MannKind Corp (MNKD) 2008 Q2 法說會逐字稿

Ladies and gentlemen, thank for standing by. Welcome to the MannKind Corporation second quarter 2008 conference call. At this time all participants are in a listen-only mode. Later, instructions will be given for the question and answer session. (OPERATOR INSTRUCTIONS) As a reminder, this call is being recorded today, August 11, 2008. Joining us today from MannKind are Chairman and CEO, Alfred Mann; President and COO, Hakan Edstrom; the Chief Financial Officer, Matthew Pfeffer; and the Chief Scientific Officer, Peter Richardson. I would now like to turn the call over to Hakan Edstrom, President and COO of MannKind Corporation, please go ahead, sir.

Thank you, good afternoon, thank you for participating in today's call. 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 those stated expectations. For factors that could cause actual results to differ from expectation, please refer to our reports filed with the Securities and Exchange Commission under Securities Exchange Act of 1934.

To begin, I want to share with you some thoughts from an e-mail that I recently sent to all MannKind employees. These are exciting times for all of us at MannKind. We have just concluded very successful pre NDA meeting with the FDA. We are in the process of winding up our pivotal Phase III clinical studies. We are working furiously to assemble our NDA package and we just received the final critical piece of equipment for our commercial manufacturing facility in Danbury.

We are transforming from a pre-commercial product developmental Company to a commercial readiness Company whose focus is on successful product introduction. Even though this is not scheduled to happen until 2010, the preparations need to start now. I think this e-mail captures the mood at MannKind these days. For a while last spring, given the external environment there was considerable gloom and uncertainty. But as we said at that time, Technosphere insulin is unique and fills a very poorly met need for prandial glucose control. Also we are a data-driven Company, and we do not make major decisions based on inaccurate perceptions. We are seeing increasing amounts of data that support the unique and important characteristics of Technosphere insulin.

Pete has a lot of information to share with you on this call, so I won't take too much of your time. However, I want to touch on a couple of dates in September of some significance. The first date is September 16, which I would ask you to hold open while we plan a session that would provide you with an overview of the data that is beginning to emerge from our clinical studies. By that date we should be in a position to discuss our first complete pivotal study, the 009. And we also want to present data from some smaller studies that have recently become available.

The second date is September 17, the next day, when we will celebrate the completion of construction for our new commercial manufacturing facility in Danbury, Connecticut. The day's events will include a building dedication, and tours of the new facility for invitees, including local, state and federal government officials. The timely delivery and installation of state of the art equipment and infrastructure is a visible sign of MannKind's commercial and technical readiness, and demonstrates our commitment to bringing a unique and differentiated technology to the market. The 264,000 square foot facility brings the Company's [total] investment in plant and equipment at the Danbury site to almost $200 million. The modus operandi of our Company now is the assembly of the NDA submission and preparation for commercial manufacturing. And that is really all I want to say at this point in time. And before we get to Peter, Matt will present our financial report. After Peter's presentation, Al will make some remarks before we open up the call to your question.

Thank you, Hakan. For the second quarter of 2008, total operating expenses were $80.9 million compared to $75.4 million for the second quarter of 2007 and $74.1 million for the first quarter of 2008. Our NDA expenses were $67.6 million for the second quarter of 2008, compared to $61.5 million for the second quarter of 2007. And $58.4 million for the first quarter of 2008. The increase in research and development expenses as compared to the same period in the prior year was primarily due to increases in manufacturing costs, clinical trial costs and stock based compensation expense. General and administrative expenses were $13.3 million for the second quarter of 2008, compared to $13.9 million for the second quarter of 2007 and $15.6 million for the first quarter of 2008. The decrease in general and administrative expenses was primarily due to lower professional service fees partially offset by increases in stock-based compensation expense and (inaudible) related expenses.

For the first six months of 2008, operating expenses totaled $154.9 million compared to $152.7 million for the first half of 2007. R&D expenses for the first six months were $126 million compared to $125.3 million in 2007, primarily related to increases in manufacturing costs and stock based compensation expense, partially offset by lower clinical trial costs. G&A expenses increased by $1.5 million to $28.9 million for the first half of 2008 primarily related to increased stock based compensation expenses and salary related expenses partially offset by lower professional service fees. The net loss applicable to common shareholders for the second quarter of 2008 was $79.8 million or $0.79 per share compared with the net loss applicable to common stockholders of $72 million or $0.98 per share for the second quarter of 2007. The net loss for the first half of 2008 was $151.2 million or $1.49 per share compared with a net loss of $145.1 million or $1.98 per share for the first half of 2007. Our cash and cash equivalents as of June 30, 2008, totaled $180.5 million, $269.1 million at March 1, 2008, and $368.3 million at December 31, 2007.

Our cash burn during the past fourth quarters was $79.8 million in Q3 '07, $85.7 million in Q4 '07, $99.2 million in Q1 '08, and $88.6 million in Q2, '08. We anticipate our cash burn could increase over the next couple quarters and would then decline. The fluctuations in the quarterly burn rate over the next few periods will be due in large part to the timing of our expenditures for our clinical trials and for our outstanding capital costs for the new Danbury manufacturing facility. With the availability of the $350 million credit facility from Al we continue to believe we'll have -- we'll be able to fund our operations through at least the end of 2009. I would now like to turn the call over to Peter for an update on our research and development program. Peter.

Thank you, Matt. Our Technosphere insulin development program continues to progress according to plan. Our goal to submit the NDA around the end of 2008 remains the single most important objective for the organization. We have once again passed several important milestones over the past quarter, considerably increasing our confidence in achieving this goal a long time and with a robust package of data to review by the FDA.

One of the most important recent events is the completion of our planned fee NDA meeting with the FDA on July 14. We were encouraged by the agency's written responses to our (inaudible - highly accented language) book and comments during the meeting about the proposed NDA. In particular, the agency accepted several chemistry manufacturing and control proposals and gave us positive indications about the overall adequacy of the development program design. The agency focused on several areas of potential clinical importance such as the assessment of hypoglycemic episodes in the clinical studies; however, the agency gave us no indication at this stage that they will require additional specific preapproval studies to assess cardiovascular or cancer risks. We will of course provide the usual analyses of the data and adverse events from the comprehensive clinical program we have conducted over the past three years.

We have agreed with the agency to conduct a bio equivalent study to compare the version of the inhaler used in clinical studies to the version that is optimized for commercial production. We're presently evaluating several scenarios in order to complete this study in the fall so that it will be incorporated into the NDA.

As the leader of MannKind's research and development group, I'm very proud of what we have accomplished with the TI clinical program. In the planned NDA submission, 5,296 subjects will have participated in our clinical program at 42 trials, of which 2,936 subjects will have taken Technosphere insulin. Approximately half of these patients come from U.S. Census and the remainder from countries in Europe and South America. The aggressive time frames we set for ourselves over three years ago have not changed. And I am constantly impressed by the quality and depth of the program that we have carried out.

Recently we have reached several milestones in this ongoing clinical development program. And let me touch on some of those now. The database has been locked in our first major Phase B trial, study 103. The overall efficacy and safety findings in all these specified measures support the TI clinical profile seen previously. This study was a complex design in 528 patients with type 2 diabetes, comparing the withdrawal of all the hypoglycemics, and treatment with TI either alone or in combination with metformin versus maintenance for the combination of (inaudible) and metformin. All three treatment groups showed statistically and clinically significant reductions in HbA1c levels over the course of the study.

At 24 weeks, the TI alone group showed a reduction of 1.84%. The TI plus metformin group showed a reduction of 1.68%. And the oral hypoglycemics group showed reduction of 1.22%. These differences in HbA1c levels did not reach the (inaudible) groups statistical significance for 12 or 24 weeks, thus, as anticipated TI alone and the combination with metformin showed clear statistical and clinical superiority in the precertified assessments in postprandial glucose control in [former mill] challenges and this is reflected in the pattern recorded in the self monitored glucose profiles. Very low rates of severe hypoglycemia where observed in all treatment groups with no cases occurring in patients treated with TI alone or with oral hypoglycemics and 2% of patients using TI and metformin combined. Even with such marked reductions in HbA1c overall, no increases in weight were seen. Detailed assessment of (inaudible) safety including FAB1 and DLCO over the 24 weeks of the study showed no difference in pulmonary function between patients inhaling TI and those on oral therapy alone. We are very encouraged by these initial results and will be presenting them in greater detail at an appropriate upcoming science meeting.

