MannKind Corp (MNKD) 2016 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation 2016 third-quarter conference call.

As a reminder, this call is being recorded November 9, 2016. Joining us today from MannKind are Chief Executive Officer Matthew Pfeffer, Chief Commercial Officer Michael Castagna, Chief Medical Officer Raymond Urbanski and Principal Accounting Officer Rose Alinaya.

I will now turn the call over to Ms. Rose Alinaya, Principal Accounting Officer of MannKind Corporation. Please go ahead.

Thank you. Good afternoon and thank you for joining us to discuss MannKind's third-quarter 2016 performance. Our third-quarter results were released this afternoon and are available on the SEC's EDGAR system and on our corporate website.

Before we proceed I'd like to remind everyone that comments made on this call will include forward-looking statements within the meaning of federal security laws which are based upon current expectations that involve risk, changes in circumstances, assumptions and uncertainties. It is possible that the actual results could differ from these stated expectations.

For factors which could cause actual results to differ from expectations, please refer to the reports filed by the Company with the Securities and Exchange Commission under the Securities and Exchange Act of 1934. The information we provide on this call is provided only as of today November 9, 2016 and we undertake no obligation to update or revise publicly any forward-looking statements to reflect events or circumstances after the date of this call except as required by law.

I will now turn the call over to our CEO Matt Pfeffer. Matt?

Thank you, Rose, and good afternoon to our investors, analysts, members of the diabetes community and Afrezza users. Thank you for joining us on today's call.

I'm excited about the accomplishments of our leadership team we have been able to execute on over the last several months. The intense focus to transform the Company has resulted in our ability to extend our cash runway out to Q3 of 2017 without causing shareholder dilution while simultaneously creating financial flexibility for us to take some calculated bets on Afrezza.

By now you will have seen our earnings release, one of the highlights of which is a $126.5 million net income. This release included many new elements including our first quarter of commercial sales, an income statement recognition of items related to the Sanofi collaboration that had previously been deferred.

What is not included are two new agreements being announced with this call which I would like to discuss now. First, I'm very pleased to announce that we have reached an agreement with Sanofi that contains several key elements. First, Sanofi will forgive the entire amount of our loan from them of $71.6 million and terminate the associated note and security agreement. MannKind is also released from its obligation to pay $0.5 million in previously uncharged costs related to the collaboration.

Next, