MannKind Corporation (MNKD) Q2 2017 Earnings Report, Transcript and Summary

Welcome to the Second Quarter 2017 MannKind Earnings Conference Call. My name is Eric and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I would now turn the call over to Rose Alinaya. Please go ahead.

Good afternoon and thank you for joining us on today’s call. Joining me today from MannKind are Chief Executive Officer, Michael Castagna; Chief Financial Officer, Steven Binder; Chief Commercial Officer, Patrick McCauley; Chief Medical Officer, Raymond Urbanski. Please note that comments made during this call will include forward-looking statements within the meaning of federal security laws. It is possible that the 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. The conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, August 7, 2017. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this call. I will now turn it over to Michael Castagna, our Chief Executive Officer. Mike?

Thank you, Rose. And thank you everyone on the phone for taking time to dial-in this evening. I wanted to share quickly my perspective on MannKind as I transition into the role as CEO. Over the last 8 plus weeks, I've had the opportunity to meet our hundreds of employees around the country, I've done a deep dive assessment on the pipeline in the history around the pipeline, we've met with potential analysts, we've met with our key stakeholders who own either share in the company and/or hold our debts, and we've also met with several potential investment groups through our [Greenhill] collaboration. And I want to take a step back and think about when I took a tour of our manufacturing facility which is over 300,000 square feet. It reminds you of why a [man] invested in those company the way he did and built the capabilities that we have. This product was destined to be a blockbuster. It was studied by two independent companies as well as others to show what the potential was, and just to get a fresh advice, I myself went in and conducted some market research during the month of June to confirm that we're on track to achieve status that I felt was reasonable in the timeframe as we look out over the 18 to 24 months. What I heard in the feedback from customers was very enlightening and exciting because it reinforced the things that we've been working on for the last year fixing and straightening out and executing are right on track with what we need to be doing. The number one thing I heard the most was continue to show up to my office, continue to be there front and center present, and also as I looked at endocrinologist versus primary care doctors, there was a much larger opportunity than I expected in terms of receptivity by primary care doctors being willing to prescribe Afrezza because they felt that they have mastered the basal treatment patterns for patient and were looking to using GLPs and that's a logical next step if they hadn't inhaled insulin that they would continue to learn how to use and prescribe insulin. Many times they tried their best to manage these patients, they struggle with where to go, and how to get there and how long they stay with elevated A1C and they try to get the one inject insulin but often times it's years before they progress to an endocrinologist. That left me with three optimism, as I transition into this role. As we recruited our leadership team, we looked for people who could have the capabilities and skills to take this company to the next level from a commercialization perspective, as well as global growth. Yes, we've had our work to do over the last 12 month. This company was build over 26 years and you’re not going to change everything in one year. As hard as you work, as many hours you had on the capital constraints we had, I'm really happy with the progress we've made in Q2 as you'll continue to hear from Pat and Steve in the direction we're going. If Sanofi just had kept the foot on the gas with Afrezza, you'll see when you look at Pat section, the success trends over Afrezza would have continued to grow throughout 2016 and 2017. This would have been easily if $30 million to $50 million a year drug in the first 12 to 18 months of launch had we just cut executing. Instead we had the pivot, we got the product back and we transitioned many key factors as we went into the commercialization on MannKind in terms of transitioning, packaging, SKUs, co-pays, sales force execution, training, as well as the articulation of the clinical profile of products. So one of the things we saw last year was a modeling of the simulation data thing had we dozed Afrezza properly and appropriately in our trials, we felt very confident we've had a superior insulin. That is obviously not our label says, but that’s some of the investments you’ll hear from today that we’re starting to make in the announced of the One Drop as well as the step study that Pat will talk about. It may be obvious to us, and to us as shareholders, to us as employees of the company, the value that this product will bring to patients around the world. But sometimes you need to boost the data package around it to help people understand how to do certain things to get to where they need to be. With that said, I’m going to transition to my first slide here. And I apologize for some of you on the phone there might be a slight delay, but we'll try our best to coordinate the slide and the voiceovers. So we've recruited - world class executive leadership team in record time, so I want to personally thank Pat and Steve for joining us here today. They've not even really been here in four month and I have already been on the road with me, they have been out leading with customers and sales force, as well as potential investor. So I want to thank both of you for accelerating you joining the company. I also want to thank the rest of my management team, as well our employees because we’ve been able to retain our key talent throughout the transition of an executive switch over in the company which doesn’t always happen. So I want to thank Rose, David as well as the rest of the executive team for sticking by here and continuing to work with us as we continue to rebuild the company. Some of the things you saw upon the month of June during Q2 was really improving our near term financial position. We know we have to recapitalize the company but doing that without the rest in front of us was one of my first priorities and I want really want to increase our optionality. So with that you saw this afternoon, we announced that we withdraw from the [Telsey] stock exchange. We’re doing this for a couple of reason. We want to simplify our filings, we want to reduce our expenses, and also it's freeze up 10 million preferred shares. Number two, we reduced our day filed obligations by 15 million through conversion of equity, as well as 4 million in cash payments. While this does reduce our debt burning, we did increase our debt to withdraw down the Mann Foundation $30 million. And what that does is really in effect change the interest rate from a high yield debt to a low yield debt while pushing out any near term obligations. As a result of that we did increase our cash by $19.4 million through the Mann Group. Afrezza net and gross revenue grew 29% and 60% respectively quarter-over-quarter and Steve will provide further details around this number. Additionally, we redeployed capital and critical resources across the company such as reducing our burn rate in facilities that aren’t being utilized. Our move to Westlake Village from Valencia will reduce our expenses in the second half of this year. We continue to find ways to redeploy our capital to where areas that are going to be contributed to our growth and our success of the company. We continue to reduce our year-over-year burn rate in the first half of this year versus first half of last year. Finally, we reduced our operating cash burn quarter-over-quarter despite having a fully expanded commercial transition. This burn was approximately $6.9 million a month not including the $4 million that was paid in capital to Deerfield. We continued with commercial improvement in our insurance coverage. As I previously announced, we had Anthem on April 1, we renewed the VA contract and we’re now working on reducing high authorization burdens. For example, we know contract that continue to have Novolog as preferred exclusive agent. Those contracts and the terms within those prior authorizations typically will say something to the nature of in order to get Afrezza you must sale insulin and have physical and invisible disabilities. And we don't believe it's fair that healthy patients who desire better health should have to fail every aspect of your life before they get access to Afrezza. We continue to work with places like United and CBS to reduce the burden of the prior authorizations. We’re okay if patients have to fail insulin to get to our product, but we don't think it's fair that patients have to go potentially be visually impaired and physically disabled. So we will continue to open up those opportunities. We had some success already in that nature. You also saw this morning announcement of One Drop collaboration. Back in Q2 we announced the Memorandum of Understanding around the intent to partner with One Drop and really helping transform the care of diabetes. We know there are over 22 million people in treatment and it’s virtually impossible for every patient to get the best treatment in the country. We are looking at innovative ways to scale up how people can obtain success through coaching, through dosing and titration of our product and through self-management tools that exist in the marketplace. And when I look out over the next 3 to 5 years and where we come over the last 3 to 5 years technology and adoption of technology will play a critical role in peoples outcome of their health, as they continue to pay a large and larger percentage of their healthcare. Finally on this topic, we announced our international expansion with Brazil, that is on track to file our meeting request by the end of this year and what will next happen is a inspection of our manufacturing facilities will occur and at that point we will be ready to file the application with an expectation of potential approval in late 2018. Finally, you might have saw announcement we were very excited about our pre-IND meeting with FDA on Treprostinil. We believe our Technosphere based platform can solve some of the unmet need that exists in the pulmonary arterial hypertension market, which we will talk about later in this call. And then finally, we've engaged Locust Walk partners to help us partner out the pipeline because our strategic assets that we think are of value, they just don't make strategic sense for us to continue to invest to move forward, when I think about the types of markets we want to be in the size or footprint we want to have over the next 3 to 5 years. Ray will speak about this a little later in the conversation. I’m going to stop there and turn it over to Steven Binder.