In addition, the first of our three pivotal studies for the 009 achieved last patient, last visit as planned last month. And our data base lock is scheduled for this month. The remaining two pivotal studies will complete last patient visits by the first week in September. All patients in the Phase B program are now off investigational treatment with Technosphere insulin and have been transferred to their usual care for ongoing follow-up and detailed final colony assessments.

The remaining phase I studies have [also present] satisfactorily towards completion by the end of August and are on track to have final study reports completed in quarter four. Integration plans for the summaries of safety and efficacy have been taken to an advantaged stage of preparedness. And medical (inaudible) resources are in place to support the challenging schedules for NDA submission.

Two new Phase III-b studies of Technosphere insulin have been initiated. Study 117 is an intensive treat to target design in type one patients using specialty sensors. This study requires fasting glucose levels to be brought to near normal with continuous glucose monitoring for safety. We also initiated study 134 in patients with mild to moderate obstructive airway disease aiming to provide additional safety information as to agency guidance. Study 119 with varying carbohydrate intake and fixed dosing to evaluate the need for dose titration, if any is planned to start soon.

We have completed an interim assessment of one of our most interesting experimental studies to date. Study 118 has examined the effects of Technosphere insulin, Exubera, and the rapid acting insulin analog insulin (inaudible) on succession of androgenous or hepatic glucose production on the rate of glucose disappearance following a meal in 18 Type 2 patients. The results to date indicate that pervasive hepatic glucose production was eventually [progressed to its] ultimately the same level by all three treatments, which indicates that sufficient insulin was administered to all of these products to reach maximum [profession]. However, the observed [nadir] of the [suppression] was earliest with TI at 40 minutes, followed by the rapid acting analog which took twice as long at 80 minutes, and the slowest with Exubera which was over three times slower at 125 minutes. Interestingly, hepatic glucose production remains stressed for hours after dosing in all three group, insulin dosing, and meal ingestion were accounted by an increase in the rate of glucose disappearance with only TI showing no lag in effect. The rank order in the onset of glucose disappearance was consistent with the effects on hepatic glucose production. TI was faster than [Whisper], which was faster than Exubera. Additional dosing is planned with TI and an insulin [list pro] in order to further characterize dose effects with a standardized meal as well as during the fasted glucose plan.

When completed this study should provide some important insights into the unique benefits of TI's pharmaco kinetic profile. Our ability to mimic physiological early Phase insulin release on our impact on glucose production by the liver. The studies required into the port of the toxicology of assessments of TI have all been completed, including the successful (inaudible) histology in the six month calcigenic mouse carcinogenicity study which showed no signal as did the earlier two-year rat study. Several potential studies have been rendered unnecessary as a result of the reassuring profile emerging from our impurity analyses et cetera, and barring unforeseen events, the toxicology program is now in the reporting phase. And will be complete in time to support our submission schedule.

Clearly, we are entering a period where the data for TI is evolving very quickly. As Hakan mentioned, we are making plans to present an overview of the emerging clinical data, including study 009 as an open forum in mid-September.

We have also continued to progress our other diabetes program, MKC 253 is a novel formulation of Technosphere GLC-1 for pulmonary delivery. The study MKC 253-002 was completed as planned in June, and data is currently in the preparation for analysis. The results from study 001 were presented as a novel session at the American Diabetes Association meeting in June. In addition, abstracts from formulation, nonclinical and 001 clinical data have been submitted for the annual meeting of the American Association of Pharmaceutical Scientists. And two poster presentations have been accepted for the upcoming meeting of the European Association for the Study of Diabetes.

Our next proposed calendar for development is MKC-118, a novel Technosphere formulation of a natural hormone to control satiety for addressing obesity using pulmonary delivery. The toxicology studies are underway in order to support a quarter two 2009 CTA filing in Europe. Preclinical animal studies have shown significant reductions in food intake. Our immunotherapy programs also continue to progress satisfactorily. Our trial of MKC-1106PP is now recruiting patients into the high dose cohort and should be complete by the end of the year. Review of the early dosed, low dose immune responses confirms that we're seeing positive effects from the appropriate T-cell populations.

The trial of our second vaccine MKC-1106MT, a melanoma product, has had an excellent start with a low dose cohort being fully enrolled in the study. And the FDA allowing us to start high dose testing earlier than anticipated. This will allow us to look at response data in the entire Phase I group around the end of the year in order to decide whether this vaccine is ready to move onto the Phase II section of the protocol. Overall, we're very pleased with the ongoing execution of our plans and the progress of our pipe line, led by Technosphere insulin, and built on the platform of technical excellence. Now let me hand the microphone over to Al.

Thank you, Peter. Over the past few weeks our stock had begun to recover from the nadir of last spring. Then last Thursday the stock plunged 22%. It was a bad stock day generally, but that could not be the explanation. We then learned of the report that Alfred Mann had died. Oh, my God, I said to my wife [Claud], is it really true. I assert that the rumor of my death was greatly exaggerated, although it turns out that Alfred Mann had indeed passed away. But it was a different Alfred Mann. I think you can all recognize that Alfred Mann is still alive and is still committed to MannKind and Technosphere insulin. Of course we have no idea if that rumor had anything to do with the sell off. But in any case, MannKind's leadership is very strong so that my departure would hardly be catastrophic, except for me.

On the other hand on a more serious note, I would like to take a moment to address the growing anxiety about Regulatory scrutiny and aversion to risk. And the potential impact on approval of Technosphere insulin. There certainly is widespread belief that the regulatory pendulum has swung very far. Many observers assert much too far. Well, what drives the process that the FDA is data? The agency does not speculate and the staff pays no attention to such speculation. The FDA will base its decisions on the facts that derive from the extensive data that we have generated. Indeed, I doubt all the speculation about pulmonary insulin generally will affect the Regulatory process of TI at all. But let me nevertheless comment on some of this speculation and the approval processes that might apply to Technosphere insulin.

Among the concerns that some of you have raised is that the agency may require additional pre approval studies of cardiovascular risk with TI and even long and extensive studies that would significantly delay approval. Some of you have also cited concerns about the effects on pulmonary functions and the risk of lung cancer. And what will be the impact for TI of the new FDA draft guideline for diabetes drugs? First, I want to say that the MannKind team has conducted a very robust clinical and pr-clinical program for TI, far more comprehensive than those conducted by Pfizer, Lilly, or Novo for their pulmonary insulins. In fact, we believe we have more than satisfied the proposed guideline requirements for inhaled insulin. Peter has described for you the impressions of our team about the pre-NDA meeting with the FDA on July 14. We prepared thoroughly for that meeting, submitting a comprehensive summary and a list of questions to guide our submittal. The FDA carefully evaluated our document and responded on July 11, with some comments and additional questions of theirs.

During the meeting, we reviewed the program and the material that will be submitted in the NDA. And we resolved our questions and also those of the FDA. Most importantly, as Peter said, the agency focused on matters of clinical significance, and also embraced our CMC proposals. The agency seemed quite pleased with the extent and sophistication of our scientific, preclinical and clinical program. As Peter noted, the only additional trial that was indicated to be needed is a very small bio equivalence study to show that the ruggedized commercial version of the inhaler is the equivalent of the clinical version. This trial will be completed in the fall and will be included in our NDA filing. No concerns were expressed by the FDA about cardiovascular or cancer risks. And the agency has only asked for a routine cardiovascular and neoplastic risk assessment as would be customary. Our very experienced regulatory leader described the meeting as the best of the 18 pre-NDA meetings he had experienced in his career.

Of course all of the guidance from the FDA meeting is based on assuming positive results from our trials, especially the pivotal trials. We are just now completing the data entry for the 009 study. And it will still be about three weeks before last patient, last visit for both the 102 and 030 trials. With larger trials, even small differences can be statistically significant. But we have already completed such a substantial body of trial to date, altogether we will be submitting 42. All with very consistent results so that we are not expecting any substantive surprises. The FDA seemed comfortable with the comprehensive approach we have taken to our study designs and implementation. Understandably, the FDA can come to different conclusions upon review of the data. However our team was very pleased with the reception during the meeting, and remains confident that our submission will be timely and will support a label that differentiates our product and its unique clinical benefits.

Some of you doubted that a relatively small company like MannKind could complete such a complex program and bring such a product to market. Insisting that only a major pharmaco company could pull this off. To be sure, the job is not yet done. Consider what MannKind has already accomplished.

