MannKind Corporation (MNKD) Q4 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation 2017 Fourth Quarter and Full Year Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded on February 27, 2018. And will be available for playback on the MannKind Corporation website shortly after the conclusion of this call until March 13. Joining us today from MannKind our Chief Executive Officer, Michael Castagna; Chief Financial Officer, Steven Binder; Chief Commercial Officer, Patrick McCauley; Chief Medical Officer, Dr. David Kendall; and Rose Alinaya, Senior VP Investor Relations. I would now like to turn the call over to Rose Alinaya, please go ahead sir.

Good afternoon, and thank you, for joining us on today's call. Please note that comments made during this call will include forward-looking statements within the meaning of federal securities 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 of 1934. This conference call contains time sensitive information that is accurate only as of the date of this live broadcast, February 27, 2018. 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 the call over to our CEO, Michael Castagna. Mike?

Thank you, Rose. As I look back in 2017, I want to walk through today's agenda. We're going to go through some highlights and I'll walk us back through. Steve Binder will give us a finance overview, Pat McCauley will walk through the commercial review and David Kendall joins up today with a medical and regulatory overview. I realize there's a slight delay on the slides and we'll try to best manage that to minimize that disruption for you. As we go through, I want to firstly, thank you to Dr. Kendall for joining us. He's been a tremendous addition to the team. I'll now - just before I get started, I'll let David talk a few minutes about why he chose to join MannKind and what his first two weeks have been like? David?

Mike, thank you, and welcome everyone. It's a pleasure to be here to have had the honor of joining the MannKind leadership team. Many of you I know or will get you know, I hope in the coming years. My background is as a clinician and scientist in the diabetes space having worked for the past seven years at the Eli Lilly and Company as Vice President for their global medical affairs group in the Lilly diabetes. Prior to that, I had biotech experience at Amylin pharmaceuticals in San Diego as well as clinical research and academic experience at the University of Minnesota at the international diabetes center. Having spent nearly 35 years in diabetes and diabetes research, when Michael and his team came to me with the opportunity to join what I truly believed to be a unique leadership team and support a very unique asset in the diabetes space namely AFREZZA and its continued development. It was relatively simple answer when Mike and his team along with board of directors came and asked if I would be willing to join and help put AFREZZA on top of mind for the individuals with insulin requiring diabetes. So Mike, thanks to you and obviously thanks to all who helped support me in through my career in diabetes.

