to see a jump in financing expenses as a result of that in the quarter, but that’s a onetime thing. You also see a fair amount of inventory builds, which does in fact impact the cash burning quite a while, you can see that just slicking [ph] in our balance sheet. There is a good [indiscernible] we’ve got – based on the receivables in the collaboration for the product we ship to them, they not yet paid for because of that 40 day terms we’ve given them plus inventory buildup and even in prepaid expenses there is a decent number in there probably $15 million or $16 million that relates to products that are prepayments against product in raw materials and so forth. So those are all affecting our cash burn, but a lot of this is initial build up. So it’s not going to necessarily continue into future quarter. So I think the cash burn was unusually high this quarter. I think it will be much less in the next quarter. And then it will be kind of depended upon what happens and timing issues relating to sales and inventory build and receivables.

Last question, then I will get back in line. Matt, could you able to give a guidance on what cash could be [indiscernible] year and then on the last call the did update on sampling and sampling supply, can you make some comments about that as well? Thanks.

[indiscernible] cash balance into the year because it could be largely influenced by how we choose to scale with the convert instruments that’s coming due in August. It’s a little premature say exactly how I’m going to deal with that, but I’ll give you some guidance a little bit because I get a lot of question about it. A lot can happen between now and August that could influence this decision. But I think the working hypothesis is that we would likely replace it with a similar instrument ROE work that when we have. We could potentially pay it cash, we will have the cash at that time. And if we want to wait a little while do a convert later, we could do that as well. And depending on what the price of the stock is obviously we do allow it to convert them, price is in the right range to do that. It will increasing sales, I think that’s in a possibility. The one thing I want to stress is that I have no intention of doing a dilutive secondary offering to take up an instrument. Anybody is worried about that should not be. But beyond that I’m not sure. I’m prepared to protect the natural cash balance at the end of the year.

Okay. And then the follow-up on the sampling.

The only – nowhere we had gotten increased demand for samples as we discussed. I know we have certainly in the manufacturing to meet the increased demand. I actually have not followed up on that one. So my assumption is that’s working and we are fairly supplying the need from a sampling point of view. But I don’t have any more specifics [indiscernible] on that.

Okay. Thanks.

Thank you. Our next question comes from Jay Olson from Goldman Sachs. Please go ahead.

Good morning and thanks for taking the question. I have a few of them. I’m interested in the comments made around the potential for international regulatory filings. I know the pivotal studies were done with international studies. So can you tell us – can you use your existing phase 3 data or international regulatory filings or do you need to conduct new studies, if so what sort of studies and how long they might take?

Well, first of all, yes, we can use them and actually what being looked at also what [indiscernible] what are countries or regions where [indiscernible] the FDA approval itself will provide a significant time saving in getting into the market. So there maybe for Japan or whatever coming up, you may have to do some local clinical trials [indiscernible] the basic assumption at this point in time and this will be discussed about midyear together with Sanofi if that – the documentation we have in applying for the FDA approval will certainly be the substantial documentation that also where we utilize for other U.S. [indiscernible].

And then, I guess, some of the milestone payments from Sanofi are contingent upon filing in Europe and filing – sorry, approval in Europe and approval in Japan. Can you give us some guidance on when we should expect to hear about filing in Europe or filing in Japan?

I cannot at this point in time because again that’s part of the ongoing planning inside Sanofi at this point in time and as I said, about midyear, the idea is to sit down and look at how to kind of fan out all of the [indiscernible] so at this point in time, I cannot give you a concrete answer in regards to the specific timings there.

Okay. There was – I guess $75 million in manufacturing and development related milestones of which you’ve booked $50 million in milestones. When should we expect the remaining $25 million of those milestone payments?

[indiscernible] nobody wants to answer that question. I feel difficult because we haven’t disclosed what that milestone is which makes it a little awkward to project when it would be because it’s been sort of circular. I think we are uncomfortable because we are not sure we can answer that question, I think the answer is probably can’t.

Okay. And then just on the sales related milestone payments, is there any additional color you can give on – you disclosed the initial sales related milestone payment is trigged by aggregate sales of $250 million. Can you talk about any of the other trigger points for sales milestones?

Unfortunately, Jay, again, we can’t – that information is already [indiscernible] agreement by [indiscernible] from our partner. So it would be obviously in the stake for us to give more color now. We will be more than happy to surprise you as we hit those milestones see what they were.

Okay, I understand and then just on the pipeline, we appreciate the additional color there, are these opportunities that you are exploring for additional application of the Technosphere platform, are these opportunities something that you envision pursuing independently or do you intend to sign a partner and if so when should we expect to hear about any additional partners for pipeline project?

I would say that most uncertainly we will be looking to sign up a partner. I mean there may be some kind of partner collaboration where we get a protocol where we work directly with a partner ideas for process coming into us, but our idea is to take these opportunities to kind of proof of concept and at that time approach a partner, so if you look at that I would say that probably 12 months to 18 months is a reasonable timeframe to look into when we’ve that work and been able in situation to approach a partner.

Okay great. That’s helpful, thank you.

Thank you. Our next question comes from Cory Kasimov from JPMorgan, please go ahead.

Hi guys this is Brittany on for Cory, thanks for taking the questions. So given that Sanofi is commercializing Afrezza, how much insight do you have into the market dynamics and could you give any more detail on the type of feedback you are getting from Sanofi’s sales force? Thank you.