One, we have developed a safe and effective therapy to reduce meal time glucose incursion with an insulin that truly addresses the problem seen with early prandial insulins, resulting in unique benefits for patients with diabetes. We have conducted a comprehensive and robust clinical trial program to demonstrate the properties of TI compared against the present gold standards of insulin regimens in both type 1 and type 2 diabetes. Three, our long term safety study 030 was recognized by the American Association of Respiratory Care for setting new quality standards in the conduct of clinical studies. Four, we have constructed a manufacturing plant under budget and ahead of schedule that has already been equipped with the first of the modular equipment installations. Formal dedication of the facility will be on September 17. Five, we've demonstrated a capability to scale up powder manufacturing from clinical batches to 10-full larger commercial batches, with success on the very first batch. Six, we prepared for and held a very successful pre NDA meeting with the FDA that our very experienced Regulatory leadership described as the most positive they had ever experienced. Our five NDA sub-teams are on course in preparing a submission, scheduled to be completed about year end.

What we have demonstrated in our extensive program is that TI is the first and only insulin today that really mimics the kinetics of a healthy pancreas in reacting to meals. With so called rapid acting insulins about 60% of the glucose lowering activity occurs after the meal is already digested. Day-long snacking is used to compensate for the lack of synchronization, adding to the problems of a person with diabetes. Interestingly, a key opinion leader recently commented that he had learned from continuous glucose monitoring that the current rapid acting analogs are not nearly fast enough. Indeed, TI will fill a very poorly met need, controlling ingested glucose better than has ever been done before. But to achieve normal glucose control and good A1C's the person must control fasting glucose levels as well as meal time glucose.

Unfortunately, the risk of hypos has conditioned the medical and patient communities to manage fasting glucose at very high levels, even dangerous levels. And at those high fasting levels, the prandial benefits of TI for A1C have been masked. We expect that our 117 study that is now under way will help to differentiate TI from other prandial (inaudible), showing superiority in A1C and/or hypoglycemia. Today the basal insulin of choice is Lantus and we recommend that drug as the companion to TI. While Lantus is the best basal insulin today it is not perfect. There are a number of other programs directed to creating an improved basal insulin. MannKind remains vigilant and committed to creating the most natural, most effective, and safest diabetes therapy to control the escalating epidemic. So we will continue to pursue an improved basal insulin.

Delivery of insulin through pulmonary inhalation has many advantages. While questions have been raised about potential adverse risks, we have so far seen no ill effects. In all of our trials, we have so far seen no pulmonary function impact and only one case of primary lung cancer in a patient after only 623 days and a smoker, surely not related to TI. We have conducted a very extensive scientific pre clinical and clinical program to establish the safety and efficacy of TI. That Exubera failed should have been expected. And both [AIR] and [AIRics] created no advantages compared to rapid analog. And with much poorer economics. That all of those problems have been terminated that should not have been a surprise. TI is truly different and fills a poorly met need. It is the most effective drug for control of prandial glucose excursions. And as for pulmonary delivery of insulin, we are now alone and will surely be so for the next four or five years or more.

All of this upheaval has created a great opportunity for MannKind. I do not minimize the obstacles raised by unfounded perceptions of potential problems, yet as I noted in the last quarterly call, I faced a similar problem with Minimed. In the early days of insulin pump therapy Minimed was selling insulin pumps along with Lilly, Novo and Baxter. When a very serious problem arose in the trial of an insulin pump from a new entrant, Wall Street projected doom. All the others quit, leaving Minimed alone for about five years and we succeeded. Minimed stock price rose from $1.75 to a split adjusted $192 when it was acquired by Medtronic. Net sales for Medtronic diabetes last year were over $1 billion. And it is the fastest growing business unit in Medtronic.

We do not belittle the enormous task ahead, but our team has demonstrated that it can achieve even where others have failed. All that said, MannKind continues towards the goal of having TI approved by early 2010. And as to specific launch plans, we will resume partnership discussions once we have evaluated the data from the pivotal trial. And we are additionally studying a variety of launch strategies. Given the enormity of the opportunity and the task for TI, people in the investment community have not yet focused on our rather robust pipeline of other products. Although it is in early stage we have created a Technosphere, GLP-1 formulation and have conducted two Phase I trials that have shown glucose lowering without any of the rather significant side effects of other (inaudible) products. We have formulated an anti-obesity peptide that has shown efficacy in animal trials and we have several promising cancer products with two in Phase I-II clinical trials where we are seeing excellent immune responses.