And Thank you, Dave for joining us, I think, you come at great time as we go forward and we'll talk - definitely [ph] with our shoulders. So when I look back on 2017, we just eliminated our contract sales organization back in January last year, we completed a major internal restructuring in the fall, which really hurt morale and the confidence in our team that remained was skeptical at best. When you fast-forward to today, we've been able to completely transform the company without increasing our cash burn because we made the difficult trade off that enabled us to get through 2017. Three things I need you to walk away with over in the next hour. Number one, the recapitalization plan is almost complete. Number two, we built a platform for scale and compounded growth and number three, we continue to focus on efficiency and execution where we manage our expenses. The leadership team today complete with Dr. Kendall joining us is now growing as one team in the same direction against the same set of objectives. The slide you should now see says transformational growth is built around AFREZZA. So I look back we've been through three stages of assets [ph], I called them. The first stage is survival, when I joined here in 2016, we got the product back from Sanofi with zero capabilities, limited cash of roughly about $20 million when I got here, and no infrastructure in the commercial and medical affairs arena. In 2017, we continue to build upon the medical infrastructure we built. In 2017, we established the full integrated commercial sales team. And we stabilized our employee base. For example, we were striving to really recruit talent in early '17 and by the end of '17, we had hired over 100 people and finished the year with the 250 employees. That's a significant amount of new talent coming into a company without a big infrastructure expansion of support. Now when want to think about 2018, I talk about that as sustained growth. I know many of you will question whether or not we're stable or the stability in '17 but from an internal perspective, this is really a good place to be and we see that in our talent base, we see that in our recruitment that people now view us as a stable company and we'll be here for the long run. So I think about sustained growth, we know based on our work that we put plans in place, that will align our talent base and dollars that we have to deliver sustained growth and shareholder value for years to come. When I look back in 2017, I'm not exactly happy with where we finished. We did meet our objectives and deliver the sales targets we established, but I know we could have done better. I know at the same time, we did keep a train on the tracks and get through a very difficult year. We learned several important things when I look back. Number one, the success of AFREZZA is directly related to our investment in sales force, medical and consumer advertising. The only thing limiting our growth is our lack of execution on the plans that we're rolling out today. And finally, we focus energy on 2017 on a switch, multi-daily injection market, but because we got the product back from Sanofi, we had fix several critical things around packaging, sampling, managed care et cetera. We're now through all those things and as you'll hear from Pat, we're looking forward to positioning the product in the earlier lines of treatment, because of the change we made especially with the payers in the type 2 market. In the first half of this year, our focus will be moving up to help people in early lines of treatment and in second half of this year, once our STAT results are public we'll really focus on the type 1 market. Next slide. So some key highlights, we have successfully transitioned into the integrated biopharmaceutical company, we've an experienced executive team and talent base, we built around the core capabilities that are now scalable and most importantly, which isn't always obvious as we go through the journey, we've positioned MannKind to be at the forefront of diabetes treatment and technology. And what I mean by that is we invested in trials last year with constrained resources, we chose to invest on the STAT Study. We knew that was imported to get data, using CGM with AFREZZA and showing what can happen when you get follow-up dosing. We also believe time and range is important, it's been several publications coming out and FDA meeting in Q4, we believe getting data to demonstrate what's possible for AFREZZA in time and range is critical. A couple of other trials as Dr. Kendall will speak about is around type 2, looking at [indiscernible] and how do you dose AFREZZA in a very fast [ph] titration schedule. So we have already made these investments and trade-offs that will really position us to be at the forefront of where we see technology giving you full transparency of where our meal time sugar control is and what you can actually achieve. Several of these new clinical trials as well as mining our existing data, you'll see these results coming out starting with the ADA, as well as potentially some other conferences, but all this information expands the scientific knowledge and awareness of AFREZZA. Just recently last week I believe there was a conference in Europe and we were on multiple slides and multiple presentations, which is 100% different than where we were a year ago. We've had three positive interactions with the FDA, on our [indiscernible] program, out Treprostinil Technosphere program as well as our AFREZZA label update. And out of those discussions, we obviously had a positive label change in September, we chose to not continue invest in [indiscernible] but look for partners for it. But we did choose to advance Treprostinil as we're calling it TrepT in the IND phase, to begin phase I momentarily. So we are excited about our continued positive dialogue with FDA, as well as advancing our pipeline. And then finally we simplified our capital complexity and increased our financial flexibility. So at the end, as I will show you in a second, we restructured and eliminated over $80 million in near term outstanding debt. Let me walk you through what we've been talking about - as we talked about the recapitalization of the company. So what you'll see in a second is we started the year with over $100 million in debt back in 2016 coming into January of 2017. We were able to reduce that debt, as you'll see in the second, by $15 million and $14 million, which is $29 million so there is 2 green bars. And I apologize, it looks like something didn't [indiscernible] range, but the 2 green bars, I apologize, are $15 million and $14 million respectively. And then you see Deerfield conversion for up to 50 million [ph] in that green shaded bar in the middle there. That's because we put a recent agreement in place with Deerfield for up to 10 million shares and what this fundamental does when you look across the bottom is we've cleared a 4-year runway for '18, '19, or '20, and '21 to focus on growing MannKind and growing AFREZZA to be the blockbuster that we know it can be. The last bar there is $5.15 [ph] convertible note that was moved out from October of this past year, we pushed it forward 4 years to the end of 2021. So this has been our focus on the recapitalization as to continue to remove those near term speed bumps and debt over hangs that we inherited, so that we continue to move the company forward and move it in a positive direction. You will notice here the Mann group $80 million is not included and that's because that's the very last step of the recapitalization process as we continue to work through the partners that we've been through and I just want to say thank you to Deerfield and Bruce & Company, everyone else that's continue to work [indiscernible] to this challenging year to overcome the complications that we faced. And now I'm going to turn it over to Steve Binder.

