Welcome to the MannKind Corporation 2018 Second Quarter Conference Call. As a reminder, this call is being recorded on August 2nd, 2018, and will be available for playback on the MannKind corporate Web site shortly after the conclusion of this call until August 16th, 2018. All participants will be in a listen-only mode of the duration of this conference. Joining us today from MannKind are 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'd now like to turn the call over to Ms. Rose Alinaya. Please go ahead, ma'am.

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 Act of 1934. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, August 2nd, 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?

Thanks, Rose Alinaya. Good afternoon everyone. Diabetes is one of the greatest healthcare challenges we face today. It's been a year since I became CEO, and we have assembled one of the best leadership teams I've ever had the pleasure to work with in the past 20 years. I believe after today's call you will see the tremendous progress we have made in our first year together. Also, I want to say thank you to our shareholders who have been extremely patient with us as we reshape MannKind from the platform technology company to a fully integrated biopharmaceutical company. It was not an easy transition, and we've had our share of growing pains. But I believe we are now in a strong position to drive continued growth for year's to come. I enjoy the open communication with you all, as well as meeting the loyal humanitarians, who came to our annual shareholder meeting, in May, where you packed our new offices. Over the last year, we've met with potential future investors around the world, including our most recent New York City investor luncheon last month, where we had over 600 people listen in on the clinical update by Dr. Edelman and Dr. Kendall. Many of the analysts and people we have met with are excited to see MannKind return as a growth company. And I believe we'll start to buy in to the future as we continue to build upon the progress we have made. Our employee commitment has never been stronger as we have low rates of voluntary turnover, and over 65% of our employees are participating in our employee stock purchase plan, which is three times the industry average. During my first year we've made incredible progress at transforming us into a commercial stage growth company by driving…

Thanks, Mike, and good afternoon. I'm so excited to discuss our second quarter and first-half 2018 results which showed triple-digit growth in Afrezza revenue, as well as continued progress in restructuring our balance sheet in recapitalizing the company. Let's start by reviewing the second quarter and first-half 2018 financial results. I'll be discussing select financial highlights, and urge you to read the condensed consolidated financial statements and MD&A continued in our 10-Q which was filed with the SEC this afternoon. Let's start with the left side of the slide. The first quarter 2018 Afrezza gross revenue was $6.7 million, a 155% increase over Q2 2017, while Afrezza net revenue was $3.8 million, a 142% increase over 2017. The net revenue increase was favorably impacted by volume, cartridge mix, and price. Partially offsetting this favorability was the impact from discontinuing 2 SKUs as of April 1st, 2018, and the associated distribution channel flow-through impact. Plus product returns in Q2 mainly related to the discontinuation of these SKUs. As discussed on previous calls, please be aware that our revenue recognition has changed between 2018 and 2017 under the adoption of ASC 606. Looking at the right side of the graph, the first-half 2018 Afrezza gross revenue was $11.9 million, a 179% increase over 2017, and Afrezza net revenue was $7.2 million, a 161% increase over the first-half 2017 reflecting the same favorable impacts of volume, cartridge mix, and price. At the bottom of the slide you will see our gross to net percentages by period presented. In the second quarter 2018, our gross to net percentage was 44% versus 41% in the second quarter of 2017. The second quarter 2018 gross to net was unfavorably impacted by the return of expired product mainly related to the discontinuation of SKUs at the beginning…

Thank you, Steve, and good afternoon. I'm very excited to share with you our second quarter 2018 commercial highlights. And today we're going to begin where we left off on our first quarter earnings call. If you remember back in May of this year, we reviewed our catalyst for growth in 2018, and I wanted to share with you some of the progress to-date in these areas. And I will present some data just in a moment, but we had seen a positive impact with our Type 2 selling and marketing focus from our sales team training in March. In addition, we made a significant progress over the past year with our simplified Afrezza dosing. The other thing we've been very, very busy at is a lot of the medical meetings and we've seen a lot of data presentations, a significant booth presence, and had many important customer engagements. Now this included meetings at ACE, ADA, and Keystone. And looking ahead, we're also going to be at the upcoming AADE meeting later this month, as one of the sponsors of the upcoming ADA PCP educational series. And David Kendall will review some of the ADA highlights in a just a few moments. Based on our review of the fourth quarter TV pilot impact, we made a decision to further invest in our targeted direct-to-consumer advertising with the Afrezza TV commercial in the second quarter. And we really believe that this will help increase and elevate the awareness of Afrezza. Also, our market access and medical teams have continued to meet with key payers to review the Afrezza critical value proposition, and are working hard to enhance and expand patient access with payers. And I can guarantee this will continue to be a high priority moving forward. When it comes to…

Thank you very much, Pat, and again thanks to all of you on the phone call today. As I approach the six-month period of my time as chief medical officer here at MannKind, I'm pleased not only to increase the collaboration between the medical and commercial organization, but to see that we are beginning to realize some of the great potential that I know I as a clinician and many of my colleagues have seen in the meal time insulin space. And what I'd like to do during this medical and regulatory review is provide some highlights from the second quarter, many of which Mike referred to in his opening. Many of you are well aware that scientific disclosure of new data including the staph study results, collaborative clinical trial performed with colleagues at the Barbara Davis Center for diabetes at the University of Colorado and post talk analysis of the data on hypoglycemia rates the pivotal affinity one trial, both presented at the American Diabetes Association's 78th scientific sessions. The other achievement that -- I think it is well worth noting in terms of advancing the availability of Afrezza to the population affected by diabetes is our anticipated completion of the pediatric PKPD study cohort 1 which we anticipate will be completed early in the third quarter. We have also convened the first meeting of the MannKind Diabetes Scientific Advisory Board, including clinical experts in insulin therapy, experts in the complications of diabetes in particular those with an interest in understanding and reducing the risk of hypoglycemia and understanding the long-term safety of insulin therapy. In addition, Mike mentioned the completion of our Treprostinil Technosphere single ascending dose study and this is now a Phase III ready asset and we are progressing to development of the Phase III program…

Thank you, David, and thank you everyone. I understand there is some challenge on audios, so I apologize if you're dialed-in versus the web, it sounds like the dialed-in version is -- so we will continue to get better of these things. I want to talk about international updates real quickly. We obviously are approved here in the U.S. We announced India. We announced Brazil last year. Brazil continues to go well. We just completed several inspections between us and our insulin partner, and our packaging partner as well. We expect the Q4 approval with Q1 launch in 2019 pending pricing decisions within Brazil. India is also progressing nicely as we continue to design the new trial there and utilize our six pivotal trials, where we have a plethora of data in the premixed insulin due to the original pivotal trials done with Afrezza. Predominant treatment in India is premixed insulin. And having that data will really help go a long way showing the weight benefits et cetera going into that market. Additionally, we had the opportunity to talk with Mexico, and David was up in Canada yesterday, so thank you David for making it back in time for the earnings call, but we met with the Canadian Authorities yesterday, had a great discussion, and it looks to me that we will be able to file there and Mexico within later this year or the earliest Q1. But both of those look to be file-ready. And I think that's important that we don't need additional data. And it will be two additional markets to see patients get Afrezza over the next year or two. I had a lot of question on the Tanner Pharma, I just wanted to address there is no upfront money because we still own global rights…

[Operator Instructions] And we'll go first to Oren Livnat with HC Wainwright.

I have several. I know you hate when I do this to you, but I would really love if you could help walk me through this net value -- or gross to nets, right, just so I can understand adjustments in inven [ph] side. What is the current and go-forward net value per script with the -- I understand you don't sell scripts, you sell to wholesalers, but when you model this what is that number? That gross number you gave us, of 11 point something in the first-half implies in the second quarter a full 1,100 and something for script, which would be a whack amount as far as I can tell. What is the net value per script?

Yes, great question, Oren. So our net value per script when you take away the one-time return event here in Q2 is approximately $590 in that range, plus of minus. I'd have to go back and calculate. I think Steve and I were looking at that, at least in Q2. So that gives you some range of what believe we see in that parameter. One of the things that we don't include that you may see in your model is around vouchers. So that is not something we report in our gross revenue. They are excluded before we even report gross revenue. So when you look at weekly IMS or Symphony data the vouchers are in there, we never report those. So those are excluded from our models and what you see in that slide as well.