Thanks, Mike. Good afternoon. I'm really excited to be part of the MannKind team. I can see and feel the passion and dedication this team has for connecting insulin-dependent diabetes patients with Afrezza. I feel really are making a difference and this means a lot to me personally, so thanks for having me aboard. Moving to the financial, I’ll be discussing selected financial highlights and urge you to read the full financial statements contained in our 10-Q which was filed this afternoon. Please note that I would make comparisons to both Q1 2017 which highlight our activities as an integrated commercial organization post the Sanofi breakup as well as the Q2 2016 were appropriate. Our total net revenues for the second quarter of 2017 was $2.2 million, which included $1.5 million of Afrezza product net revenue, which they 29% increase over the first quarter of 2017. Also included in second quarter net revenue was $0.6 million of other revenue from the sale of oncology related intellectual property to a Chinese company [indiscernible]. Afrezza product gross revenue increased 60% versus quarter one 2017. The difference in the growth rates for the net revenues of plus 29% and gross revenues plus 60% was due to an adjustment recorded in Q2 2017 of $0.3 million in net revenues for wholesale distribution fees that will not occur in the future. The Afrezza gross revenue growth of 60% from quarter one 2017 was generated from a combination of volume growth, a mix change to more favorably priced NDCs and price. McCauley our Chief Commercial Officer will provide additional color for a volume growth later in the presentation. A reconciliation of growth to net revenue is contained in the MD&A section of our second quarter 10-Q. At June 30, 2017 we had $2.6 million in deferred revenue per product that have been shipped to the wholesale and retail channels but was not yet dispensed to patients and recognized as revenue. Until we can reliably estimate product returns based on historical patterns, we will continue to recognize Afrezza revenue based on Symphony prescription data which does not include some hospitals and health groups such as Kaiser Permanente for example. The cost of goods sold for the quarter ended June 30, 2017 was $5.1 million compared to $4 million for the same period ended 2016. The increase was primarily driven by a write-down of inventory for expiring in obsolete inventory. Cost of goods sold is greater than Afrezza sales for the three months ended June 30, 2017 due to under absorbed labor and overhead and the write-down of inventory for expiring in obsolete inventory. Research and development cost remain flat at $3.1 million in the second quarter of 2017 versus Q1 of 2017 and decreased from $4.3 million in the second quarter of 2016. Ray Urbanski our Chief Medical Officer will expand on our clinical program later in the presentation. Selling and marketing expenses were $11.6 million in the second quarter of 2017, an increase of 51% over Q1 2017 and were $4 million in the second quarter of 2016 just after we took back commercial responsibility for Afrezza from Sanofi. The increase versus the first quarter of 2017 is from the build of our sales force which began partly through quarter one and filling out of our sales territories plus the building out our commercial support teams. Pat will speak more directly to the commercial changes later in the call. General and administrative expenses were $6.9 million in the second quarter of 2017, a 9% decrease from Q1 2017 as compared to $7.1 million in the second quarter of 2016. We have been managing G&A tightly as we build out our integrated commercial structure. Interest expense was $3.1 million for the quarter ended June 30, 2017 as compared to $3.4 million for the first quarter of 2017 or an 8% reduction in compared to the second quarter of 2016 of $4.9 million a 37% reduction. Interest expense decreases correspond to the reduction in our debt balances. We incurred a net loss of $35.3 million or loss per share of $0.35 for the second quarter ended June 30, 2017 compared to a net loss of $16.3 million or loss per share of $0.17 in Q1 2017. The increase loss versus Q1 2017 is primarily from the non-cash change in the fair value of warrant of $6.6 million recorded in Q1. The non-cash increase in the foreign exchange loss on our insulin purchase commitment of $5.3 million in Q2 2017. We incurred a net loss of $30 million or a loss per share of $0.33 for the same period in 2016. Cash and cash equivalents at June 30, 2017 were $43.4 million compared to $48 million at March 31, 2017 and $22.9 million at December 31, 2016. During the second quarter we received cash of $19.4 million from increasing the Mann Group obligation plus $2 million from shipments of Afrezza while making principal and interest payments of $5.6 million on our debt and an operating cash reduction of $22.1 million. Q1 2017 included cash received from Sanofi up $30.6 million and $16.7 million from the sale of real estate in Valencia California. As we focus on supporting the upward trajectory of Afrezza sales and tightly manage our cash operating expenses, we expect Afrezza gross revenue for the second half of 2017 to be in the range of $9 million to $14 million. Net revenue for the second half 2017 to be in the range of $6 million to $10 million and an applicable growth to net reduction in the range of 30% to 35%. We also forecast our operating cash burn which is exclusive of debt principal payments to between $18 million to $24 million per quarter in the second half of 2017. Operating cash burn exclusive of debt payments was between $20 million and $22 million per quarter in the first half of 2017. We continue to work with our advisors [Greenhill] company and recapitalization options as this is our priority for the second half of 2017 along with the driving Afrezza sales growth think. I'll now turn it over to our Chief Commercial Officer. Pat McCauley.

Thanks Steve and I'll tell you, I am also very excited to be here at MannKind and be part of the team as well. Based on my first few weeks in this position, I really wanted to share a few observations that I've had but also provide an update on our commercial efforts and successes of second quarter. So first while I have only been here a few weeks, I've been really impressed with the overall commitment and dedication of both the MannKind organization, as well as the commercial team. I've had the great opportunity to meet many employees who are fully committed to working together to ensure that we educate our healthcare providers on the clinical benefits of Afrezza in order to help diabetes patients achieved their treatment goals. And secondly over the past few months there's been a significant amount of investment and focus on building our commercial infrastructure to support Afrezza for both today, as well as the future and I really want to take a moment to just recognize all the great efforts of the team and the wonderful job that they've done. So let's look now at our second quarter highlights from the commercial perspective. As we shared with you on our first quarter earnings call, we completed a significant milestone event which was the expansion, hiring and training of our MannKind sales force in February 2017. The second quarter is very important because it represents the first full quarter that this MannKind team has been promoting Afrezza to healthcare professionals. We're going to review the impact and efforts of this team on prescriptions and writers for the second quarter in just a moment but before we do that, I wanted to highlight a few other areas from the commercial perspective. First from the enhanced payer coverage. We know that once the healthcare provider prescribes Afrezza for patients, it's very important that these patients have access to Afrezza on a payer plans. We currently have approximately 70% of commercial ice covered across a number of national health plans and pharmacy benefit managers and we’ll continue to improve our coverage for patients. We’re also partnering with our party payers and expect to improve access in the future here as well. Now there is a couple other interesting notes. First we continue to see an increase in the use of our co-pay assistance program with our commercial plans. As a matter of fact, the average patient out of pocket cost in June was approximately $39 per month. In addition we see just about one-third of our patients paid less than $15 per month. Now another thing we hear about is the education and awareness of certainly our patients and the community on Afrezza and one of the things we've done and we talked about this in the first quarterly call was to enhance our social media platform, as well as development in our TV commercial, so we're going to talk about that. First we've spent a lot of time enhancing our Facebook and here's just a couple of things that have occurred between the quarters. We continue to provide important product information for our patients on our Facebook page with also increased community engagement. We have increase the awareness of medical conferences such as the ADA and the AADE and most recently we used our Facebook platform to drive further awareness of our Afrezza TV commercial. That's something we're really excited about and when you look at the Afrezza TV ad on July 18 we achieved another great milestone at the Afrezza TV ad launched and was aired twice on the show reversed on the Discovery Life channel and today we've had over 110,000 online views of this TV commercial and as an industry we know that with TV ads and commercials, there is sometimes a lag which can be three months or more to really driving patients and increasing awareness. So we know in the future it's going to important that we continue to have a sustained and repeated abuse of our commercial in the future. In addition in working with our outcome health, and their reach capabilities we're running the Afrezza TV ad an approximately 9000 HCP offices and this really provides patients, Afrezza education and awareness while they're waiting to see their providers. So as I mentioned, we're going to continue moving forward to look for ways to increase our awareness and education for not just the TV commercial but other social media platforms as well. So let me shift now and take a look at our second quarter promotional efforts. So first let's look at prescriptions and what you see in the chart is the Afrezza prescription accounts by month from January 2015 which was the launch with Sanofi all the way through the end of the second quarter June of 2017. Now this is the last time we’re going to go over this in detail all the way back to launch. I really think it's important to keep a historical promotional efforts of Afrezza in context as we review exactly where we are today and some of the results that we’re having. As we first share with you, we're just going to make sure you're aware of this and let's go all the way back and look at January 2015. At that time, Sanofi was promoting Afrezza with a large sales force of just about 400 to 500 representatives for the year of 2015. A decision was made to end the Sanofi agreement and you can see that the NRxs trendline which is actually the orange line in the chart, started declining around October 2015 and continued through July 2016. Now with the commercial capabilities of MannKind expanded, a contract sales force was implemented in July 2016. This contract sales force helps stabilize the decline in NRx and TRx script end from approximately July 16 from just about December of '16. This was very important because we wanted to assess the promotional responsiveness with the contract sales organization before we fully invested in a dedicated MannKind sales team. So in November of 2016 we communicated that the contract sales organization contract would be ending. While we stabilized the decline prescriptions, we needed to accelerate our NRx growth with the dedicated MannKind sales team to enhance not only our promotional impact that improved our region frequency. So we made that strategic decision. And moving forward into the first quarter of '17, we committed a significant effort to execute on this decision as we recruited hired and trained or dedicated MannKind sales team of approximately 100 sales professionals with two-thirds of the Touchpoint CFO team going into MannKind. We completed training of the team in February 2017 and as you may know with any new sales team, there are a few things that come to mind. First, for some of the new representatives hired can take typically 3 to 6 months to make an impact in your territory but secondly while we did some individuals from Touchpoint who are already promoting Afrezza, whenever you realign territories, there is going to be significant amount of disruption with customers and in this case we had significant disruption in just about every single territory that we had. So I hope that historical context is helpful for some of you that have heard it but it brings us to where we are today which again is the first full quarter of present promotion for our MannKind sales team and one thing we see is the continued promotional responsiveness of our sales team with both prescriptions as well as writers. So let's first look at prescriptions. NRx prescriptions grew 36% in the second quarter of 2017 compared to the first quarter of 2017. In addition our TRx prescriptions grew 23% in the second quarter compared to the first quarter of 2017. One of the things to note in June that also represented our highest Afrezza TRx prescription month for the dedicated MannKind team which was approximately 70% of Sanofi's highest TRx month which was December 2015. Now this is significant because this has been accomplished with a much smaller sales team than Sanofi and on approximately 20% of the resources that they had at their disposal. So we do believe that as we recapitalize the company, our ability to continue to scale will accelerate growth. Let’s now take a look at the new writers I think you’re going to see a very similar story when you look at quarter-over-quarter growth. What you see here is that new writers increased 41% in the second quarter of 2017 compared to the first quarter of 2017. Total writers increased 14% in the second quarter of 2017 compared to the first quarter of 2017. The very important thing to note is our new vital growth has contributed to the NRxs prescription passive to refill prescriptions and if you look at the lower right-hand side you can see that the orange line which is the NRxs has surpassed refills and this again is very, very significant as we look for continued growth of our Afrezza brand in the future. So we believe that this further represents the promotional responsiveness of our MannKind sales team and marketing efforts and we’re going to continue to have a high level of focus on expanding our breath of new writers as this will be critical for our future growth. I also wanted to share with you the performance around our Afrezza cartridges and look at the growth. This chart represents a rolling four week average of Afrezza cartridge quantities and we saw a 24% cartridge growth in the second quarter of '17 compared to the first quarter of '17 and I think what else is very important to note is when you look at our highest cartridge four week average which occurred on June 30, that was approximately 83% of Sanofi's highest four week cartridge average which occurred on 12/18 of 2015. So we’re going to continue moving towards that peak and in cartridge quantity growth quarter-over-quarter as we've shared with you on previous calls this is very important because we book our revenue on the number of cartridges and cartridge types per prescription sold. I also wanted to make you aware of some of the industry packaging and certainly things that we've been focused on and as you may or may not be aware, we have been transition our packaging and now have five primary SKUs and those are all listed on the slide in front of you with two of these just being launched in July. So the second half of 2017 we're going to continue to phase-out three of our other SKUs and there's been a lot of change here when you look at some of the packaging and one way to put in perspective is by the end of this calendar year, we will only have one SKU that was originally used in the launch of Afrezza. So we know there's going to be some changes going on across some of the prescriptions and packages but also what Steve shared earlier, our gross Afrezza revenue in the second quarter grew 60% compared to the first quarter of '17 which was due to volume growth, a mix change to more favorably price and DC as well as price. So in closing when we look at the quarter-over-quarter we know that it was very, very exciting for us to look at some of the different growth in many of the metrics that we have and we know that as we continue to grow the writers and grow new prescriptions, this will be compounded impact and have that affect as we move forward. And so we're very encouraged when we look at new and total prescriptions, cartridges, or new writers but we know data fluctuates week-to-week and we see this in multiple disease states, one thing we also know is that we're trending in the right direction. And we believe as we said before this represents the promotional responsiveness of our commercialization efforts, and that we shared with you on this call and we really look forward to our continued growth in the future. I'm now going to turn the call over to Ray, our Chief Medical Officer.

Thank you, Patrick. So as Patrick just described, the commercial strategy utilizing the data we currently have on hand, I’m going to cover the Afrezza clinical strategy basically generating new data to help move us and Afrezza forward. I will also give you some details on the clinical trials that we are planning and are conducting. I’ll then give you a brief update on the label submission and on some of our development compounds that Mike alluded to in his introduction. Although there have been approximately 63 studies conducted and approximately 5000 patients during the Afrezza development program, there still exists significant knowledge gaps. There are several reasons for this. The field of diabetes has advanced but currently looking at different metrics, metrics that include measurements other than A1C and technology has vastly improved. The advancement and uptake of CGM technologies now allow us for patients to have real-time glucose control. This can improve metrics such as time and range of glucose excursions both recent topics at FDA meaning and are being viewed as clinically important endpoints. Afrezza when dosing titrated properly is uniquely situated to help patients achieve these goals especially around these metrics and this is the foundation of our clinical programs. So let me start with the starting and staying on Afrezza. Mike alluded to some simulation data that we have. This simulation data has provided some keen insights into how to appropriately dose and titrate Afrezza. This simulation data was not available at the time the development programs and hence we are implementing it in many of our new clinical trials. So in looking at this data we have designed two studies, the STAT study and the ADD-1. I will show you a high-level view of all the studies on our upcoming slide. And this will help us address the proper dosing of Afrezza. We also looked at the speed of titration which we know historically and based on feedback we see an actual patients, so the STAT the A1 and the ADD-1studies are looking at addressing the speed of titration. We also are looking at integrating technology and digital platforms so Mike has already addressed One Drop we are doing a study with One Drop which will call out a one study which is basically going to be done in Type 2 patients. We are going to be implementing CGM again keep in mind that there were no Afrezza CGM base studies in the development program in the 63 studies I like alluded to previously. This will be in Type 1 patients and again this is the STAT and the ADD-1study. Then we’ll look into expand our clinical knowledge everybody asked about our pediatric program. I'll mention the time line et cetera on the next slide. The long-term safety study, there was a close loop study being conducted at Yale and we're also looking to generate real world data and this was in the Type 1 patient and will be in the apex study. So this next slide is actually going to give a high level detail of the studies I just mentioned within our Afrezza clinical trial program. We could see at the top is the pediatric PK study. We have recently hired an endocrinologist to our stuff David Klein. David has helped us tremendously in guiding us and finalizing our first pediatric protocol and planning for all future pediatric studies. We anticipate a moment to begin in September. It was interesting to note that investigators informed us to try to enroll on the summer months what actually poses more problems than solutions. Also as we always do, we have worked diligently on operationally simplifying the trial and help controlling cost. The next study we looked at is the pediatric Phase 3 study which basically is being planned and we're probably going to conduct that sometime in 2018. This will follow ongoing negotiations with the FDA around what the actual pediatric program looks like. The long-term safety study I have spoken about on numerous calls previously, that is still on target to start sometime in 2018 and we again on managing our cost operational cost started with that study and again engaging with the FDA on future conversations around what that study might actually look like. STAT ADD-1, apex A1 and EL closed loop study I mentioned in our previous strategy, the STAT study has already began enrolling. It has approximately 20 of the 60 patient already enrolled in the trial. It's across four centers with some key thought leaders. The ADD-1study is the Afrezza dynamic dosing study. This is being done by two key centers within the state of California and again with key thought leaders. Apex is going to be our 600 patient experienced trial. We expect this to begin sometime in November of 2017. The A1 study which is the utilizing the One Drop patient disease management tool will help us see how patients Type 2 patients actually dose of present and we can get more accurate results in driving our Type 2 strategy and the Yale close loop study is being done in the artificial pancreas setting. So I just want to make a note, that we are executing this incredibly robust program of keeping our quarter-to-quarter R&D spent flat and decreasing our year-over-year total R&D spend while conducting these studies. So let me move on from our Afrezza clinical program and just touch upon the submitted label revision. As I've done in the past, I've shown that these are the graphs that we are submitted and to the FDA for a label change and it really demonstrates our Afrezza's unique PKPD profile. You clearly see in the upper right-hand graph, the much earlier onset versus the Lispro versus Afrezza. You also see a much rapid return to baseline with Afrezza versus Lispro. We are utilizing these fundamental differences between Afrezza and other rapid acting analogs to be the foundation say, excuse me, the foundation for our clinical trial philosophy within our program. Last, but let; me speak a little bit about the pipeline. Mike and I have had several conversations since Mike as joined the company about the importance of having a development program on top of and in addition to our Afrezza franchise. During that time we have been slowly progressing some of the key programs within our development pipeline. We recently had a very successful Treprostinil pre-IND meeting with the FDA. I must say in my 20 plus years of doing clinical development, I've never left a FDA meeting haven't such clarity on what the required studies were for registration. We will be filing the IND in 2017. We also expect to be dosing our first subject with one of our investigational products for the first time in over a decade and this will come in 2018. This is a quantum step forward for our development programs as well as for us to the company. And finally with the pipeline we have also as Mike as alluded to engaged Locust Walk and this process has been started to evaluate potential partners for our pipeline candidate of which we have had several interesting parties to date. So with that, let me turn it over to Mike to finalize some discussions about PAH as well as give a summary.

Thank you, Ray, Pat and Steve. Let me quickly just touch on the pulmonary hypertension market, it’s not something we previously discussed on an earnings call. But based on the FDA meeting we made the decision to accelerate investment behind this program and pull forward to make sure that we don't lose time on time critical path in terms of developing our next pipeline candidate. For those of you who don’t know PAH is a type of high blood pressure affecting the arteries or the lungs, and right eventual the heart. It’s estimated to impact of 250,000 individuals worldwide and is considered an orphan condition. Market size exceeded $6 billion in 2016, but his considerable commercial potential due to the premium price paid for PAH therapies. Currently just to put some context around this, the current prostacyclin costs anywhere between $170,000 to $300,000 in a patient per year. The lifestyle and the quality of life for these patients is dramatically impacted by the current treatment out there. For those of you who don't know, you currently need to take roughly 12 to 20 inhalation a day through an nebulizer and machined to get your effective dose and because of the complexity in the delivery as well as the absorption of the product, it’s very hard to get to the top end of therapeutic doses. We believe we have an opportunity here to deliver appropriate dosing in the current ranges of all upper dose ranges that will really help these patient receive tremendous benefit and get their disease under control. Today, the prostacyclin have about 45% market share and we currently labeled our Treprostinil Type 2 which will compete in this space. That is not the brand name, that is just our internal abbreviation as we refer to it. We are excited about this milestone in the company's history. We are excited for development team to get the work to start focusing on bringing this molecule forward. Many of you are able to afford to bring this forward. And I want to articulate that the early phase development of these programs do not cost a lot of money, they take more time. And the capital putting toward this is worth it because I don't want to lose another 3 to 6 to 9 month in time and in a critical development and way, which this to me, we haven’t shared timelines, but as we get through the single ascending dose study and build our confidence around to potential this molecule we will share updated timelines for potential launch. But obviously we are moving faster, because we believe there is an opportunity. You heard a lot from all of us, I know the number one question in your mind is capitalization of the company. What people need to understand is we have many options on the table as we think about sources of capital. We can issue debt, we can issue equity, we can do sale lease buyback of our manufacturing plant out in Connecticut. There are development deals that Ray and I have been working on as well international licensing opportunities. So, we have to figure out the right combination of all those mix in terms of how much capital do you want to raise to get to what time point so you can maximize shareholder impact to the growth of the company and the investment. What I can confidently say at this point is the more capital we put the faster we will grow Afrezza and there is always a balance of shareholder returns as you think about the type of mix is an opportunity we have to bringing capital. But also delaying a little bit of this investment while we fixed the fundamental of the company was important. No, matter how hard we pushed over last 12 months, we had to fix some of the fundamental aspects of the commercial launch around the packaging, the sampling, the training of our sales force and how we roll those out to customers, that just took time and we’re finally through that and I think you can see in Q2 of this year. Our first real quarter with our expanded sales team, significant growth quarter-over-quarter. When I know and many people know in the pharmaceutical industry to see the growth within the first three months of the new sales team doesn't always happen especially on a relaunch. So, we are very optimistic as we go forward. There is nothing, I've heard in the market research that tells me, we’re not going to make this drug phenomenally successful. So giving guidance for the first time in history of the company which I think is important. You can refer back to Steve’s section to get that guidance. We continue to meet with potential investors and we’ve come up with the right capital solution for the company which may or may not meet the short-term versus long-term needs or exceed the short term to get the long-term need. We will continue to work with our potential future investors and our current equity and debt holders to get there. We will deliver on these financial commitments. We will capitalize for future growth. We expect our current capital depending on which we handle the Deerfield debt to get us pretty close and into 2018. I will continue to evaluate that as a go forward as Steve given you our expense burn quarter-over-quarter. On the commercial side, we continued field execution of our few key programs whether that’s the commercial, whether that's our speaker programs, whether that’s a continued execution of the medical aspect of the company. We have enhance payer coverage and stream lined access to Afrezza. We have started to build out a specialty pharmacy network in the end of Q2 and we expect that to continue to grow in Q3. International expansion with Brazil is our first one, we continue to have other opportunities and discussions on the table. That I'll answer is probably in the Q&A. And then finally on the medical side of the product, while maybe obvious again to us the value Afrezza brings to patients. It takes time for people to see and understand the information. Our label change come in with the FDA will allow us to make some potential different claims that we’ve not been able to make in the past and when you take that label change combined with the investments we’re making in the clinical development of the program and the trial that Ray has launched this quarter. They really will help articulate the value and the benefit of this product as we think about those titration and getting to a timing range whether it’s type I or type II patient. The launch of the pediatric program to me is really important to our long-term growth. We know this is where patients will start on drug and stay on the drug for years to come. That experience into pediatric population is extremely important and make sure we get that right. So we've been tiptoeing along the clinical development program to make sure tighten up the trial and get a successful outcome as this will be the next phase 3 trial that we run with the product. And then finally as Ray mentioned, filing our Treprostinil IND is a number one priority. On the medical side, in getting that application in and improved to move the program forward is critically important. You may be wondering, we mentioned previously our new office this is another cost savings measure as we won't have rent expenses for the second half of this year and so we expect to be moving to our office effective September 1 and will be moving over the next few weeks. With that said, I want to thank the executive team for joining us on this journey. We have a vote ahead of us to really get through, but I think we can see that as we grow units revenue expense increase a little the faster. This is a very scalable business and not one that we see that we have increase our operating cost structure dramatically where we are in order to obtain significant growth in the future. We believe time will prove that this product has the ability to be very successful within the current commercial execution that we've established. And let’s stop there and turn it over to operator for Q&A.

