MannKind Corp (MNKD) 2006 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation Third Quarter 2006 Conference Call.

[OPERATOR INSTRUCTIONS].

As a reminder, this call is being recorded today November 2, 2006. Joining us today from MannKind are Chairman and CEO, Alfred Mann, President and COO, Hakan Edstrom and the Chief Financial Officer, Dick Anderson. I would now like to turn the call over to Dick Anderson, Chief Financial Officer of MannKind Corporation. Please go ahead, sir.

Good morning and thank you for participating in today's call. First, I will summarize the financial results for the third quarter of 2006 as reported earlier today. Next, Hakan Edstrom and Al Mann will provide an update of our activities. We will then open up the call to questions. Before we proceed further, please note that comments made during this call will include forward-looking statements within the meaning of the federal securities laws. It is possible that the actual results could differ from these stated expectations.

For factors that 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 Exchange Act of 1934. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, November 2, 2006. MannKind's management undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

Let's begin with the financials. For the third quarter of 2006, total operating expenses were $61.1 million, compared to $32.9 million for the third quarter of 2005 and $55.8 million for the second quarter of this year. R&D expenses increased $5.5 million from the previous quarter to $50.8 million, primarily due to increased costs associated with the company's expanded clinical trials and the preparation for FDA approval of our manufacturing facility.

G&A expenses were essentially flat compared to the second quarter of this year at $10.3 million. Our cash, cash equivalents and marketable securities at the end of the third quarter, September 30, 2006, totaled $50.1 million. That compares to $145.6 million at December 31, 2005 and $50.9 million at June 30, 2006. Our cash-burn remained flat at $17 million per month, compared to the second quarter of 2006. We anticipate our cash-burn will increase significantly over the next few quarters now that all of our phase-three pivotal trials have been initiated and the major construction phase of our Danbury manufacturing plant has begun.

We believe that our available cash, including the $100 million still available under the loan facility provided by Al Mann would take us through the first quarter of 2007. We anticipate we will need additional capital for our clinical trials and for the expansion of our Danbury manufacturing facility. To provide us with the flexibility to take advantage of financing opportunities, we filed a shelf registration statement with the SEC today, covering the sale of up to $500 million of our equity and debt securities from time to time in one or more transactions.

I would now like to turn the call over to Hakan Edstrom, who will review our product-development activities for the quarter. Hakan?

Good morning. Let me take a few moments to review our clinical program. On September 16, at the conference of the European Association for Diabetes in Copenhagen, we announced positive results from our 101 trial -- a three-month study of inhaled Technosphere Insulin usage in patients with type-1 diabetes who were experienced with basal-bolus insulin therapy.

Both treatment groups were given insulin glargine as a basal insulin. In patients using Technosphere Insulin, we observed a comparable reduction in HbA1c levels as those observed in patients treated with NovoLog, an injected rapid insulin analog. Patients receiving Technosphere Insulin experienced much lower postprandial glucose excursion. They lost weight over the treatment period, [whereas] the patients on NovoLog gained weight. And the 3.4 pound difference between the groups was statistically significant.

Moreover, we did not see any evidence of severe hypoglycemia. As in all our trials to date, we have observed no difference in pulmonary function as compared to subcutaneously injected patients. At the same meeting, we also announced the results from our first phase-three clinical trial -- Study 014. Study 014 was a six-month efficacy study in 308 type-2 diabetes patients comparing the mealtime use of either Technosphere Insulin or subcutaneous injections of NovoLog plus insulin glargine as a basal insulin.

After treatment period of six months, we observed that both patient groups achieved statistically significant and similar improvements in HbA1c levels with no difference between the groups. Study 014 was the trial to which we decided to add a controlled-withdrawal phase. We assessed pulmonary function using serial measurements of FEV1 and FVC over the six-month treatment period and then over an additional six-month period, during which patients reverted to conventional therapy.

Pulmonary function did not differ between the two patient groups after the treatment period or after the withdrawal period. These results are consistent with the company's previous studies on Technosphere Insulin that have demonstrated improvement in glycemic control with no effect on lung function. We also observed in Study 014 that significantly fewer patients experienced hypoglycemia in the Technosphere Insulin patients group than in the NovoLog patient group.

And in addition, after six months of treatment, the Technosphere Insulin patients experienced a mean weight loss of 1.7 pounds compared with the NovoLog patient group, which saw a mean increase in weight of 0.5 pounds. This difference in weight was highly statistically significant. We have now initiated all of the pivotal trials to support registration. And most importantly, in September, we announced the completion of patient enrollment in study 030.

2,050 subjects are enrolled in this open-label randomized prospective study which will evaluate the pulmonary safety of Technosphere Insulin in patients with type-1 and type-2 diabetes, as well as a sub-group of individuals without diabetes. The 030 studies are first pivotal study to complete enrollment and it's part of a comprehensive phase-three clinical program for which additional pivotal studies of shorter duration are now all actively recruiting at centers in the United States, Europe and Latin America.

This successful recruitment of patients for the 030 trial represents a major achievement for the development of Technosphere Insulin and places MannKind on track to file an NDA at the end of 2008. [Because] of pulmonary function impact -- we have now completed four trials in which we have monitored pulmonary function. And in none of these trials, has there been any evidence of an adverse effect on pulmonary function. This consistency of results is very encouraging as we now progress with our larger and longer trials.

And I'd now like to turn the call over to Al Mann, our Chairman and Chief Executive Officer. Al, please go ahead.

Thank you, Hakan and good morning ladies and gentlemen. Hakan described for you some of the recent clinical data from two studies that were orally presented in September at the EASD in Copenhagen, including data from our first phase-three trial and our 101 trial in type-1 diabetes.

Both studies produced very favorable results that were well received. Our data continue to point to Technosphere Insulin as potentially the most effective means for controlling postprandial glucose excursions. And these excursions, referred to in MAGE, or mean average glucose excursions, are being increasingly recognized as critical to reducing oxidative stress and diabetic complications.

Some of you have heard me speak of the importance of MAGE as compared to HbA1c. I understand the value of HbA1c as a generally accepted measure of overall glucose control by a patient. However, in evaluating a prandial therapy, the fasting blood-glucose level, or FBG, can be an overriding factor. In the real world of diabetes therapy, the fear of severe hypoglycemia leads to tolerance of very high levels of FBG. It is all too common for patients to be sub-optimally controlled with FBG levels between 150 and 200 milligrams per deciliter.

At such high-fasting levels, prandial excursions have very little effect on the HbA1c. To achieve good control and to avoid oxidative stress, it is important to control both fasting-glucose levels and postprandial excursions -- up and down. But the limitations of current diabetes therapies makes this balance very difficult to achieve. We need treatment regimens that allow us both to bring down FBG and reduce MAGE. Technosphere Insulin offers the opportunity to effectively control postprandial excursions by synchronizing the insulin effect with glucose absorption while minimizing the risk of hypoglycemia.

Another interesting postulate that we plan to evaluate is that for most patients on TI therapy, there may be no need for prandial blood-glucose measurement. With TI, we have typically seen postprandial excursions after a standard meal rising above the baseline by no more than about 40 milligrams per deciliter, and rarely falling by more than 20 milligrams per deciliter below baseline.

For people with type-2 diabetes using TI with a near-normal FBG level, then why measure postprandial excursions? For some patients, it may be just as efficient to do a simple weekly or monthly check of FBG. Finger sticks are a major deterrent to aggressive insulin therapy for patients. Without the need for frequent glucose measurements, this objection would be eliminated. These unique benefits of Technosphere Insulin should also increase our potential for universal reimbursement.

Hakan noted that for our 030 trial, we have completed enrollment. Actually, we enrolled 2,050 -- above our target of 1,890 patients. The last patient, last visit for this trial 030 should be in early September 2008. Our team is committed to completing and filing our NDA by year-end 2008. That is an aggressive target and, as might be expected, our greatest risk revolves around successful execution. We continue to anticipate launch in early 2010. We are pursuing a clinical program not only to achieve registration, but also a differentiated label that we believe will contain several clinically significant advantages versus Exubera.

Indeed, Technosphere Insulin is truly different. One should not make the mistake of grouping Technosphere Insulin into the pulmonary-insulin class. That categorization does not recognize TI's true profile and its advantages in diabetes therapy. Technosphere Insulin is the first diabetes therapy of any type with the unique safety and efficacy characteristics that we have seen in our many trials to date. Yes, it is insulin. And yes, it does deliver the insulin via inhalation. However, its unique kinetics may position Technosphere Insulin as the first and only drug in an entirely new class of diabetes therapy to be known as super-rapid-acting insulin.

Dr. Jay Skyler, a preeminent diabetologist, says, and I quote, "Technosphere Insulin could be disease-changing. The super-rapid peaking of plasma insulin with Technosphere Insulin appears to stop hepatic glucose release and this could change the way we treat diabetes," unquote. TI appears to eliminate the usually noted problems associated with conventional insulin treatment. We know of no other therapy that provides such outstanding control of prandial excursions with virtually no risk of hypoglycemia and almost no need for titration and no weight gain. And, in fact, we've seen weight loss.

I am pleased to say that our diabetes program is moving along very well and that our many studies to date consistently confirm the exciting benefits of this product. With the current prevalence of diabetes and considering the rampant epidemic arising worldwide, I expect this to be a very blockbuster drug that will benefit millions of patients with diabetes throughout the world.

Bringing such a product to market is a long and costly process. The combination of the large TI phase-three trial program and the capital expenditures for plant and equipment will significantly increase our cash burden next year. As Dick mentioned, we have filed a shelf registration to give us the flexibility to raise additional funds as needed. As I have previously told you, it is my intention to participate in future financing at up to 50%.

Many of you already recognize the significant benefits of Technosphere Insulin, but seem to focus only on partnership progress. I have said, and I repeat, that we are very serious about a partnership. I believe that with the right company, a partnership would bring value by accelerating our penetration in the US and by providing the marketing and large sales force that we would need outside the US.

We are continuing to hold discussions but have not reached an agreement. We anticipate it will take more time to reach agreement with a partner. Accordingly, we thought it prudent to file a shelf registration statement while we continue our partnership discussions. Beyond that, we are unable to provide any further comment.

Now, let us open the call to questions.

Operator?

[OPERATOR INSTRUCTIONS]

The first question is from [Salvine Kutchnover] from Jefferies.

Hi. Thank you for taking my question. I was wondering if you could detail the terms you were seeking in a partnership deal. And in addition, can we expect to see interim data for the pivotal 030 study?

Hi, Salvine. This is Hakan Edstrom.

Hi.

As we said this morning, we are continuing to hold discussions. We have not reached an agreement with a partner and we anticipate it will take more time. And we are not disclosing the number of people we are talking to or the terms that we are discussing at this point in time.

The second question was "interim data on 030."

We do not have any interim data at this point in time on 030.

Do we expect to see any interim data next year?

We have not decided yet that we will share any interim data on the 030, and it's basically a year away from now.

Thank you.

Does that conclude your questions?

Yes.

The next question is from Elliot Wilbur of CIBC World Markets.

Good morning. Thank you for taking the questions. First question -- for you, Dick -- previously, you guys have talked about the cash-burn rate accelerating to around $20 million by the end of the year. But if I kind of read into the disclosure -- that you expect a loan from Mr. Mann to take you through the end of the first quarter -- it sounds like that rate is actually increasing a little bit.

I just want to confirm that, in fact, is correct. And then, maybe if you could, give us sort of a new expected monthly cash-burn rate by the end of the year.

All I can say at this point is what we said earlier on the call -- that the burn rate was about $17 million in the -- per month in the second quarter -- and it was about flat in the third quarter. Well, I believe we had indicated earlier that we expected that to be a little higher.

Some of our construction costs are going to shift forward and so, the fourth quarter and, clearly, next year, where we used the words "significantly higher," will reflect those increased capital expenses for the Danbury expansion.

Okay. Fair enough -- that answers the question. Thanks. Then, I wanted to ask you a line of questioning around the Exubera launch as well, understanding that, obviously TI insulin is a very different product with much stronger clinical attributes. Yet, one could argue that Exubera is kind of the pathfinder for the space in terms of developing the market for pulmonary insulin.

So, I just kind of want to get sort of your impressions of the initial launch-to-date and what some of the feedback that you've gotten from talking to endocrinologists about the product and just sort of how you think that this is going to help shape the landscape for pulmonary insulins going forward.

I can only give you a view from your peers. I was very interested in following some of the analyst reports over the last couple weeks on Exubera. And so, I made a couple calls asking analysts, what did they think about Exubera and what implications did they think that had on us?

I don't think it's appropriate for us to comment on analysts' views of Exubera. I mean, those can be read in the analysts' reports. But what was particularly gratifying was their ability to -- or their inclination to say that while Exubera seems to be having some problems, they don't see that as having any significant implications for TI because TI is such a well-distinguished product from Exubera.

But we were encouraged by that segmentation, at least, in the minds of a few people who are very knowledgeable about the industry and its competitive products.

Okay. Then, one last question for you as well -- you've talked previously about initiating some differentiation studies -- TI versus Exubera. It doesn't look like any of those have started yet? Could you maybe just give us some idea of when we could expect maybe the first of those to kick off? And is it reasonable to expect that we might see kind of a broad spectrum of studies -- pharmacoeconomic, clinical -- and also reasonable to assume that we might see some sort of comparative trial based on postprandial glucose variability? Thanks.

We'll give you two responses to that. The first, of course, is the financial response. And that is that with the burn rate going up significantly, it is clear that we are focusing primarily on our pivotal trials. Our goal is to get the product filed as quickly as possible. That does not mean we don't think other studies are important. It's a question of balancing our cash-burn against the requirements of those studies.

Does that conclude your questions?

Do you want to? --

Well, the other thing, of course, is that we have a number of studies planned and some of them will begin during 2007, but we're -- a lot of these studies will be moved over into 2008, just simply to control our financial requirements. By the way, we couldn't get a hold of Exubera until very recently. So, that study, of course, will go forward.

The next question is from Michael Tong of Wachovia.

Hi. Good morning. Just for a couple of quick ones -- number one, Hakan, I just want to confirm that I heard you say, in Study 014, that TI was statistically non-inferior to the comparator. And then, secondly, what's your timeline as far as releasing additional clinical studies. And just want to see what we can expect for the -- over the next six-to-nine months.

The results are comparable. That's what I said in regards to the comparison in Study 014.

So, when you say, "comparable," I mean, my inclination is to --

There was no statistical difference in between the two.

I'm sorry?

There was no statistical difference in between the two.

Okay.

The results were similar.

Okay.

Remember, this was a comparison to a rapid-acting analog, which -- the Exubera trials were all compared to regular insulin.

Michael's second question was on what clinical data do we expect to release over the next six-to-nine months?

And I have Peter Richardson, our CSO, next to me here. So, I'm going to turn to Peter.

I think -- I mean, major progress that we'll be talking of over the next six-to-nine months is the completion of recruitment into our pivotal studies. And that's where our focus is so that we can ensure that we'll be able to deliver the registration [up there] as we execute the program.

Great. Thank you.

The next question is from Bill Tanner of Leerink Swann.

Thanks. I had a couple of questions. And maybe -- it is, perhaps, for you Al or for Dick. I noticed that in the filing today it said that on October 30th, the loan agreement was amended, so that the company is not going to take any more than $150 million from you, Al -- just wondering -- I guess -- was it contemplated before that you might loan more? So, your participation going forward is going to be more from an equity perspective?

No. Bill, let me clarify two things. The loan was always $150 million -- max.

Right.

But two things that were changed is first, to give the company more flexibility, we're able to draw down on the loan in amounts as small as $10 million, whereas before, it was in minimums of $50 million.

And the second is that previously, once we drew down on the loan, then the total amount that we could eventually cap got smaller. Now, if we pay back any part of the loan, it goes back into the loan amount -- almost acting like a revolver. Now, having said that, I want to clarify Al's statement today. What he said was it is his intention to participate in future financings up to 50%.

Okay. Okay. And then, just a question on the 030 study -- maybe for Hakan -- any reason for increasing the numbers of patients? I mean, it's kind of modest. And then, at what point in time would we anticipate seeing any DLCO data?

Well, in terms of the number of patients -- in recruiting patients at [155] on a worldwide basis, you have a number of patients that goes kind of into the screening and randomization. So, while you tend to stop the recruitment at a certain period of time, also a number of centers at that time are -- get very eager to get their patients that they have on the way in. So, it just is kind of an effect of the process itself. It was not intended to be above the 1,890. It so happened to fall out.

Okay. And then -- DLCO data?

Peter Richardson here. The DLCO data is being collected in the pivotal studies, so we'll have DLCO data from the [09,102] and 030.

Okay. But, so then, I mean, there aren't any data. I know you've talked about FEV1 and FCV. There's no DLCO data that had been collected or -- ?

The DLCO data was not collected in [protocol 14].

Okay.

[Inaudible]

And the others.

Right. Okay. Thank you.

You're welcome.

Tom Shrader, BMO Capital.

Good morning. Al, I had a question on some of your comments that came so fast, I want to make sure I got them all. You were arguing that your control of postprandial glucose is so good that people might not need to measure it -- is that -- ?

Well, that's what I said and that is -- we are going to do trials to demonstrate it, but if you have postprandial rises of only about 40 milligrams per deciliter, which is in the normal range, after what we use as a standardized meal, and if you only have drops in glucose levels below baseline of, say, like 20 milligrams per deciliter, the only danger you have is really with fasting glucose. So, why do you want to measure prandial excursions?

There's really no need once you have the patient on therapy -- it seems to me that that kind of a measurement is unnecessary.

Right.

So, what you do need to do for people who have a stable fasting glucose level -- you don't even have to do that. But you may want to do an occasional check just to be sure. For people who have a variable fasting glucose level, you may need to do more frequent measurements, but typically, I would think that weekly or monthly measurements is probably adequate for a fasting glucose level. One check occasionally is all that you would need, and there's probably no need to do fasting or prandial-glucose level measurements.

Any sense of the trials you would need? Is the 03 trial set up such that you might argue for something like that in a label -- any -- I mean, it'd be huge at launch, and -- ?

Well, of course [inaudible] --

-- any sense -- has the FDA been broached with this idea?

That would be an enormous impact on the [inaudible] --

Yes -- agreed.

-- numbers -- not only on the saving of money, which would help in reimbursement, but it would also materially eliminate the major objection to most of these therapies.

And any talks with the FDA yet?

[Inaudible] talk about -- we're going to do a trial, but Peter's going to --

Okay.

I think there's considerable interest in simplifying the overall care of patients who have diabetes. And TI may well be able to contribute to that. I think we've got to do some careful [exploration] of how we do that. And in terms of finger sticks, these are major deterrents to patients moving on to insulin in some cases.

If we can simplify that and reduce that and show that we maintain overall control and consistently improve HbA1c, fasting plasma and the postprandial excursions without close monitoring, that would be a significant advantage. But, the study designs are not simple and we'll have to work on them diligently to do that.

Okay. And one quick question about 030 interim data -- do you -- can you share that data with a potential partner and not release it generally or do you have to do both?

Well, of course, we could share it with the potential partner, but, of course, we just six weeks ago -- or five weeks ago -- completed the enrollment. So, there's not much data available now other than just the screening data.

But you can show things to a partner that you don't release generally?

Yes, that is true.

Okay -- just checking. Okay. Thanks a lot.

Just to emphasize in terms of maintaining the integrity of that study and the interim analysis of things that have to be thought of very carefully --

Yes.

-- and maintain statistical integrity of the study is key of importance rather than [releasing] data.

Right. Okay.

The next question is from Hari Sambasivam of Merrill Lynch.

Yes, thank you -- a question for maybe Hakan or Al. In terms of Pfizer, they have recently indicated they are having some scale-up issues in their manufacturing. And I'm just wondering, as far as you're considering your manufacturing and your plans, do you have a sense of what these scale-up issues might be and how you might sort of plan your manufacturing to avoid some of these issues? Maybe you can expand on that, please?