Thanks, Mike, good afternoon. We continue to make progress on recapitalizing and restructuring our balance sheet to support the sustained growth of AFREZZA. Mike just finished showing how we are clearing out our near-term runway to enable us to focus on investing in our business to grow AFREZZA sales. Let me know review our recapitalization progress, how we have used equity to raise [ph] cash and reduced debt, which results in simplifying and strengthening our balance sheet. In summary, we've raised $58 million to use in operating the business. We have reduced debt by $19 million and reduced corresponding interest expense by $1.6 million annually. And we've set a future conversions of debt for the amount between $51 million and $75 million depending upon the conversion price at the time of conversion by Deerfield. So assuming all convertible debt is converted to equity and depending upon the actual future conversion price for Deerfield, we've completed transactions over the past 10-month to raise cash and reduce debt with equity totaling a combined $128 million to $152 million, which translates to using equity in an average per share range of approximately $3.80 to $4.50. We believe these transactions support the long-term strength and sustainability of our company. Moving on to the fourth quarter and full-year 2017 financial results, I'll be discussing select financial highlights and urge you read the consolidated financial statements contained in our 10-K so as our fourth quarter condensed consolidated financial statements contained within our press release. Both of which were filed this afternoon. For the 3-months ended December 31, 2017, AFREZZA net revenue was $4.5 million, 238% increase over Q4 2016, which was the second quarter that MannKind sold AFREZZA commercially. Net revenue for the fourth quarter was favorably impacted by increased volumes, price, product mix favoring our 8 and 12 unit cartridges and adjustment for change in estimate of $1.4 million. The change in estimate relates to our obtaining new and more comprehensive data regarding the inventory in the distribution channel. Specifically inventory in the retail channel. [indiscernible] indicated that the amount of inventory in the distribution channel was less than we previously estimated using syndicated prescription data, which resulted in an adjustment to deferred net revenue. Our full-year 2017 gross to net adjustments were 27% of gross revenue. As a reminder in 2017, we're on a sell-through model, where we recognize revenue in the patient bought AFREZZA from a pharmacy, not when we ship the wholesalers. Beginning in 2018, we will move to a sell to model for revenue recognition, we'll recognize revenues when product is shipped to direct customers like wholesalers. Research and development cost of $3.5 million increased a 125% from $1.6 million in Q4 2016, primarily due to increased clinical trial activity in 2017. David Kendall, our new CMO will be speaking about our clinical trial program later in the discussion. SG&A expenses were $23.3 million in the fourth quarter of 2017, an increase of 52% over Q4 2016, primarily due to investment in our integrated commercial structure in 2017. Please recall that we took over the commercial support for AFREZZA in mid-2016, and began ramping up our commercial investments after the termination of the Sanofi agreement. In addition, in Q4 2017, we had our direct-to-consumer television advertising campaign where we invested $5 million to one of our commercial in 12 test markets across the country. Pat McCauley, our Chief Commercial Officer, will speak of this investment later in the call. For the year ended December 31, 2017, I'll only comment on AFREZZA net revenues, we don't believe that much of the full year comparison is meaningful to the commencement of our commercial activities starting mid 2016 after the determination of the Sanofi license and collaboration agreement. So for the year ended December 31, 2017, AFREZZA net revenue was $9.2 million, as compared to $1.9 million in the fourth quarter of 2016, sorry for the year 2016, a 385% increase - 385% increase effective [ph] investments we've made in our integrated commercial organization and the corresponding increases in prescriptions for AFREZZA. The fourth quarter 2017 we have $30 million of net cash used in operating activities, which is in the range we expected and communicated during our Q3 2017 earnings call. Comparison to fourth quarter of 2016 is not relevant. There was a significant impact to net cash using operating activities from some final transactions with Sanofi, related to winding up the collaboration. Our organization has developed a tighter discipline around spending cash and we are making appropriate choices for investing to grow AFREZZA. At December 31, 2017, we had cash, cash equivalents and restricted cash of $48.4 million compared to $22.9 million at December 31, 2016. In Q4 cash in flows from financing activities included a registered direct placement of MannKind common shares for $57.7 million and $0.5 million from our aftermarket facility. Addressing our results for the second half of 2017, versus guidance we issued in August and updated on our third quarter earnings call, AFREZZA net revenue is $6.4 million, inclusive an adjustment of $1.4 million for change in estimates, falling within the guidance range of $6 million to $10 million. AFREZZA gross revenue for the second half of 2017 was $8.3 million, inclusive of adjustment for change in estimate of $1.9 million. Although this amount [ph] is just shy to the low end of our guidance, we didn't forecast the impact to gross sales of our new to AFREZZA Boucher program, which was launched in June 2017, which impacted our gross sales guidance by approximately $1 million. The gross to net adjustment for the second half of 2017 came in at 22% which is favorable for the guidance range of 30% to 35%. Net cash used in operating activities was $53.3 million, within the range of $48 million to $56 million, a confirmation that we continued to manage our cash well. To provide further insight into our commercial achievements, plans and activities, I will now turn the call over to our Chief Commercial Officer, Pat McCauley, Pat?

