MannKind Corp (MNKD) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation first quarter 2015 conference call. (Operator Instructions). As a reminder, this call is being recorded. Today is May 8, 2015.

Joining us today for MannKind are Chairman and CEO, Alfred Mann; President and COO, Hakan Edstrom; and --

No, I'm Executive Chairman, not CEO. Hakan is the CEO.

Thank you, sir. Chief Financial Officer, Matthew Pfeffer. I will now turn the call over to Matthew Pfeffer, Chief Financial Officer of MannKind Corporation. Please go ahead.

Good morning, and thank you for participating in today's call. I will be discussing very briefly our financial results for the first quarter of 2015 as reported yesterday afternoon. I will then turn the call over to Al.

Before we proceed further, please note that comments made during this call will include forward-looking statements within the meaning of Federal Securities Laws. It is possible that 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, May 8, 2015. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this call.

Now turning to the financials. The net loss for the first quarter of 2015 was $30.7 million or $0.08 per share compared with a net loss of $52.1 million or $0.14 per share for the first quarter of 2014. Total operating expenses declined 47.5% compared to the similar quarter in 2014. With the commercialization of AFREZZA in the first quarter of 2015, and reduction in noncash stock-based compensation expense compared to the same quarter, research and development expenses were $9.4 million, a decline of 64.2%. General and administrative expenses were $10.5 million, a decline of 31.2%, mainly reflecting lower noncash stock compensation expense compared to the first quarter of 2014.

For the quarter ended March 31, 2015, our portion of the loss sharing arrangement with Sanofi related to AFREZZA was $12.4 million which we financed by way of an advance under the loan facility with our partner. The amount outstanding under the Sanofi loan facility is now $15.4 million. During the three months ended March 31, 2015, we recorded $7.1 million in AFREZZA product shipments recorded as deferred product sales from our collaboration with Sanofi, and recorded $6.3 million as deferred product cost from the collaboration. Cash and cash equivalents remained at $120.8 million at March 31, 2015 and at a December 31, 2014, respectively.

In the first quarter of 2015 we received $50 million in milestone payments related to our collaboration agreement with Sanofi as well as $6.2 million in proceeds from warrant and option exercises. This inflow offset our first quarter activities which included building up AFREZZA product inventory, purchasing additional machinery and equipment and the pursuit of new product opportunities. We still have $30.1 million available to borrow under the amended loan arrangement with Mann Group.

With that summary, I'll now turn the call over to Al. Al?

Thank you, Matt. After approval of AFREZZA by the FDA on June 27th, we have been preparing for the launch. In September we finalized a partnership agreement with Sanofi. We'll provide the commercialization with sales and marketing and also be responsible for further clinical regulatory activities. And that launch by Sanofi was initiated in February. We're getting reports post approval clinical results in early use of AFREZZA that we would like to share with you, but it is too soon to have publication of any such reports in peer reviewed journals. Therefore all we have at this time must be considered anecdotal and cannot be presented in the earnings call.

AFREZZA's unique characteristics and the comments from participants in the clinical trials lead us to expect a fairly rapid rise of adoption, but it is taking more time. Adoption is a complex matter, but perhaps the most significant obstacles to up take is derived from an imposed FDA test before a patients can start on AFREZZA. The agency is understandably concerned by the use of inhaled insulin by people already suffering from serious pulmonary disease, might cause them further harm. Before starting treatment a patients must therefore be tested with spirometry to be sure there is no existing significant pulmonary disease along with the diabetes.

To minimize any such risk, the label approved by the agency alerts prescribers with a box warning not to use this therapy in patients with COPD or serious asthma. That is a simple test, but although primary care physicians generally have spirometry instruments, very few diabetologists and only about 30% of endocrinologist do. Arrangements for this spirometry and all other requirements initiating therapy takes considerable time, and those pose obstacles delaying initiation of therapy. Sanofi's equipment supply organization is working on overcoming the testing obstacles, and we at MannKind are investigating a possible different solution.

We have found an approved, very inexpensive nonrecording spirometry instrument that meets the standards of the American Thoracic Society. We are evaluating a possible plan under which the doctor would purchase the device and retain (inaudible) to the patients. The cost of that meter is only about what today would typically be reimbursed for one such test under most insurance programs. The required spirometry measurement would be performed by the patients with that instrument under supervision of the doctor's staff. Hopefully this would offer another approach to satisfying the regulatory requirements. Of course, the final plan of plans are to be determined and implemented by Sanofi and the arrangement will take time.

The revenues for AFREZZA reported last week by Sanofi really covered only a portion of the quarter since the launch only started in February. We do expect adoption to accelerate after the start but we must be patient before setting the real revenue performance. There are numerous endorsements of AFREZZA on the social media from patients after some limited clinical usage. But we will still need more time to judge the quantity of prescriptions.

Even though the enormous potential global diabetes market is beyond our capacity or for that matter that of any company, some of you have wondered what MannKind will do after AFREZZA. Our base technology is a system with the potential to formulate large molecules in stable powder form, and then we can conveniently deliver them into arterial blood very quickly with a tiny inhaler.

There are many opportunities for this. For example, imagine the potential benefit of a pain drug which so delivered can be effective in a very few minutes. Or a drug whose side effects and complications can be avoided or at least drastically reduced by circumventing the first digestive pass through the stomach and liver. Still another use would be to deliver drugs to efficiently treat the lungs directly and with quick effect. There are very many potential uses of this technology to address truly poorly unmet needs, and MannKind is committed to exploiting several opportunities.

However with our limited resources we must be very selective and not pursue too much. It would be difficult for the Company to undertake development of drugs requiring a long and expensive clinical and regulatory program. Yet MannKind has actually been exploring one as yet unapproved drug with very exciting potential. (Inaudible) effect delivered with our technology to create substantial value at a relatively early stage.

Beyond that we have only been exploring use for delivering already approved drugs with still remaining significant benefits as they reach generic status. For such a drug our already approved inhalation systems offers the potential for a long additional period of product exclusivity with more desirable formation and very convenient delivery. Our selection will depend on potential patent exclusivity and the expected length of the regulatory cycle. Hakan will go into more detail on this.

The launch of AFREZZA may be getting off to a slower start than had been hoped, but we expect soon to see an acceleration. Certainly the potential diabetes market is enormous and AFREZZA will fill a substantial need. AFREZZA is approved to effectively and safely address not only prandial deficiencies for all type one and late stage type two diabetes, but also for the huge early stage type two market.

As we are moving in drug delivery, early type two today are treated almost exclusively with alternative anti-glycemics, waiting to start use of insulin only in a rather late stage of the disease. To be sure, rather than inhale insulin before each meal many of those patients would rather swallow a pill per day or take a shot per week. However, some of them might instead elect to inhale insulin discretely and conveniently from a tiny disposable inhaler for less than a second for each meal, thereby avoiding possible side effects, complications or organ stressing often seen with the other drugs.

So we see this as an incredible opportunity for us and we are looking forward to pursuing these very soon. And I want to turn the talk over now to Hakan.

Thank you, Al, and good morning. Well, I think we can all agree that the first two months of AFREZZA sales have been very modest. However, what is very encouraging is patients' overwhelmingly positive response once they've had access to AFREZZA. This can be seen in many of the social media sources and the very high number of e-mails we have got from patients directly to us, expressing a very positive result and support for AFREZZA.

It is very clear reviewing the reasons for the current sales lever that is largely due to some administrative issues encountered during the launch of: doctor appointments, spirometry scheduling, the ten day patient sample use, doctor follow-up visits and managed care prior authorization processes have initially slowed down the penetration of AFREZZA.

Endocrinologists being the initial primary target physicians do not have access to spirometers in most cases, thus they are forced to locate the pulmonary testing lab where spirometry could take place. This fact also significantly delays the patient 10 day sample trial process, which is required before they can get their first prescription. And there has also been some delays in patients even getting an appointment with an endocrinologist, particularly if they were not a patient of their doctor earlier.