Okay, cool…

-- some of other key things in that. So when you think about price protection of managed care contracts or Medicaid rebates coming higher, 2%-3% off on a gross sales number, let's call it, $40 million for simplicity sake, that add $1.2 million less in net revenues. So that's when you think about the guidance for the year, some of that was that gross to net on the managed care side.

Okay, thanks. And I guess coming out of ADA, I mean you gave us a good rundown of all the exciting data presented there. And it seemed pretty eye-opening to me. And it was the first time I think a lot of people there had seen true efficacy and safety advantages versus Novolog. And I'm just wondering what sort of feedback in the field have you had in the approximate month since the conference?

Yes. No, David, and I have been to several key cities just doing listening sessions with doctors. And I can tell you, it's amazing to see physicians who think they're coming for an hour-and-a-half stay for literally three hours, and just want to know every single thing about the data. But not only the data, but the history behind the technology, understanding proper inhalation technique, understanding the lunch function test required. What I'm seeing out there is a big shift over my last few years here from people saying "There's no need for inhaled insulin, I'm fine with injectable". To all of a sudden saying, "I got to learn how to use this, I'm hearing positive things, and it seems like the data continues to evolve." And that's a big shift. And then to see 20-30 doctors sit and spend two, three, four hours with us and David I think -- it's been very exciting. And so it just takes time. But I can tell you the tone has really shifted. And that will just keep getting better and better as more and more doctors try the drug and see this first-hand. They're going to keep adopting it, and then their colleagues will jump onboard, because, for example, one endo in a practice has nine partners. He starts using the drug, he starts seeing great results on CGM, he teaches his other eight partners how to do that. Yes, our reps are effective, but getting that one doctor onboard within one major clinic transforms eight. And that's where you'll start to continue to see compound growth, just like you do with CGM adoption. One person starts using it, teaches others, it'll keep going and then growing for years to come. So we remain very excited about the prospects of CGM and Afrezza combination, and even I believe we continue to see -- we're doing a trial there that we'll see results hopefully there this year.

And I would add that, as Mike said, we show up for an hour, hour-and-a-half and end up three and four hours later really having great discussions about relearning that insulin can be fit to the individual given the time-action profile we see with Afrezza, whereas over the past 100 years or so many practitioners and certainly patients have learned that there are lives to the insulin. So we're starting with these data to see the shift that, as we say, Afrezza allows individuals to live in the moment with their mealtime use of Afrezza. And interesting, any of these meetings are held over dinners. The content of the dinner often comes up as the focus of the discussion and the potential utility of Afrezza. So I think that's how these scientific data are translating into real-world conversations.

Okay, thanks. And if can hog some time here. On the numbers front again, what is the underlying gross margin, I guess, so maybe separating out fixed overhead versus variable cost if you can. And help me understand what would be the breakeven on the production or gross profit basis, what sales level would that take at the current pricing and gross nets you see?

So, Oren, this is Steve talking. We certainly have costs in excess of our standard now as we're not running at full capacity, not only just on our production line, but of course in the entire manufacturing facility. I would expect that our negative gross profit today will turn positive some time in the second-half of 2018. I can't tell you exactly when that'll happen, it all depends on when we do production runs which take costs and put it into inventory, and then the inventory flows through COGS, et cetera. But I expect it to happen some time in the second-half.

Okay, thanks. And now I'll get back in the queue. Appreciate it.

Any other questions? Go ahead.

There are no further questions at this time, sir.

Well, again, I want to say thank you. I know the call was a little long. We will continue to work to get these shorter, but given the large retail base of investors we thought it's important to give you a broader perspective. But as we complete, really, the transition we'll continue to get tighter and tighter on these calls. But I want do say thank you. We're always open to discussions with any of our shareholders. And look forward to continue to talk. We have a couple of outcome and investor conferences during the month of September. Thank you.

Ladies and gentlemen, this concludes today's conference. We thank you for your participation. You may now disconnect.