Thank you, Steve and good afternoon, everybody. I am very excited to share with you today our fourth quarter commercial highlights, as we continue our transformation at MannKind. Today we are also going to review some of the key annual performance metrics, as our MannKind sales team had started back in February of 2017 is almost completed, one full year of promotion. Now as Mike earlier stated on the call, we are shifting indeed from a stability phase in '17 to one off sustained growth in '18 and I can assure you that the team is working very, very hard and is fully committed to building upon our strong foundation that was established back in 2017. So let's start out by taking a look at our fourth quarter commercial highlights. Most importantly we look at sales and our AFREZZA sales continue to grow in Q4 and we're seeing this across multiple metrics, including grow sales to wholesalers, TRX, NRx prescriptions, cartridges and riders. We look at these in detail in just a moment. Also the 8 and 12 units of AFREZZA are not only growing in volumes, but they are also showing significant contributions in sales, so we're going to take a deeper dive here and specifically look at some of the movement of the 12 unit dose over 2017. Without a doubt recruiting and hiring top talent in key positions is critical, whenever you're trying to establish year-over-year success, so we'll talk a little bit about how we continue to look for the top talent and also which sets our own individual performers. And finally, on the last earning call, we did talk about initiating our first regional TV commercial pilot and we did that in Q4, so I'd really like to share with you what we've learned in some of the earlier days, since the date is been coming in and what we're going to continue assess as we move forward. So as I mentioned before, we're coming off our first full year of promotion just about with the MannKind sales team. So let's start out and take a look at the key metrics for growth across the full year of 2017. And if you look from the first quarter to the fourth quarter, you will see that NRx has grew at approximately 128%, from Q1 to Q4, TRx's grew 91% during that period and new riders grew at about 92%. Now these numbers when you look at them in whole really important because they demonstrate an increased number of patients and providers are gaining AFREZZA clinical experience. However, as Mike stated earlier, we know that we can do even better and I'm just going to show one thing with you here, when you look at the new rider growth at 92%, so that's definitely significant growth. We also know we have a large number of riders on our call plan that have yet to prescribe AFREZZA. And we view this as a great opportunity and clearly a potential moving forward. Another thing we see is, we've got some individual territories that have over 1% of a rapid acting market share, while other territories have less. So it's going to be very important for us to get more balanced contributions across all territories and I'm going to share some additional example of this in just a few moments with you. Let's take a look now at our fourth quarter TRx performance. For the fourth quarter TRx prescriptions grew at about 20% versus the third quarter of 2017. You can also see if you look from January all the way through December, AFREZZA TRx is just about doubled during that period. And I can tell you moving forward with the plans that we have in place, we expect these growth trends to not only continue, but also to accelerate in 2018. I wanted to take a minute and just shift to talk briefly about some of the seasonal decline in perceptions that typically occur over the December to January period in all pharma industry. On the right-hand side of the chart, we will go to in just a moment, you can see, over the past 2-months from December of '17 to about January of '18, we've seen about 7% decline in AFREZZA scripts and one of the reasons this has happened we've looked at a couple of things, we believe about half of this decline was due to the expiration date and transitioning of our AFREZZA vouchers in December of 2017. We believe the other half is due to the typical January changes with new insurance coverage, benefit design changes, new deductibles and prior authorizations that typically occur not just in diabetes but in other disease states as well. As a reminder, if you look back one year ago, on the left-hand side of the chart highlighted by the red circle, AFREZZA experienced about an 18% decline in TRx's last year when looking at this December to January period. Now you may recall at that time, we were in transitioning to our internal MannKind sales team. But the good news is just sharing kind of what's been happening through the January seasonal effect, the good news now is that we are already starting to see indications of AFREZZA returning to a growth trajectory in the recent data and what I mean by that is we're looking at the TRx trending, the wholesale retail ordering, and co-pay card redemptions. And based on these observations we expect to see a positive impact in growth with AFREZZA in the near term. Next we're going to shift to take a look a little bit more at some of the individual territory performance I shared with you. Now this may not be data that you typically see all the time, and the purpose of this is to really highlight what some of our top performers are doing and what we know that our representatives and AFREZZA is capable of. What you'll see on the top line that represents the growth of our top 10 territories on a quarterly basis, so for 2017. The second line represents our top 25 and the third line at the bottom is the national average. Now if you look closely at the top performers, you'll see that some of those territories and representatives experienced very strong growth, in many cases they were over 200%. We know that this type of accelerated growth is clearly possible and we see it in our top performers. Although what we look as a commercial team is to make sure that we create this model of accelerated growth and build that across all territories and we believe that our investments and our planning and sales training, the selling model, AFREZZA clinical messaging, and other things that we put into place are really going to drive performance in 2018. At MannKind we expect strong leadership and high performance from our sales team. We're also going to be addressing low performance as needed where expectations are not being met. Another interesting thing about this is that we've had a great chance in our first year to learn more about the specific traits and characteristics that drive success in our top performers in the field and we are incorporating those into our recruiting and training efforts, some of these may come as no surprise to you, but individuals that have deep diabetes disease they experience tended to obviously typically well. The individuals also who are highly passionate about selling AFREZZA and are also very effective in clear messaging, as well as high business acumen. So again these are just a few of the things that we're going to continue to looking at as we recruit and build our talent here at MannKind. We're now going to shift and take a look at our AFREZZA cartridge growth and some of the mix change that we've seen over the year. There's a lot of information on the slide, but at a very high level, AFREZZA cartridges grew at 95% from the first quarter to the fourth quarter of 2017. And when you look down and start to drill down at the individual units, you'll notice that the 8 and 12 unit cartridges in the fourth quarter equated to just about 60% of our total volume mix. And we've seen that transition not only continue in '17, but we're also continuing to see some of the shift to the higher unit cartridges. If you just look specifically at 12 unit volume - 12 unit cartridge, you'll see that from the fourth quarter to the fourth quarter it increased from about 11% of volume mix, up to about 18%, which also very interesting is if you look at that 18% volume in the fourth quarter of the 12 units, that also represented 30% of the value contribution in dollars in the fourth quarter. So what does all this mean when you look at kind of the volume mix and the change? We believe that the adjustments that we've made in packaging will continue to pay dividends for us in 2018 and beyond. We also believe this indicates that our packaging provides more dosing flexibility for patients to titrate as needed to achieve their glycemic control. Now for the next couple of slides, I wanted to share with you some things we've talked about on previous calls and give you an update. The first one is relative to our clinical messaging and how we continue to evolve there and then will - I have a couple of comments about our TV commercial highlights. You know, one of the things we do on an ongoing basis is continue to listen to the market, continue to listen to our customers, and feedback from the field, when it comes to our AFREZZA messaging. And we've done a lot of this especially since the FDA label update that occurred last October. And we've clearly heard a few things. First, healthcare professionals believe the PK PD rapid acting profile for AFREZZA is definitely a key attribute in our recent label update with a time action profile, clearly defines this for our physicians. Now based on what we're hearing from other customers in the field and interactions as well, we did conduct market research with endocrinologists and primary care physicians and hear some interesting things. We know that AFREZZA and our selling focus even from the launch has been with one of the most challenging segments, the patients with multiple daily injections, and they represent about 90% [ph] of the market. As Mike shared earlier, part of this was done due to the payer restrictions that we had in working through all of these changes back in 2017. But for the other approximate 80% of patients who have not yet progressed to MDIs, patients and providers are clearly looking for treatment options for prandial [ph] control and we believe that AFREZZA can help these individuals in the segments. So overall the market research has provided us with a roadmap for targeting patients living for diabetes earlier in their disease progression, such as those on all anti-diabetic drugs, as well as those on basal insulin. Now for the targeting perspective and the good news here is that as we start to look at some of these other potential segment, we are already in many of the highly valued PCP targets and we're in those offices today. So let's take a shift and look at some of the early indications and feedback we've had relative to our regional TV campaign that we started in the fourth quarter. I just want to say that we're only about 5 to 6 weeks of data since the end of the pilot and as many of you know it sometimes takes weeks if not a few months to really assess the full pilot program impact. But at least on the call today I wanted to share with you some of the early data that we've captured as it pertains specifically to riders. First, if you look at the markets where we had a TV commercial pilot-based there was about a 4 times growth in the riders and new riders compared to the non-TV markets. Secondly, when we did at the TV pilot in those markets, there was about a 13% or 13 times growth rate in the average weekly unique riders and overall again while it's early, there was about a 3 times growth in the average weekly TRx's in these TV pilots compared to the non-TV markets. All these signs are encouraging, we're going to continue to watch very, very closely and fully assess and determine what our next steps are going to be in these areas. But I think the key takeaways when you look at all the numbers, this is reinforced one of the things that we shared with you before and that is that AFREZZA is promotionally responsive. In addition to that, when you put things like the TV campaign and combined it with stronger representatives and other promotional efforts, we know that we can create incremental AFREZZA growth. So on a couple of more slides, I just want to wrap up with you here, tell you little about more about why we are very excited about and well positioned for AFREZZA growth in the future and that what we're laser focused on when it comes down to looking at the field execution. So first and foremost we have many clinical studies in the type 2 market showing efficacy, safety, and average dose ranges for AFREZZA and this is really important data as it further increases not just our clinical experience and understanding of AFREZZA in this segment, but also some of the patients that we discussed earlier in our messaging. We also have a robust publication plan with David and our medical team and we're going to hear from him in just a minute. So these are some of the reasons that we're very excited as we look forward at going further and deeper into those individuals, and earlier progression of diabetes. We've successfully launched our packaging, I know I've talked about this on some of the previous calls. We talked about it here and what that means for patients and physicians is it's more clarity and efficiency in the initiation of titration of AFREZZA, as many of us know titration is highly individualized and we need to make sure that our packaging gives our patients the best opportunity for treatment outcomes. This also relates to some of the AFREZZA samples, we've updated this to include both 8 and 12 unit cartridges and we just talked about the need, not only from the volume mix exchanging, but when patients have that very first initial trial we need to make sure that the higher unit cartridges are available as they begin on AFREZZA. And finally as Mike shared, we have an additional payer coverage, which is consistent with the plans to create increased access for patients living with diabetes. We're also very, very focused on elevating efforts at MannKind Cares to better support patients living with diabetes. So as I wrap up, I know that we spent a lot of time in '17 creating plans, putting the right people in places, et cetera. 2018 is very, very clear for us. It is about strong and consistent execution in a very efficient manner against all these plans that we put into place. Execution will be at the center of everything that we do in 2018 and I just want to share a couple of the examples with you to give you a sense of what we're looking at. I think one of the most important things I've noticed over the past few months is the alignment that we have cross functionally across MannKind. There has been a lot of work to align our AFREZZA clinical value proposition and messaging across all departments, including commercial, payers and medical. I am especially pleased to be working very closely with our new Chief Medical Officer David Kendall, as we identify appropriate alignment opportunities and even though David just joined us recently, I know we're making strong progress in this area. I think another key area for us when it comes to execution without a doubt is the sales force. And when you think about it, we've done a lot of things there. We've evolved our clinical messaging that we talked about. We've created new promotional materials. We've refined our Endo and PCP call plans and we've even adjusting territories for more improved customer reach. By further excelling in these areas, we will continue to help each representatives and territory reach their full maximum capacity. So that's going to be a heavy, heavy focus for us moving forward. And also we're going to continue to make investment decisions as we always do, that best position us for sustainable growth and success in the future and as you know this will involve trade-offs and differences in our cost structure. And I'm just going to highlight a couple of things that we've been working with recently. I'm very excited to announce that we have hired a national sales director, an individual that has a lot of experience and success in year-over-year performance in people development. And this provides a deeper focus for us as we look into '18, as I talked about to go deeper into execution, that not only the regions but territory level. At the same time, we've streamlined the reporting structure of the front-line managers to report directly to this national sales director. We've also rolled out the company car program for some cost savings, as well as shifting some investments as it relates to the nurse educators. So again, these are just highlight [ph] and a few of the investment decisions and trade-offs, but we're going to continue looking at these very, very closely as we move into and through 2018. So in closing, I just want to share with you that I was really proud of the team. We had a very productive fourth quarter and a great year in 2017. We know we can do better. We're focused on the right things as we move into '18. I believe we're very well positioned for future growth with the right plan and the right people in place. The other thing I just wanted to comment, is I am very proud of the efforts and thank the commercial team for all the hard work that they've been doing as we continue to drive momentum and success with AFREZZA. At this time, I'll turn our call over to our Chief Medical Officer David Kendall.