Well we have what’s called the joint Afrezza committee, which is really the marketing and commercial group that’s working together in-between Sanofi and MannKind so all major initiatives are being discussed there, all the metrics in terms of measuring the performance and certainly feedback on performance across the sales, clinical regulatory, manufacturing parameters are being discussed. So, I would say from that point of view it is an open and frequent collaboration in between groups. So, I would say from that point of view the transparency is good.

Okay, got it. And then just a follow-up question, did you not recognize any manufacturing revenue until the JV terms profitable, is that the correct way to think about it?

Somewhat yes. Not exactly, but it is pretty close. So, we at least have to have line of site to profitability or we know we are moving in that direction and we can demonstrate mostly to our auditors to be frank that we will ultimately be profitable and this – at least we have turned the corner and stopped, we can see the line of site to stop losing money. So, yes, everything else in the meantime gets hung up on the balance sheet and then it will conform wildly once we get that point.

Okay that makes sense. Thank you.

Thank you. Our next question comes from [indiscernible] from Jeffries, please go ahead.

Hi guys thanks for taking my questions, I just want to start out, if you could maybe itemize a little bit more some of the revenues and expenses which factored and so like the $12.4 million loss you reported in Sanofi JV and if possible also maybe talk a little bit about the 1 million euros that they reported this quarter?

Well that’s tough. It is hard to comment on other peoples numbers. The $12.4 million, the way that number is arrived at is we basically come up with a consolidated product P&L for the Afrezza product. Some lines on that P&L come from Sanofi, some come from us and they are all combined and rolled up into a product based P&L. We come to the bottom. We say what is our 35% share of that profit or loss, obviously a loss in this case, which has been tracked out spending that we’ve already made and that’s recognized and then what’s left kind of flows into the ultimately flows into what’s owed to Sanofi. So, we report our share of the losses that’s what the $12.4 million is, it includes everything that comes from Sanofi and cost from us. It is all the things you would expect sales and promotional and so forth cost the product and those kinds of things. And that’s what’s in there. There is not really anything I think would surprise you. I can’t give you specific numbers that come from Sanofi or from us for reasons you can probably imagine, but you can – what the components are is pretty well understood.

Sure. Okay, great. I was just kind of curious, if you can break out maybe like the amount spent on promotion relative to R&D costs and so on.

Now that would have to be – that would be something that Sanofi would have to do and not us. And, you asked about the 1 million euros they reported, I mean I heard them report that too, I don’t have any particular insights into that. I guess that’s their reported sales number for the quarter.

Okay, great and…

We reported our sales, we don’t report Sanofi sales.

Okay and then just curious about like the build of inventory here, there is like an insight for when you might actually reach steady state on that and is there certain like metric or ratios to keep the minds from thinking about that?

Well, I am sure there is. I have to come up with a metric if you wanted one. It builds initially as we go into production and then it involves a somewhat steady state except to the extent that our production increases dramatically. So, in order to project that I had to predict sales, which is one thing I always say I will never – not going to project any time soon. So, it is not going to continue to increase like this that’s for certain. I think you should assume it will be somewhat steady from this point, but obviously to the extent sales and production increased, you would expect us to increase commensurately, maybe not on one for one basis, but in proportion.

And then just kind of curious about this spirometry device that you are talking about, in terms of like cost of the meter and how you might handle procuring these and distributing as well if you could draw a little bit of color on that?

That would be added by Sanofi, but this is a meter that cost [indiscernible] test cost. So, you want to lose that meter it would essentially cost anything, the doctor would buy it and bill a patient and he would be paid for the meter right of the bag.

Just one concept. Obviously we found the lack of having spirometry equipment in everybody’s office has been something of a bare for prescribing, so making that easier helps us in the long run and so Sanofi is interested in doing that helping doctors extend that they wish to purchase the equipment. Once upon a time we might have been able to just give it away to encourage prescribing that’s not legal anymore. So, they have to buy themselves, but the equipment is not costly as Al was alluding to, they vary in price quite a lot and what kind again and where you go forth to get it, but the pay back is relatively short. So, the extent we can help doctors realize that benefit it helps us do.

Okay, great. And then just last one, I was curious would your path to market be – if you want to go it is like a slightly different cartridge strength so like, if you got to look at two unit cartridge how would you end up getting that Al.

Well basically then, firstly we would have to be – we would have a competition that can do that, which I think going down insight is certainly not an issue and currently I mean we would certainly look at usage, it may become a relevant question when we get into the pediatric population where you maybe benefited from a lower dose unit. So, it is on the horizon, it has been discussed, but currently that is all of that project.

Obviously such a thing will require FDA approval, much like the 12 units did, but it is not a complicated process and it is not hard to do it what is necessary and apply. At the point of launch we frankly hadn’t seen any. We anticipated it might be useful in the pediatric space that Hakan talked about. We have seen in the – the popular press people are saying that it might be useful in the Type 1 population as well and we are investing in that.

Okay, great thanks for taking my questions.

Thank you. I will now turn the call back to Hakan Edstrom for closing comments.

Well thank you for participating in today’s call and we thank you for the questions and this now ends the quarter Q1 2015 earnings call for MannKind. Thank you.

Thank you. And thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating, you may now disconnect.