[Operator Instructions] And our first question comes from Jason McCarthy from Maxim GRP. Jason your line is now open.

Hi guys congratulations on completing your first quarter with the new commercial team in place. Michael, can you talk a little bit more about the upcoming labeling change maybe give us a sense of the timing of the change and how you expect that to impact revenues in 2017 and going forward into 2018?

Sure thank you Jason. First the label change has a couple aspects to it and I think about it in three steps one there is the ability to articulate that the drug starts working within five minutes. The second part is we can articulate that it is faster than the competition. And the third is asking for a different category altogether. The important of these commercially really vary in terms of impact now in the second half of 2017 but as we go in 2018 and beyond. As repute to communicate we expect PDUFA approval by the end of Q3. So this will be a Q4 event in terms of launch and impact. Depending on which combination of those three activities happen really will depend on the upside in terms of the forecast and the accelerate growth that we expect post the label change. So for example if we were to get a different category that opens up a lot of the managed care access, if we takes that out of the bucket that we’re currently restricted in by the competition. So we don’t always control the buckets they’re consumed by the PBMs that drive 70% of the units in the country that really opens that window a little bit. It also dramatically could change Medicare Part D coverage. When it comes to the speed of onset saying we work within five minutes the reason that's important as we’re running these trials right now with DexCom and what you can see is within three dots on the DexCom you can see whether you got your appropriate dose we need to follow up the dose. Being able to have the clinical data that we kicked off coming out in time frame and read for us internally to know what the label change is going to be we are waiting to see a couple dots on their CGM which way did overshoot or undershoot for dosing in order to pull them back into time and range very quickly. We expect that the five minutes claim to be in there the data supports that and something we’re excited about. The other thing I can tell you is when we shared that PK/PD curve with the physician and asked them what does this mean to you the five-minute onset meant more to the physician than we expected in terms of just understanding the PK/PD is a product the speed of onset, getting out of body fast and all the things that come without backing of insulin and injecting. So that really gave them some confidence around how to mince with a drug and what they can communicate to the patient's. And then getting out of body faster and we know to make that claim is read our label today we say we get in the body faster, but we can't necessarily say we work any faster. And that’s been something that’s been bothering us since launch. And this to me is a very important label update is it really will allow to finally articulate the true profile of this product at least from the PK/PD. When you take that label change plus the work that Ray has been doing and his team that we’re really working on this one-two punch combination and when it comes to some of these things. I hope that answer your question Jason.

No it does thank you very much. And just one more on international expansion you had mentioned Brazil earlier any plans for the Asian markets in particular China and how is MannKind thinking about those additional markets with the new commercial team in place.

So when we think about international markets, earlier this year when the commercial growth wasn't clear to everybody it’s was very hard to think about the right balance of a deal. Now that we have shown our first quarter behind us and its public we can start to show the early success of our commercial team so that the potential deal outside the U.S. can see that when we put the resources appropriately against this and the limited resource that we have and get the kind of growth we’re getting and continue that growth quarter-over-quarter. That will really help solidify some of the deals we’ve been working on. Obviously different markets around the world have dramatically different price points, but we are and have been and we’ll continue to talk to various partners in key markets. When we think of Japan you probably need a second study for Japan that’s typical and there's plenty of Japanese partners to consider for that one. When we think about India and China those are two great markets which have tremendous unmet need for example in India there is probably about 80 million patients with diabetes and their average A1C is about a 10th. So these people are under control and they need something that could be easier it really helps drive that and we have some innovative idea and I think about treatment with insulin in some of these markets. So we’ll continue to look at that and when I think about international markets their business opportunities but there also opportunities to help us turn our inventory faster as we think about scaling up the manufacturing plant insulin purchase commitments we have in the outer years this really helps turn some of that. And so we’ll continue to see nice offsets in terms of our fixed expenses but they’ll also help turn the inventory and some of those commitments that we have in the outer years.