Thank you very much, Pat. And again thanks to all who've joined this call early evening or late afternoon, across the U.S. It is truly a pleasure to join this leadership team and I appreciate the afternoon you did follow on Mike openings comment, Steve review the financials and as Pat just described a coordinated effort between our scientific research clinical development and medical affairs activities. As I will detail in just a few moments, we have established a number of priorities that are shown on the screen, but before I dive into details about those, I want to make it very clear that part of my responsibility and accepting this job was to assure that our research, clinical development, medical patient safety and regulatory activities were being executed in a coordinated fashion and in a fashion that best serves the end-user that is patients living with diabetes. We need to assure that we provide the clinical evidence to support the effective, safe, timely and appropriate use of AFREZZA treatment for those individuals requiring additional improvement in meal time glucose control and I feel we have the responsibility to measure the improvements in the insulin treatment experience for patients with both type 1 and type 2 diabetes and as Mike referred to earlier, to assure that we not only continue to focus on overall control of diabetes for those living with the disease, but look to establish novel measures of continuous glucose monitoring, flash glucose measurements and establish those as critical elements of management including time of glucose in range, the frequency and disruption caused by hypoglycemia and the patient experience as measured by satisfaction with the treatment. So our research, clinical, medical regulatory and safety groups are all focused on those endpoints. To do so we have defined 3 very straightforward priorities for 2018 for the medical group and these are listed here. The first is to refine and execute the lien clinical development to plan and enhance the scientific communication platform and clinical support to assure that there is awareness of the scientific data and the clinical implications of the use of AFREZZA. We will do this not only through a review of our clinical development plant that I'll outline is just a moment, but also to leverage a robust existing research data sets, more than 60 studies that have been executed with Technosphere insulin and AFREZZA and execute a comprehensive scientific disclosure plan based on those data. These are existing pieces of evidence that we believe can and will help inform the clinical community and patients with diabetes on the importance of meal time glucose control and the use of AFREZZA as a part of their diabetes treatment plan. Finally to assure that all of this is done in a fashion that is consistent with the labeling information that is put forth for AFREZZA, we will further refine and implement a specific set of strategy to assure that the regulatory positioning of AFREZZA is optimized for availability for patients and clinicians and in support of commercial plans that Pat just outlined. Now to provide you some additional detail in my 12th day here at MannKind on where we stand with our clinical development program, I have provided here a summary of the specific programs that will be the priorities moving from 2017 into 2018 and beyond. Shown on the top portion of this figure in purple are those regulatory commitments that come with the AFREZZA clinical program. Namely the ongoing pediatric Phase II pharmacokinetic study, which is actively enrolling patients and will help us better inform a full Phase III program for the application for use of AFREZZA in the pediatric population. In addition, AFREZZA the first and currently only available inhaled insulin will have the requirement of a long-term safety study, negotiations and discussions with the regulatory authorities to assure that that long-term safety study is performed in a fashion that best informs the consumer and clinicians about the use of AFREZZA will be part of discussions that are initiated in 2018 and will be part of our clinical development plan in 2019 and moving forward. In addition to this, Mike has already mentioned, commitment to clinical programs including the ADD-1, a dynamic dosing study that will add additional detail to information that was originally identified in so-called encyclical [ph] modeling data, looking at the potential of AFREZZA to not only compete with, but actually improve upon post-meal blood glucose control in patients with insulin treated diabetes. This study is currently in development and is budgeted for 2018 and will help us solidify the dozing paradigm both for AFREZZA and for rapid acting meal time insulin. In addition to this Mike has already referred to the recently completed STAT study that looks at new technologies, namely continuous glucose monitoring and how those new technologies can be leveraged to obtain measures if meal time glucose control beyond hemoglobin A1C and self-monitored blood glucose measurements, namely the amount of time of patient spends in a specified glucose or acceptable glucose range. This study has been completed and the scientific data have been submitted for review for hopeful presentation at this year's ADA scientific sessions. In addition, use of other technologies, such as the One Drop application has been initiated, an ongoing meal time dozing study in uncontrolled patients with type 2 diabetes study is being done collaboratively with an investigator in the Baltimore area. And finally we've highlighted an investigator initiated program performed by the pediatrics group at Yale University comparing AFREZZA use to a current hybrid closed loop pump system tied to continuous glucose monitoring. So while this program is lean and efficient, we believe this provides the essential element that will support the clinical use of dozing off and effective application of AFREZZA for meal time glucose control as the potential standard of care in patients requiring additional improvements in meal time glycemia. Finally, I'd like to highlight one additional program that uses the Technosphere platform, that is the Treprostinil program in pulmonary arterial hypertension that Mike discussed in his introduction. This is called the proximal key [ph] development program which will be initiated and executed over the next 24-months before planned accumulation of and submission of 505(b)(2) submission documents are outlined here. As was noted in previous press information the IMB for Treprostinil through Technosphere delivery was submitted in January of this year and we anticipate initiation of a single ascending dose safety study looking not only at currently available clinical doses, but we anticipate looking at higher delivery doses than those currently available by nebulizer [ph] delivery system delivery system. This will be initiated as an outlined here we anticipate within the first quarter and completed by the middle of the third quarter of this year. Thereafter given the requirements of the 505(b)(2) pathway, a switch study from current treatment options to the Treprostinil delivery program and the pivotal pharmacokinetic study. Both of which include limited number, but an efficient number of patients that will allow us to assess safety, tolerability, the efficacy and the patient reported outcomes or tolerability of Treprostinil delivered through the Technosphere platform. So this gives you I hope some insight into the clinical research, clinical development medical regulatory and safety programs that will highlight 2018 and once again I want to thank Mike, the leadership team at MannKind and the MannKind Board of Directors and all of you who have interest in the progress of both AFREZZA and MannKind as an entity in the medical care space for the opportunity to join as Chief Medical Officer and to leverage in my first 12-days is something beyond my 35 years of experience in the diabetes space. So as I close and turn it back to Mike, I'd like to remind all those listening that this is the 95th year of insulin's availability as a commercial clinical product. First introduced in 1923 and the vast majority of the time, insulin has been delivered via another alternative route namely the subcutaneous route, I feel from a clinical and scientific perspective, that we have the opportunity utilizing the unique pulmonary delivery mechanism of AFREZZA to establish AFREZZA's place in the meal time insulin space, but also to shift the paradigm for meal time glucose control with the development and clinical programs that I've outlined today. So Mike thanks to you and the team and with that I'll turn it back to you for summary and conclusions.

Okay. So thank you, David, Pat and Steve. Today I wanted to come back to the slide that kind of opened up with here. So when you look back AFREZZA truly is a novel therapy that does something different. However, there were two main things that were missing when we look back at our development program and we finally lock down. These two things are what is the conversion does for AFREZZA and what is appropriate titration of AFREZZA. When you continue to look back at all of our clinical trials, we see that we probably under dose people in the beginning and it took about 8 to 12 weeks to get people back to the baseline dose they started with and then you didn't change the dose for the second half for these trials. What we've have finally done is really try to understand when you look back by modeling our data and see what could happen, these data are a treasure [indiscernible] and one of the reasons that we decide to make this sacrifice and invest in the STAT trial that add one trial of Levin [ph] study. We believe we will clearly demonstrate was appropriate dosing what is possible for type 1, which we've given a follow up dose or a higher dose upfront, along with type 2 patients when really show a strong titration schedule giving much higher doses than people dose in individual trials. In the end we made a trade-off in 2017 to invest in these in trials versus hire more reps because we believe it's important to get data like real-time control and demonstrating technology that we think will continue to be adopted and ultimately what people will see is we need better meal time control. This is the one area in diabetes where I believe there is significant unmet need as evidenced by 40 new drug launches and little move in the outcomes over less 10 years. We know more today we did a year ago and these insights will continue to provide our customers with a confidence to try and adopt AFREZZA. We recently completed qualitative market research where we tested our new messages and showed much of our clinical data that [indiscernible] public through - we have done, we really showed them how the story starts to connect. I'm confident we're going the right direct direction to generate sustained growth. As of today, 9 out of 10 customers we call and have not tried AFREZZA, it's our job to make sure the see it first hand, understand what is possible. Pat showed you our top reps can drive significant growth and our job is to translate those insights along with the market research recently conducted in order to drive growth across all hundreds of our territories. So you've seen this next slide which talks about international markets coming up. And what I wanted to say is Brazil remains on track. We've been having positive interactions with our partner and we expect to be able to launch there as earliest as Q1 2019. Additionally, we have a fine term sheet for a large market outside the U.S. and we're in the process of finalizing a second term sheet. One of both is we hope to announce in the first of this year, but as you know, these things take time. We do expect these deal structures will have a combination of upfront milestones royalties and more importantly we need to continue to serve patients around the world - while we know these markets may not generate a lot of cash, they will tremendously make a difference for society, and I believe with the 80 million to 100 million people in some of these markets, who have and AIC at 10 [ph] just a minor share in these segments will offset a tremendous difference in people's lives. In the end, we have a large manufacturing plant that we continue to maintain and these markets will continue queue up some of the purchase commitment in the earlier while we delivered sustained growth for the company here in the U.S. and other markets. The next slide you've seen a couple of times that we rolled out originally in September, which is around near term milestone and key events. I want to give a few updates on a couple of these, I know people have been waiting on. Number one, is the increased payer coverage. We recently signed a managed-care contract with CBS, which will allow us to go to their downstream client, so while we will not have the national formulary right away, it's a start that enables us to now to go to plans like Blue Shield of California and Hawaii, together AFREZZA added and continue to remove those hurdles that have patients and provide a space. Another topic we haven't talked much about is One Drop. We're still moving in the right direction. It's a novel program, it just took some time. We hope to be able to announce a cash program model shortly that will be exciting for patients and we see this as another opportunity. In the last full year, I know people are looking for is a co- promote and that's always an opportunity, but in the end I think we have to take a look and see what is the better upside for our shareholders as we look out over the next 3 to 5 years. Should we expand internally and bring in more assets to grow AFREZZA faster, to diversify our revenue base or is it better to get co-promote partner and grow that way. We will continue to monitor and identify what we believe is the best thing for our shareholders. Now I want to touch on 2018 guidance. Our 2018 full-year revenue guidance is net revenue of $25 million to $30 million and net cash used in operating activities of $90 million to $100 million. I will remind you that we started January 1, with approximately $48 million in cash. We also believe we will be fine with our deal [ph] for conveyance of minimum of $25 million at the end of Q1. There are numerous sources of capitals we continue to look out, continue to increase in AFREZZA product revenue, the ATM, we could bring in a co-promote partner. There our debt still available for the company, as well as equity and international licensing, as well as partnerships on the pipeline assets. We believe we have adequate sources to continue to fund the company and grow AFREZZA to make this to gold standard prandial control we believe it can be. And finally, it's hard to see as we continue to go through the transformation of the company. We've done a great job on the recapitalization and clearing roadblocks and the reason we really work so hard to get that there, so we can show you what a long-term view looks like as we continue to build AFREZZA here as the base and the propriety [ph] we see on the bottom. AFREZZA is our base growth driver for the U.S. and matter what company you are in or what drug you launch, 70% of most of the profits in sales come from U.S market. We need to continue to be successful here. We're very excited about our potential international expansion opportunities and the partners will bring it along. You've seen Treprostinil, we believe that can serve an unmet need and adopt some differentiation in that market. We continue to look for in-license opportunities to bring in diversify our revenue base. And then finally pediatric program we believe a another area we'll continue to serve and also demonstrate what AFREZZA can do in a new population with a Phase III trial that will ultimately be label ready. So we continue look for this transformation that will compound over the next five years and this is why we work so hard to focus our short term energy on the re-capitalization so that we can deliver this view to you in the future. I want to thank all of our shareholders for their patience, I know it's been a very long journey, but we are moving in the right direction, we have the best team I've ever had and I'm looking forward to continue to generate growth and hopefully meet and exceed our expectations. Thank you to everyone and I think we'll open for Q&A.