The requirement for prior authorization, in short PA, from the managed care companies have significantly delayed and complicated the prescription process. The PA process itself is administratively demanded and it takes time before one hears back from the managed care company with an approval so a prescription can be written. Many plans now actually have a moratorium of PA prior to decision of coverage and tier placement.

Once the patients has performed the spirometry test and completed the 10 day trial period, the doctor may be ready to write the prescription. At this time the doctor may and most likely does not know whether a patient's health plan requires a prior authorization, so what happens is the patients go to the pharmacy to redeem their prescription, gets denied because of the lack of PA from the health plan. Then the patient must go back to the doctor and request a PA. The doctor requests and fills out a prior authorization document and either faxes or mails the PA to the health plan.

The health plan then reviews, rejects or accepts the prior authorization based on the submitted paperwork. That information then goes back to the doctor's office, where he informs the patient, and now the patient can get their prescription. This process is fraught with issues. The doctors do not like the process, it is time consuming, administratively challenging and the process is different for every plan. So this process is what has significantly impacted the early uptake of AFREZZA and is causing patients and doctors frustration.

Well, having recently returned from a trip to Paris and a meeting with the management team at Sanofi, I know that Sanofi is well aware of these obstacles and have put in place a number of initiatives to address them. And I had the opportunity to review these initiatives with the Sanofi leadership, and I believe the measures to be effective and we will certainly follow their thoughts closely over the next few months.

In addition, we will see the start of a D2C program in the beginning of the third quarter. I am convinced this will very quickly change the dynamic since AFREZZA clearly is a patient pull type of a product. And the introduction of the 12 unit cartridge will furthermore make the therapy even more convenient for the patient.

So while the start was slower than expected, I am convinced that we will see markedly improved prescription data going forward as the measures implemented will take hold. Even such a ubiquitous device as the iPhone only sold 2.5% of today's volume in the first year. Likewise, AFREZZA is opening up a new treatment paradigm in diabetes and yet it may take some time before we reach iPhone volumes, but the opportunity is certainly there.

A few other updates, the FDA mandated studies are progressing as planned. And also an international launch man is underway and our manufacturing operation in Danbury is ready to start manufacturing the 12 unit cartridge in time for (Inaudible). And on a final last note in this section, there have been some concerns express over my 10B5-1 plan. To eliminate this as an issue I have canceled my plan.

So now let's transition over to the next phase of the MannKind Corporation story. The Technosphere technology is unique and proprietary to MannKind Corporation. This dry delivery technology is based on the approved existing fumaryl diketopiperazine, or in short FDKP, which is covered by extensive IP protection and manufacturing know how. The Technosphere technology has a number of unique properties. First is the PH dependent microparticles. When the PH of an FDKP solution is made acidic, FDKP microparticles form spontaneously and it is on these partings that an active drug substance is absorbed. The resulting drug particle suspension is then freeze dried and the dry powder produced in the process is the material that the patient staff administers.

Taking the size range of the particles that are formed, Technosphere particles have a mean diameter of 2.5 micrometers, which falls in the middle of the ideal size range for delivery to the deep lung so that no additional processing of the microparticles is required. And third, the PH dependency that forms the microparticles also enables the rapid dissolution of dry particles when the powder is inhaled into the deep lung where the (inaudible) PH is above 6.5.

Under these conditions the powder dissolves immediately with both the drug and (inaudible) now in solution, and for which they are independently absorbed into the blood. From a medication point of view this pulmonary delivery technology is very beneficial for delivering a number of important API, because absorbed dry does not immediately go to the liver and thus avoids first-pass liver metabolism, which makes more drug available to the body.

The PK/PD character of Technosphere-delivered agents due to the drug's rapid absorption into the blood is another critical benefit. When seeking an effect from (inaudible) ailments where an immediate response is desired, like pain, rapid absorption is critical. Finally, the convenience of this dosage form has at times been demonstrated to improve compliance of the patients to their treatment regimen. And having a FDA approved drug delivery has the potential to significantly reduce regulatory hurdles and time lines, especially if combined with an already approved API.