And our next question comes from Robert LeBoyer from Aegis Capital. Robert your line is now open.

I'd like to get a better feel for the one drop collaboration and having read the press release. Is there anything that you could add to what was has been publicly disclosed about what you're trying to do and how this will impact usage and patient management?

When we announced memorandum of understanding back in Q2 it was really focused on three things right really round coaching and education of patients and I have been thinking about how Afrezza can benefit from their platform. The second one is on Bluetooth technology and the third was around trying to build a model that really helps transform patient care. So I break that out into three sections so we just announced the first part of that collaboration which is around launching this clinical trial with that will help us build out will be some of the platform around coaching and education. It’s also running a role up study in type 2 patients which really haven't had, it’s a cost-effective way to do that. And it will help kind of help people stop monitor when it comes to FEV1 and it will also show how we can dose and titrate and build coaching applications within the app for future growth as we think about the collaboration. The second part of the collaboration that we really did spend a lot of time during Q2 into Q3 is really around thinking about a membership-based model. So we knew the cost of insulin is high for many patients. We also see roughly $300 million in sales and cash pay market alone and that is now all the Walmart rely on brand there is a lot of people paying for analog insulin out-of-pocket. And then we look at the number of prescriptions which are significant in this market, and I have sorry just feel I want to stop my head but there are significant number of cash prescription in addition to the dollars. So we think about one drop and we look at the membership model for unlimited insulin test strips we’re looking and say how you can build out and insulin based subscription service with a product like Afrezza and – unfortunate various challenges as we think through that problem but we’ll continue to push forward on this one. The challenge is mainly come out of government pricing and how do you deal with less price issues and managed care contracts. These are patients who may not have access to care or they just high deductible plans and so we’ll continue to work through what that could look like in the combinations of that and I’m pretty show we’ll have something able to move forward with as we progress, but we’re close to working through that internally as well as with third-party partners. And then the last part of that collaboration is around Bluetooth technology we know there are Bluetooth pens I worked on some of the things myself in my previously live. And I think it’s nothing better than thinking about the technology platform that are out there whether it's one drop is that a lever coming for its DexCom, where you can take a dose of your product and it shows up on your screen whether shift on your DexCom and your iPhone showing you know that I took a dose and what that response was I think the first time in medicine what we’re really going to see dose response curves. When into these where you measure your sugar every five minutes and anyway frequency device or you just prick your finger either these options given clarity on your sugar is something really not had well adopted across diabetes. And I think as we continue go out the technology in diabetes and the growth on these technologies people are going to see for the first time what their sugar is all day long as these continue to get adopted. But the problem they’re going to run into is they don't have a tool that gives them real-time feedback on how to manage the sugars. And so with a label change coming from FDA we’re optimistic that the study we’re investing in will help us have data to show that you have real-time control with this disease when you can major sugar is now you have a solution to the problem you have identified. So this is why we are excited, we are excited about the product and what the product can bring and the dynamics it brings. So far the answer is a little bit more clarity around one drop collaboration they have been phenomenal success in a membership model the growth of their platform and they’re just a great partner to work with a great culture. So we're excited about the collaboration.

That's helpful, that gives a little bit more insight as to what you doing. And just one other are there any other updates on the pipeline maybe the epinephrine program or prostacyclin.

This is Ray Urbanski. So with the epinephrine program we are still progressing albeit slowly the inhaled epinephrine for anaphylaxis the conversations with the FDA are ongoing around what the clinical program will look like for registration. As you can imagine there were several complexity around an autoinjector versus inhaled epi so the FDA and MannKind are trying to get this quite right. [indiscernible] trial and we still then we started formulation and aerodynamics without devices et cetera but that also progressing as quickly as would like it at this point in time. We also have four or five other compounds that we have evaluated at various stages of development again there resource as capital become available we’ll probably progress from these more than others. I just also want to make a note of the 45 compounds that we have ever looked that to formulate we have been successful with 43 of them. So we’re pretty confidence that whatever compound we look at we’ll be able to put it into our formulation technology as well as our devices and moving forward.

And just to add that some of these are in why we engaged [Indiscernible] because they are of interest because we think they served real on the need, but they may not be like epinephrine we are really going to build out a large primary care sales force to sell epi. So when we think about potential partners that we line up with these programs is one of the things we look for to offset some of those development costs is to bring the right partners around some of these programs.

And our next question comes from Bill Tanner from Cantor Fitzgerald. Bill your line is now open.

I had a couple for you and as it relates and you guys walk through good detail the efforts that are being undertaken to grow Afrezza and so if you think about sales force expansion payer coverage, the one drop, the label, which is your label update international expansion in additional clinical data if you had the rank order which ones are or what ones you think are the most important maybe the most likely to be successful most likely to move the needle – what those be just in terms of investors wanted to pay attention to the impact that they are having or do you think it's – the constellation of all of these things that are going to potentially have an impact. And then I had a follow up on treprostinil program please?

Bill great question I think you can see that come we’ll continue to make tremendous progress on a lot of fronts pushing a lot of things down parallel paths and I think we all seen SSLs we trying to do too much at the same time and we can refocus our energy sometimes. But I think the answer to your first question around privatization I think getting Afrezza success and execution here in the U.S. is number one, two and three priority I am glad to have Pat here whose got tremendous amount of leadership and experience in leading sales teams and cross functional alignment. I believe we’ll continue to see an accelerated fine tune of our sales team in terms of their impact and their execution and also recruitment of key talent to continue to. We have probably about seven field openings around the country and I think those. We are not in a rush to fill them, these we want to make sure we have the right type of people in the bus. And this is really important because we see actually one example we just hired rep recently in the East Coast and literally in one month she grew that territory 600% which is unbelievable but you just get the right person and the right passion and the right understanding and you could just see tremendous growth. And that’s when we look across the territories the good advantage of our last year as we've seen what works and what doesn't work and the types hiring profiles. And we continue to get picker and picker as we go forward in the types of people that we believe will be successful as we go forward. And so that's in terms of number one priority. The other reason that that is important is that continues to drive some of the deal terms we think about whether its international expansion, pipeline opportunities et cetera. So the faster revenue of Afrezza starts growing but the more people gain their confidence to invest in future expansion opportunities. International expansion is probably my third-party my second one is the label change because I believe depending on which combination comes out in a label change all of them represent upside to the current forecast. And that upside may not be realized directly in the month after we get it, but they really represent a potential upside in terms of what we can actually say and how doctors understand and communicate about the products. So that’s my second priority my third priority is a combination of international plus pipeline and the reason is both of those things take a long – they have long lead times. And so if we don't start some of those international discussions now and we started them alright but if we didn’t start them previously we would never get across the finish line at a timeframe that I want to make sure we’re launching HUS in late 2018 and 2019 and beyond those are important years as we go after the company. The one other thing I did mention on the call - I did mentioned in the last call, which is seeking a primary care co-promote partner. This is something that you know if the appetite is right, I believe there is a large opportunity to accelerate the growth in the primary care segment. We have all the tools and capabilities ready to go and they are ready for scale. So for example, I get a lot of questions on the TV commercial on why it’s not out there, why we’re not spending more. The reality is you don't want to spend $20 million, $30 million launching a TV campaign without a couple of hundred reps pointed to a local level. So really looking and seeing is the right partner out there to help pull those together as go into ’18. If we see the temperature is not right out there for whatever reason, then we might make the assessment that we want to go into a local market ourselves and demonstrate what could happen in one and one small geography and scale it up from there. So that’s probably another priorities to really look at that opportunity.

And just on the Treprostinil program. I'm wondering if you could just whatever you're willing to disclose, kind of provide some idea as to what the different, the profile the differentiation profile of the product would be relative to other inhaled prostacyclin. I mean I am assuming the aspirations not to create a me too product and I guess as you think about longer term with the pipeline the notion would be what in terms of trying to leverage the technology converting things that are normally delivered pulmonary or perhaps the [PK] profile being better as it is with insulin.

I’m going to let Ray take that question. One thing I will add before it goes is, we’re going to have investor updates twice in the month of September and we’ll give a little bit more clarity around how we sequence out the pipeline and the filter that we use, so that will be coming out in September timeframe. But just to focus on Treprostinil for now. Ray maybe you can comment.

So, one of the things I want to emphasize and the things will articulate in the future meetings, is that all of our development programs and even though they may be following 505(b)(2) registration pathways, are not being developed just for the mere convenience. Right, we’re not developing and inhale Treprostinil simply because it happens to be more convenient than walking around with a battery-powered nebulizer, where you have to take multiple inhalations for single dose. We firmly believe and in having conversations with some very high-level thought leaders that our drug delivery technology will deliver Treprostinil in a more effective way increasing tolerability, but also improving the safety, profile, but also the efficacy profile of the inhaled drug. So when we describe our other pipeline products you’re going to see this recurring theme throughout our presentations. That we’re not only meeting an unmet medical need through our improved safety and tolerability, but also we feel there is a real efficacy advantage and it's not purely as a say again it's not purely a convenience play. So, that's where we think treat sits and as I say, we've had conversations with some very high-level practitioners as well as KOLs. They think the therapeutic advantage of the Technosphere Treprostinil is incredibly high especially as related to currently marketed inhaled Treprostinil.

For competitive reasons I don’t want to go into this one too, but I would say we have talk to couple of key positions that, when you articulate what we’re trying to articulate what we’re trying to achieve with this development program, what we think is possible and their articulation of what the journey is for this patients. It’s something that we get very excited about, but we want to walk before you want to miss one, but we but we do believe as we get through the first phase of this, the timelines will move rather fast.

I mean that was a question, I mean obviously Technosphere insulin is groundbreaking as it relates to delivery of insulin and just wanted make sure curious as to other things that you would put in the pipeline or use the inhaler for the formulation technology for they were also be viewed as being very much innovative and understand the 505(b) (2) does not necessarily mean lack of innovation. Just to kind of wanting some color. But obviously we’ll get more detail when we get more detail. Thanks for answering that.

Wanted to comments this one, I think the big surprise, or segment I guess for our part is, when you are delivering a drug to [indiscernible] already, the FDA’s barrier in terms of what they expect and one out of the studies that comes a lot less of a burden in something like insulin which was a first time for us going in that direct with all the development cost. When you deliver drugs to lungs the FDA as a little bit better understanding and expectation around hat. So that’s helpful to us as well.

We have no additional questions at this time. I would like to turn the call over back to Mike for closing remarks.

We have some other questions that we mailed in, but I am told off bit just expect some continued future updates as we progress into Q3. I want to thank everyone for their patience. I think you see the first quarter of a fully built MannKind sales team is continuing to accelerate our growth. The excitement I have is that, you can see, as we grow units, revenue exponentially increases. So even those mailing be growing 20%, you see gross and net sales growing probably in upwards of 50%, 60%. We expect that trend to continue as we migrate through a dose titration schedule for patients and packaging changes that we made as really helped to make it easier for patients to titrate up and staying start on the drug. I get lots of question on refills and news access and I just want to remind people that just because you see a 100 or 200 NRxs, they are my all new patients. Sometimes the patient switching doctors, they are switching pharmacies, it’s an annual renewal. So the subset of patients is what's new and when we look at our refill rates, we don't see a tremendous difference between us and rapid acting analogs insulin. So that's a question I know we get a lot, it’s not one that that concerns us. We think as we grow and we do some of these studies and continue to increase our titration schedule, we think our retention rates will go even higher than the rapid acting class. But in general, we are not seeing anything that scares us, at this point when it comes to retention. We had to pass our refills, within our stroke which we did in June and July continues to be a strong month as we sit here today going into August. So from this perspective we have some time in our side to solve the capital structure of the company. We are working diligently on that one - we know it’s an overhang as we stand here today but it's not an overhang that we will sleep over because we we've had several great meetings and expect that to continue. So I want to thank my team, I want to thank all of you and most importantly thank patients who depend on us to be here today and tomorrow and the future. So, thank you everyone. Have a great evening.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.