While we certainly face challenges, MannKind has demonstrated that it can perform at the level of a major pharmaceutical company. We look forward to completion of the remaining pivotal trials and filing of our NDA. There are still risks but our team has demonstrated over and over again that we can manage risks and deliver on major objectives. Now I would like to finish this and ask for you to submit any questions, operator?

(OPERATOR INSTRUCTIONS) Our first question today comes from Thomas Wei with Piper Jaffray. Sir, you may ask your question.

Thanks very much. I wanted to ask a little bit about the pre-NDA meeting. When you sat down with the FDA, did you talk about any post approval commitments or any plans for post approval studies that you'll need to submit along with the NDA?

Hi, Thomas, this is Peter. No, the discussion with the agency centered around what would be in the package. We didn't address future risk management plans at that meeting as would be normal. So as far as we are concerned, the discussion centered around what we had already completed and the comprehensive package that we're about to submit to.

And did you have a very specific discussion with them around Exubera and the lung cancer signal that had been seen? What exactly was their commentary in relation to that?

There was no discussion around Exubera with us.

And then just lastly, I know a lot of the focus right now in the clinical data and the regulatory risks with the drug, I wanted to find out what else you have done in terms of market research around the commercial adoption, and overcoming the presumption, correct, or incorrect that inhaled insulins are associated with lung cancer risk. What do you think is the right strategy to convince doctors that the drug is safe?

First, let me say, Thomas, that there is no lung cancer risk, even with Exubera, for that matter, but certainly not with us.

Thomas, this is Hakan, what we have done, we have met in actually qualitative market research and in meetings with endocrinologists with PCPs and also with major managed care managers in terms of addressing what is the perception? And I'm actually encouraged by the feedback that we have seen and heard from these people in regards to the fact what, again, what we have seen are only the impact in previous long-term smokers. And that the reception is certainly not one of panic, but one of understanding that yes, if you do include these types of patients in your studies, and the size of the studies you would eventually certainly run into these types of events. But none of them, I would say, is of the opinion that this is caused by say the Exubera or any other products. Because the timing is such that you would not have seen that. They would not have been on the medication long enough to be able to draw any type of conclusions on the carcinogenicity of these products.

Remember that we've completed two extensive carcinogenicity studies where we have actually studied tissue and histology. That is a far more sensitive way to detect any carcinogenicity. We've seen nothing.

And also what I want to say is that we actually did follow-up with a quantitative study in -- I think over 400 --PCPs, endocrinologists, and GPs, and the results are still very comforting in regards to intended -- say intentions to prescribe the products for the appropriate patients.

And so just to paraphrase here, your understanding from those conversations that you have had, those market research discussions is that if you present a data pocket that does not contain a lung cancer signal, that your belief is that the -- the endocrinologist, the GP community is going to be comfortable with the safety profile?

Thomas, I think that is correct in terms of an understanding that it is very clear when we got that, there is differentiation from Exubera and Technosphere insulin in terms of some of the very basics. We have got a series of studies which are ongoing, looking at divestments in time in lung and looking to [further] explain potential differences in [why] it got potential signal, but indeed Technosphere insulin is indeed different. And I think you see that in terms of the pharmacokinetics, you see that to date in terms of the lack of other pulmonary signal, and in terms of what we will then do in terms of moving on with our risk management plan, is something that I would look forward to terms of addressing that it's an important (inaudible) of establishing the real difference of Technosphere insulin and the Technosphere platform and the way that it delivers peptides to the lung.

(multiple speakers) In our toxicology -- well, I'm sorry, in five trials now we have seen absolutely no impact on pulmonary function.

Thank you.

Our next question comes from Michael Tong with Wachovia Capital Markets.

Hi, good afternoon. Just two quick ones, the first one is for -- actually the first one has to do with cash flow and cash burn, I had thought that in previous commentary you've talked about cash burn peaking around mid-'08. And now I'm hearing that it may go up in the short term. So I was just trying to understand the -- the -- what has changed in terms of your though process regarding cash burn?