We mentioned in our prior earnings calls that we would contract with a major consulting firm to assess applications for our technology from not only an inside out perspective but more importantly from an outside in perspective, driven by the basic assumption that the application would satisfy an unmet medical need. That activity did occur and discussed with the Board of Directors a short while ago, so we are now in the selection process for assembling our portfolio of development projects. We expect to eventually run a handful of projects internally and in addition identify opportunities for collaboration. We are focused on bringing products to the market with either in partner or exclusive arrangements.

As mentioned earlier, the Technosphere technology lends itself to a number of therapeutic areas. Pain management is certainly one very relevant treatment area, as it is associated with a number of diseases like migraine and breakthrough cancer pain. Because of the speed of onset afforded with the Technosphere technology and pulmonary delivery we can offer significant treatment benefits. We will also evaluate potential opportunities in other areas. Pulmonary diseases, such as pulmonary hypertension and cystic fibrosis and the accompanying antibiotic treatments, may provide a commercial opportunity.

A therapeutic area that has recently drawn considerable attention is nicotine replacement and this accompanying management of nicotine addiction. And for diseases like epilepsy, the unique PK/PD profile of Technosphere delivered agents could translate into significant benefits for those patients.

And to ensure the portfolio (inaudible) commercially attractive projects and that we continually interact with the marketplace, we are currently recruiting both a head of business development and a Chief Medical Officer, and we expect to have them in place by this summer. Obviously we cannot pursue all potential leads at once, but we will assemble a portfolio of projects and be (inaudible) in their development so that only continued scientific success will drive the project forward. Multiple sources will be maintained to risk mitigate the program.

So these areas will be our initial focus as we begin to build a pipeline of new product candidates targeting different (inaudible) of product offerings with a revenue opportunity in between $500 million to $1 billion. Currently we have identified five new products to be further assessed and we have a good idea of where to find fertile ground for product opportunities that are a good fit between our technology and unmet medical needs.

And now let's go to the operator for the Q&A session. Operator?

Yes, thank you. (Operator Instructions). Our first question comes from Steve Byrne from Bank of America Merrill Lynch. Please go ahead.

Hi, I wanted to better understand that $12.4 million loss from the Sanofi arrangement. Does that include more or less two months of selling expenses? Or is that -- was that pretty well steady throughout the whole quarter?

Steve, yes, that would include our share of all the losses for the quarter. Obviously the expenses were higher after the product was launched than before but there were expenses before that as well.

And would you expect that number to go up from here as a result of the research and development effort for the post marketing studies? And then a couple quarters out when the DTC campaign kicks in do you have an estimate of what your share of the cost of this arrangement might be a couple of quarters from now?

We have some ideas but we're not going to project Sanofi spending. I think that is probably imprudent. Remember that is not cash out of pocket for us because it just goes against our line of credit for them. So it is a reported number but it doesn't appear in the P&L.

Okay. And then for products sold do you get reimbursed for the cost of goods in that quarter and did you have any recorded in this quarter?

Yes, we do and we did. In my part of the talk we talked about what was sold to them, and we'll report that on an ongoing basis. We do get reimbursed on a roughly current -- we have some typical payment terms but we give them a little over a month to pay us. But they do reimburse us on a current basis, and we'll continue to do that every time.

You mentioned the $7.1 million, Matt, that $7.1 million of deferred of sales and the $6.3 million of deferred costs. Is that essentially product that was delivered and thus is in inventory versus what was sold?

Those are actually sales to Sanofi, so those are the numbers we're reporting. They're not shown on the P&L because all those things are deferred. They are hung up on the balance sheet. You can think of that as the sales and cost of goods number related to products transferred to Sanofi during the quarter, But that is all sales to them, including things like samples and potentially in the future clinical supplies. Some of it was sold to end users, some of it is in their inventory, in Sanofi's hands, and some of it has been given away for free.

Okay. And the difference between those two numbers, is that your markup on cost of goods?

You can think of it that way. There is not technically, according to the contract, a markup on cost of goods but we are allowed to recoup some costs that we have previously expensed as part of this process. So from an accounting standpoint we show a slight margin in the near term, but technically it is considered to be for Sanofi's purposes at our cost. So we make the money from selling things to them when they sell it and make a profit later on down the road.

But for example it is well known we have a lot of insulin in inventory and we did buy that once upon a time, but we expensed it when we did. To the extent we now use that in the manufacture of our product we can charge Sanofi for what it cost us originally, so we kind of recoup it now and it shows up as margin. So we have an accounting margin. And we'll always have positive cash flow because of course, in the production of product you include things like amortization or depreciation of a facility which is a noncash charge. We get that recouped at this point, so they are essentially paying for the past production and cost of building the facility as part of the margin here. It generates cash for us but it is still technically considered at cost for the contract.

Okay. And just one last one, Matt, your underlying business outside of the Sanofi partnership, you had operating expenses in that $21.7 million. Is that a number you would say is a reasonably good number to model on a going forward basis?

I would. I think when we talked about this last quarter I hedged my bets a little bit and said both R&D and G&A would be in the $10 million to $12 million range going forward and these certainly fall within that range. Actually a little bit towards the low end. We had some costs that were kind of manufacturing related, startup associated costs as you start up things that we could not pass on to Sanofi that you see in there. We broke it out for clarity but we typically would have covered that in R&D previously. But it falls within that range and I think it will continue to be so.

Okay. Thank you.

Thank you. Our next question comes from Adnan Butt from RBC Capital Markets. Please go ahead.

Thanks for taking the questions. I have a couple. First, Hakan you met with the partner recently. Are you able to share some practical steps that the JV might be taking to facilitate this patient flow either when it comes to lung function testing or prior authorization?

Well, what I can say is that on a regional basis Sanofi has assigned specific responsibilities in terms of bringing these separate activities together and from helping the decision, helping patients, and helping the reps get it all together. So it is almost like you could say you have a concierge service within the region, within the territories that are helping to streamline the decision. And also going forward in regard to what Al mentioned on the spirometer side in making sure at least administratively we make it as convenient as possible and not a major obstacle.

Okay. I guess what I'm trying to understand is this is something that you expect to be -- the JV expects to be able to address over time or this is something will get addressed naturally over time? Have you seen any changes in these flows in the more recent weeks or months? Given it's still in early launch.

It is too early to say that, but I would say this is kind of addressing the onset of the problem because once you had your prior authorization, and particularly, say, six to nine months from now when you have a tier placement, a number of these issues goes away. So I would say this is right now in the beginning, so I would hesitate to give you a status at this point in time more than the fact that at least I certainly did see the number of prescriptions did increase recently, rather significant over the last couple, two weeks.

Adnan, if I could just add to a little bit to what Hakan is saying, if I understood your question correctly. I think it is going to be a blend of both things. We certainly know very specifically what Sanofi is planning to do, but we can't disclose all of those things unfortunately. Some of these issues will go away naturally. Naturally they have a very large reimbursement organization; they are working with the insurance companies; you should expect that. To the extent they get permanent placement in a more favorable position some of these prior authorization issues will naturally go away.

In the meantime there is a lot of things they can do to make it easier for the doctors and you would expect they would do that. And there are other things they can do as well that we're not allowed to talk about, but we are quite pleased that they are taking a very active stance in working on them.

Matt, as Hakan mentioned, all this leads to launch lag expectations, but there is some uptick recently so I was wondering if that is reflective of anything specific or if that is just the nature of patient flow throughs?

Hopefully it is a combination of both.

Okay.

I think we said all along that it would get off to a slow start. Some of these hurdles proved to be a little larger than we anticipated, which means the early months are going to be naturally even slower than we expected. But the first quarter just reflects less than two months of activity. It is not a full quarter. People forget that. So we expect the numbers to be low; they were. We expect them to improve, and we expect it will be as a result of all these things. Some of it is just going to be naturally -- if there's delays and people are working their way through, you will start to see that. And to the extent we have things specifically intended to address these delays and make them less cumbersome, you'll start to see more of that and they will build on each other.

Yes, I would have to say in talking to a number of patients that have certainly called me, if you look at the scheduling of the doctor visit, the spirometry, the 10 day sample, the follow-up and maybe (inaudible), many of the patients have looked at a four to six week time in terms of getting into the drug. So the startup process from a timing point view has been certainly longer than we anticipated.

These are anecdotal, but we get people calling and talking about this a lot. I have a close member of my family who is trying to get AFREZZA themselves, and I'm anxious for her to do that because I would like to hear her direct experiences, and she doesn't have it yet because of a lot of these delays. She had to get -- find an endocrinologist because she didn't have one previously. It has taken some time to get the appointment, and just working through all these various steps we are talking about. No matter how anxious she is to use the drug she doesn't have it yet. So it happens out there, We hear about it a lot. I know about it from people I'm close to who are experiencing it as well so I know it is real, and hopefully it will continue to get better.

Yes, and I can give you a personal testimonial because I believe that I am a candidate for AFREZZA. And I just called my endocrinologist and I got the appointment on May 26th, so that gives you an example of the timing of getting in.

Okay. Matt, if I could have a follow-up. It is balance sheet related. Would you be able to give us the trend for not just overall but for both the JV and non-JV related items in the first quarter? What is the cash burn?

Well, it is complicated because there are a lot of elements to cash burn. Obviously it is very coincidental; the cash number didn't change. That was completely coincidental between the end of the year and the start of this year. But obviously there is not a cash burn from the collaboration per se, because all that just goes into the line of credit, which is why we set it up.

But we do have a lot of other things happening. We're paying some fairly major financing costs. You all will remember that when we did the Deerfield arrangement we had a series of milestones. One of them was a launch milestone, and that was a big chunk of cash out the door, some of which was accrued and some of which was not. But you did see a jump in financing expenses as a result of that in the quarter, but that is an one-time thing.

You'll also see a fair amount of inventory build, which does impact the cash burning quite a lot. You can see that just looking at our balance sheet. There is a good -- you see we have got recent receivables from the collaboration, so product we have shipped to them they have not yet paid for because of that 40 day terms we have given them. Plus inventory build up and even in prepaid expenses there is a decent number in there, probably $15 million or $16 million that relates to products that are prepayments against products and raw materials and so forth.

So those are all affecting our cash burn, but a lot of this is initial build up, so it is not going to necessarily continue in future quarters. So I think the cash burn was unusually high this quarter. I think it will be much less in the next quarter. And then it will be dependent upon what happens and timing issues relating to sales and inventory build and receivables. (Multiple speakers).

Sorry, last question and then I'll get back in line. So Matt, would you be able to give guidance on what cash could be at the end of the year? And then on the last call the Company did update on sampling and sampling supply. Can you make some comments about that as well? Thanks.

I'm hesitant to project a cash balance for the end of the year because it could be largely influenced by how we choose to deal with the convert instrument that is coming due in August. And it is a little premature to say exactly how I'm going to deal with that, but I'll give you some guidance a little bit because I get a lot of question about it.

A lot can happen between now and August that could influence this decision, but I think the working hypothesis is we would likely replace it with a similar instrument or rework the one we have. We could potentially pay it in cash. We'll have the cash at that time and if we want to wait a little while and do a convert later we could do that as well. And depending on what the price of the stock is, obviously we could allow it to convert if the price is in the right range to do that, and with increasing sales I think that is not impossibility. The one thing I want to stress is that I have no intention of doing a dilutive secondary offering to take out that instrument. So anybody who is worried about that should not be. Beyond that I'm not sure I'm prepared to predict an actual cash balance at the end of the year.

Okay. And then the follow-up on sampling (multiple speakers).

The only thing we -- I know we had gotten increased demand for samples as we discussed. And I know we have certainly limited manufacturing capacity to meet the increased demand. I actually have not followed up on that one, so my assumption is that that is working and we are certainly supplying the need from a sampling point of view. But I don't have any more specifics other than that.

Okay, thanks.

Thank you. Our next question comes from Jay Olson with Goldman Sachs.

Good morning, thanks for taking the questions. I have a few of them. I'm interested in the comments made around the potential for international regulatory filings. And I know the pivotal studies were done with international study sites, so can you tell us can you use your existing phase three data for international regulatory filings or do you need to conduct new studies? If so, what sort of studies and how long they might take?

First of all, yes, we can use them. And actually what is being looked also what are the jurisdictions, what are countries or regions where the FDA approval itself will provide a significant time savings in getting into the market? There may be for Japan or whatever coming up that you may have to do some local clinical trials, but the basic assumption at this point in time -- and this will be discussed about mid-year together with Sanofi -- is that the documentation we have in applying for the FDA approval will certainly be the substantial documentation that also will be utilized for other jurisdictions.

Okay. And then I guess some of the milestone payments from Sanofi are contingent upon filing in Europe and filing -- sorry, approval in Europe and approval in Japan. Can you give us some guidance on when we should expect to hear about filing in Europe or filing in Japan?

I cannot at this point in time because again that is part of the ongoing planning inside Sanofi at this point in time. And as I said about mid-year the idea is to sit down and look at how to fan out over the world. At this point in time I cannot give you a concrete answer in regards to the specific timings there.

Okay. There was $75 million in manufacturing and development related milestones, of which you have booked $50 million of milestones. When should we expect the remaining $25 million of those milestone payments?

I guess we're trying to think who wants to answer that question. That is a little difficult because we haven't disclosed what that milestone is, which makes it a little awkward to project when it would it be, because it becomes sort of circular. So I think we are uncomfortable because we are not sure we can answer that question. I think the answer is we probably can't.

Okay. And then just on the sales related milestone payment, is there any additional color you can give on -- you disclosed the initial sales related milestone payment is triggered by aggregate sales of $250 million. Can you talk about any of the other trigger points for sales milestone?

Unfortunately Jay, again we can't. That information is all redacted out of the agreement by filing assistance from our partner, so it would be obviously a mistake for us to give more color now. We'll be more than happy to surprise you as we hit those milestones and you'll see what they were.

Okay. I understand. And then just on the pipeline, we appreciate the additional color there. Are these opportunities that you're exploring for additional application of the Technosphere platform, are these opportunities something that you envision pursuing independently or do you intend to sign a partner? And if so, when should we expect to hear about any additional partners for a pipeline project?

I would say that for most of them certainly we would be looking to sign up a partner. There may be some kind of partner collaboration where we get approached or we work directly with a partner; ideas for products coming in to us. But our idea is to take these opportunities to a proof of concept and at that time approach a partner. So if you look at that I would say that probably 12 months to 18 months is a reasonable time frame to look into when we have done that work and been able in a situation to approach a partner.

Okay, great. That is helpful. Thank you.

Thank you. Our next question comes from Cory Kasimov from JPMorgan. Please go ahead.

Hi, guys This is [Britney] on for Cory. Thanks for taking the questions. So given that Sanofi is commercializing AFREZZA how much insight do you have into the market dynamics? And could you give any more detail on the type of feedback you're getting from Sanofi's sales force? Thank you.

We have what's called the Joint AFREZZA Committee, which is really the marketing and commercial group that is working together in between Sanofi and MannKind. So all major initiatives are being discussed there. All the metrics in terms of measuring the performance and certainly feedback on performance. Across sales, clinical, regulatory, manufacturing, parameters are being discussed. I would say from that point of view it is an open and frequent collaboration in between the group. So I would say from that point view the transparency is good.

Okay, got you. And then just a follow-up question, do you not recognize any manufacturing revenue until the JV turns profitable? Is that the correct way to think about it?

Somewhat, yes. It is not exactly but it is pretty close. We have to line of sight to profitability or we know we are moving in that direction and we can demonstrate mostly to our auditors, to be frank, that we will ultimately be profitable in this endeavor or at least we have turned the quarter and have stopped -- we can see a line of sight to stop losing money. So, yes. Everything else in the meantime gets hung up on the balance sheet, then it will come following wildly in once we get to that point.

Okay, that makes sense. Thank you.

Thank you. Our next question comes from Shaunak Deepak from Jefferies. Please go ahead.