Thank you. [Operator Instructions] And we have a question from Oren Livnat from HC Wainwright. Please go ahead.

Hi. Can you hear me?

We hear you.

Hi, great. Thanks for taking the questions. Earlier in the call you guys talked about most recently after the not shocking seasonal I guess churn you get early in January, you're seeing some wholesaler ordering patterns and co-pay redemptions all of which indicates you - you're already seeing sort of an acceleration or a bounce back. I don't think we seen yet an IMS data through mid-February, so can you just talk a little bit more about very specifically what you are seeing, do that we can get confidence that the script trends are going to accelerate relatively near term so we can be on track to hit your guidance? Thanks.

Sure. So I think it's a good question. I think Pat will be able to show you 2016 going into 2017 or 2017 going into 2018. The decline wasn't that severe, half of that was driven by a lack of vouchers and the other half was driven by the typical renewals we see. What gives us more confidence is, as we see two things that the market does not see. We see wholesale orders every Monday morning for the previous week. We also see what pharmacies have drawn down from the wholesalers, which is an indicator of what they shipped out the previous year. All of those indicators over last three weeks have continued to trend very positive and we are back to where we were in December if not higher in some cases. So we feel generally good and I think that worst is behind us in terms of that lift, there's nothing indicating here that we're going to see anything else beyond what we've seen. We will take sales force for a couple of days for sales meeting, may be you get a little bit a noise around that, but in general I think we kind of - our view of the world is 2018 will have a nice success of growth pattern and we hope to continue to accelerate that with the new marketing tools we're rolling out.

Great. So –you talked about the new marketing tools, I guess that does back the question, you didn't give I guess, full year cash burn guidance, but can you talk about just the trend in SG&A, obviously you had that pilot program $5 million, mostly I think all in Q4. I guess where should we expect that SG&A to go near term are you going to keep investing in DTC or should we see that money spent elsewhere?

No. I think to be prudent, we sold $10 million in sales, obviously we will keep investing in DTC. But we wanted to see and measure the lag effect of DTC, we know that just takes some time and I think once we can really measure that we saw some early indicators that are positive. And so I think as we go through the recapitalization of the company those are trade-offs we'll make. But I don't think you can expect us to spend that extra $5 million in Q1 on DTC we'll probably communicate and update if we decide to make that investment but at this point, we're not giving guidance on quarterly spent from a phasing perspective.

Ladies and gentlemen this concludes today's conference. Thank you for joining, you may now disconnect.