Well, as I understand the problem -- and this is just hearsay, but from what we understand, the problem they're having is not really in the scale-up of making the powder. It's in the packaging, which is being done by Pfizer. I don't know what their -- what the detailed issues are, but that's what we understand. I don't know if it's true, but that's the rumor on the street.

What I can say in regards to our product -- first of all, we're utilizing a standard technologies in terms of the powder and the powder packing, so on and so forth. So, at this point in time, we have a comfort level in regards to our ability to scale-up our process.

And, again, our inhaler is certainly a lot less complicated than the one that you mentioned. And that, again, gives us a comfort level in terms of industrializing the scale-up of that one and making it an automatic assembly. So, I don't think that we would draw any inference from the experiences that you've seen with Pfizer and Exubera at this point in time.

Thank you.

The next question is from Annabel Samimy of UBS.

Hi. Thanks for taking my call. Most of my questions have been answered, but really quickly on the other studies outside of 030 -- they're still enrolling. Might we see any data next year from any of these studies if they complete enrollment? I mean, they're relatively short -- three or six months. Could we see any data from any of these studies and which of these studies will have postprandial glucose data that we can sort of get more comfort with this whole concept?

009 and 102 are one-year studies and that will be the time when we will have data available.

Yes, and about -- they are one-year studies, so [inaudible] --

Which one was that -- 009 and -- ?

102.

102 -- were the one-years.

Correct.

Were there any other shorter studies in there?

103 is a six-month study.

And, could we see anything from that?

Next year -- we'll probably be into 2008 before we see the data on that study.

And do each of these have postprandial glucose measures?

Yes, they do.

Okay. And just a separate question -- I'm going to try to ask it a different way -- have you noticed any change in sentiment in your talks with potential partners with all of Pfizer's trouble, recognizing very well that TI may be a differentiated product? Are you sensing any kind of change in sentiment when they see the troubles that Pfizer is having with Exubera?

Annabel, I would say that, as, I think Al very eloquently outlined in the presentation here, certainly, its potential partners do perceive a difference in regards to the product and the product profiles.

Okay. Thank you.

The next question is from [Jeff Goater] of Cowen & Company

Thanks for taking the questions -- just a couple of quick ones. In terms of the special patient population studies for Technosphere Insulin specifically in COPD and asthma patients -- when might those begin? And just a quick question on the therapeutic cancer vaccine program -- when we might see an IND out of that program.

[Inaudible]. The special population studies are target to start during next year and we are trying to optimize the timing of starting those.

I think we should say --

The progress with the cancer study is moving according to plan in terms of statements so far. I mean, we're anticipating being able to let the study -- first patients by the end of the year. And 090 has been filed.

Okay -- great. Thank you.

The next question is from Jon LeCroy of Natexis.

Yes. Thanks for taking my call. Would you characterize your lack of having a partner at this point as more of partners waiting to see whether Exubera is going to be successful or is it that they need to see one or maybe two-year data or do you think it's possible [over-negotiation] on your part?

And then my second question is on MAGE testing and possibly a urinary isoprostane test. Can you tell us who is working on a test like that and kind of where that sits as far as adoption from the broader market? Because it seems like the general physician population is still heavily focused on HbA1c with in-office testing increasing and that sort of thing. Just, maybe, give us an update on when we might see the urinary isoprostane test.

I think in terms of anticipating the validation of such tests would be looking into an area where it would be very speculative. The maintenance in terms [us] in regard to the main endpoints in our studies is decrease in HbA1c, and I think in terms of the design of the studies, where we have very carefully demonstrate -- will be carefully demonstrating using formal testing of post-meal glucose measures will be an important part for the registration.

As we look for our tests demonstrating the impact of oxidative stress and look at how we measure MAGE, that will take several years. But there's clearly movement in the community towards that, as you've seen in recent scientific publications which have been addressing that and that discussion.

And then, as far as --

And in regard to your question on partnerships, I would say that your speculation is as good as anybody else's and that is far as we can go here in regards to reasons for where we stand.

All right. Thank you.

The next question is from [Elizabeth Nolte] of Piper Jaffray.

Hi. Thanks for taking my call -- just going back into the opening remarks on potentially having a differentiated product label. Could you just give us the level of confidence you have and what actual improvements you'll be able to get in the label with the current clinical-trial program?

The [inaudible] clinical-trial program is aimed to deliver on first of all showing the efficacy in type-1 and type-2 patients based on reduction of HbA1c comparable to rapid-acting analog as appropriate.

The areas where we are looking carefully to demonstrate is in the postprandial excursion and we'll also be looking in terms of where we've indicated -- that we're very interested in what we're seeing in terms of the weight change in patients and also the [VF] hypoglycemia.

And finally, I think the area where we will be looking is whether there are results which are encouraging in what we've seen in the pulmonary function testing, and all the studies we've done so far have confirmed in what is a very extensive and well-conducted systematic testing of pulmonary functions for this product.

Thank you.

There's another question from Bill Tanner of Leerink Swann.

A question on the manufacturing -- I know it's in the press release. The ground was broken, I guess, last week -- just, maybe, an update on that in terms of, I guess, still plans -- I think last quarter you said that the manufacturing capacity could treat 500,000 patients at the end of the first year, 1 million at the end of the second year. And what's -- don't know if you've talked about it -- kind of, how should we think about the cost of that going forward in terms of CapEx spending?

I think there are two things we can say in response to your question. The first is that I'm really encouraged by the very detailed plans that we've seen for the construction and the fact that we took some time in the past quarter to really put those plans in place before moving forward -- that's why the groundbreaking is really a signal to the outside that things have started.

In terms of capacity, we had a chance to review the operating plans for next year this past week, and I can say that we're confident in our capacity to meet all of our clinical-trial requirements for the next two years. And that's why we're also confident in Hakan's previous statement about when we plan to file the NDA.

Yes. Let me also clarify that the groundbreaking and the groundbreaking ceremony that we had last week is for an expansion from our current -- about 120,000-square-foot facility and adding an additional 225,000 square foot.

So, a lot of activities are going on in, basically, refurbishing and building out the existing facility we have in addition to the expansion. So, it's not like it is starting up right now. It is expanding. So, I think that is important to understand.

So, the 120,000 square feet -- how many -- I mean, how many -- what's the -- kind of the numbers of people that could be treated? Is that sort of that 500,000 or -- ?

You know, I -- certainly, the 225,000 that we have building out is part of the 500,000. I couldn't give you an exact breakdown because, again, we have a modular system around the lyophilizers and how many [lines] that we can add to that one. So, I couldn't really give you a number that I could stand behind right now -- how much is to say in the old facility versus the new facility. They are both planned to be part of the -- basically, the pre-IND inspection in the beginning and be online and validated during 2008.

And has the company disclosed or are you guys willing to talk about what the cost of this additional 225,000 square feet is?

What we've said is that the capital-construction budget for the Danbury operation is in the range of 100 to $150 million.

Okay.

And I think at this point, you can assume it's on the higher end of that range rather than the lower end.

Okay. Thanks a lot.

The last question comes from Salvine Kutchnover of Jefferies.

Hi. I'm just wondering how the diabetes-physician community is accepting the new paradigm that postprandial glucose excursions may be as important or, perhaps, more important than HbA1c and whether there will be considerable education required on your part?

I think that it's actually well accepted that postprandial excursions are important. We're not suggesting that they're more important than HbA1c. I think that we have work and long-term definitive studies need to be done in terms of exploring that.

I think the interest is in when you have a therapy that is effective in controlling postprandial excursions, then you have an opportunity to make a real difference for patients.

Thanks.

If there are no more questions, let me take this moment to thank you all for joining us and thank you for all of your patience and understanding and working with us in what we believe is the development of one of the most exciting drugs of all time.

I have said this myself and I don't lightly invest hundreds of millions of dollars in a product, but I am convinced in this one and that's why I am proceeding. And I want to thank you all for joining us today and we'll look forward to seeing you again and talking to you in the next quarterly review. Thank you.

That concludes today's conference. You may disconnect at this time.