Hi, guys. Thanks for taking my questions. I just wanted to start out, if you could maybe itemize a little bit more some of the revenues and expenses which factored into the $12.4 million loss you reported in the Sanofi JV. And if possible also maybe talk a little bit about the EUR1 million that they reported this quarter.

Well, that is tough. It is hard to comment on other people's numbers. The $12.4 million -- the way that number is arrived at is we basically come up with a consolidated product P&L for the AFREZZA product. Some lines on that P&L come from Sanofi, some come from us and they are all combined and rolled up into our product based P&L. We come to the bottom, we say what is our 35% share of that profit or loss, obviously a loss in this case.

We can subtract out spending we have already made and that's recognized and then what's left flows into the -- ultimately flows into what is owed to Sanofi. So we report our share of the losses; that is what the $12.4 million is. It includes everything that comes from Sanofi and costs from us. It is all the things you would expect: sales and promotional costs and so forth, cost of the product, those kinds of things. And that's what's in there. There is not really anything that I think would surprise you. I can't give you specific numbers that come from Sanofi or from us for reasons you can probably imagine, but you can -- what the components are is pretty well understood.

Sure. Okay, great. I was curious if you could break out maybe the amount spent on promotion relative to R&D costs and so on.

No, that would be something that Sanofi would have to do, not us. And you asked about the EUR1 million they reported. Yes, I heard them report that too. I don't have any particular insights into that. I guess that's their reported sales number for the quarter.

Great.

We report our sales. We don't report Sanofi's sales.

Okay. And then just curious about the build of inventory here. Is there an insight for when you might reach stead-state on that? And is there a certain metric or ratio I should keep in mind when thinking about that?

I'm sure there is. I would have to come up with a metric if you wanted one. It builds initially as we go into production, and then it will stay somewhat steady state except to the extent that our production increases dramatically. So in order to project that I would have to predict sales, which is the one thing I always say I'm not going to project any time soon. So it is not going to continue to increase like this, that's for certain. I think you should assume it will be somewhat steady from this point, but obviously to the extent sales and production increase, you would expect this to increase commensurately. Maybe not on a one for one basis but in proportion.

Okay. And then just kind of curious about this spirometry device that you were talking about. In terms of cost in the meter and how you might handle procuring these and distributing as well, if you could provide a little bit of color on that.

That would be handled by Sanofi, but this is a meter that costs about what the first tests cost. So if you want to use that meter it would essentially cost hardly anything. The doctor would buy it and bill a patient and he would be paid for the meter right off the bat.

That's just one concept. Obviously we have found the lack of having spirometry equipment in everybody's office has been something of a barrier to prescribing, so making that easier helps us in the long run. Sanofi is interested in doing that and helping doctors to the extent that they wish to purchase the equipment. Once upon a time, we might have been able to just give them away to encourage prescribing but that's not legal anymore. So they have to buy them themselves.

But the equipment is not very costly, as Al was eluding to. They vary in price quite a lot depending on what kind you get and where you go for to get it. But the pay back is relatively short, so to the extent we can help doctors realize that benefit, it helps us too.

Okay, great. And just a last one, just curious what would your path to market be if you wanted to go out with a slightly different cartridge strength? So if you had a two unit cartridges, how would you end up getting that out?

Well, basically then first we would have to see whether we would have a composition that can do that, which I think going down in size is certainly not an issue. And currently we would certainly look at usage. It may become a relevant question when we get into the pediatric population, where you may be benefited from a lower dose unit. It is on the horizon, it has been discussed, but currently that is the status of that project.

Obviously such a thing would require FDA approval, much like the 12 unit did, but it is not a complicated process and it is not terribly hard to do the work necessary and apply. At the point of launch we frankly hadn't seen the need. We anticipated it might be useful in the pediatric studies that Hakan talked about. We have seen in the popular press people are saying it might be useful in a type one population as well, and we're investigating that.

Great, thanks for taking my questions.

Thank you. I will now turn the call back to Hakan Edstrom for closing comments

Thank you for participating in today's call, and thank you for the questions. And this now ends the quarter one 2015 earnings call for MannKind. Thank you.

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