It hasn't really changed. It is really more a matter of timing. I think the actually expenditures or the commitments of cash will have peaked by then. However, the -- any good cash manager will put off paying the bills as long as possible. And our payment as a cash out the door is trailing a bit, our commitment. So we expect that some of the costs of the plant and the Phase III clinical trials have yet to be paid for. So it is going to continue to stay level or rise even a little bit over the next couple of quarters, but that will be over by the end of the year.

But not significantly.

Okay, then secondly I thought I heard Peter say in study 103 that there was no change in pulmonary function in the TI group and the metformin group monotherapy, is there any change when TI combines with metformin?

No, there is no change in any of the groups.

Okay, great thank you.

Thank you, our next question comes from Jon LeCroy with Natixis, you may ask your question.

Thanks for taking my call, I just had a question -- actually I have a couple and I'll start with one. The bio equivalent study that you're doing, when would you expect that to wrap up?

It is going to be tight around the bio equivalent study and we are in process of looking exactly how to convert that. We anticipate that we'll be able to complete it in quarter four.

So are you still on track for a fourth quarter filing? Or has that been pushed slightly into 2009?

We haven't pushed it. We haven't changed, our organization is still gearing for that fourth quarter filing.

Okay, and then on the cancer, because I think last time you said there were two cases, one may have been metastatic, and I was just wondering are those -- or at least the lung cancer, was that considered drug-related? Or is that decision not made by the investigator?

In terms of the investigator, I am sorry, I can't remember the exact causality assessment. But I believe that it was considered not related (multiple speakers).

Okay. And then finally on the 118 obesity molecule, is that [webtin] or is that some other hormone?

It is a peptide.

Okay, but you're not going to release what peptide?

Not yet.

Okay, thanks.

Our next question comes from Thomas Russo with Baird, you may ask your question.

Hi, thanks for taking the question, just wanted to be clear, was the transgetic mouse histology data and the one instance of cancer available in part of the FDA meeting?

Certainly the clinical data was fully available and the agency that has been following it formed a dose through our ongoing study process and it is well aware of those cases. Actually the readouts of the histology data came just about the time we went the agency, there was transmitted briefly updated and beforehand. But they had a very short period of time to hear the reassuring data that we have seen.

Okay, and then on the bio equivalence study can you give any additional color? I know with some other companies in this space that has become an important issue. And just in terms of how you might be able to satisfy that and what some of the options are that are in play?

Yes, that was one of the major things that we wanted to discuss with the agency because in terms of -- we had questions around what the design should look like. I think we were successful in achieving, because really the changes in the device are non -- they make no difference to the flow path at all. These are really quite cosmetic superficial changes which are about the ruggedness of the device, etc., and we have been very careful not to change that. We need to discuss at length with the agency, so they can fully understand the two devices technically perform exactly the same. So that allowed us to do a much simpler bio equivalence design, than we may have feared, and that is under review. And we will be conducting that as I said, fourth quarter.

And the last question, I know the facility you guys are taking a modular approach. Which makes perfect sense. And I was wondering if you could comment at all about what capacity you will have available at the time of launch.

We have said in the past that at launch we would have the capability of treating -- assuming a person uses three capsules a day, about 400,000 people.

Okay, thank you very much.

(OPERATOR INSTRUCTIONS) Thomas Wei, with Piper Jaffray, you may ask your questions.

Thanks for taking the follow-up. In the 103 study, can you share with us any information on weight gain or differences between the arms on weight gain?

Yes, Thomas, as I said, I think the surprising things from our point of view, that despite really the quite significant goals in HbA1c we again saw no weight gain in this group. And the minimal severe hypoglycemia. So it's very consistent with what we've seen previously and our expectation is that the weight profile on TI because of this ultrarapid onset and short tail leads to a difference in terms of the effect on weight.

Thank you.

At this time we have no further questions.

Thank you for joining us this afternoon. We're very pleased with our progress. And we appreciate that we have a rare opportunity in the next few years. We thank our lawyers -- loyal stockholders for your patience and your support. And we also appreciate those others who recognize the significance of TI and the need for such a super fast insulin in minimizing the risk of serious complications for people suffering from the diabetes epidemic. Thank you all and we'll see you again. Some of you hopefully on September 16, and 17, and then in our next quarterly meeting. Thank you all for joining us today.

Thank you. This does conclude today's conference. You may disconnect at this time.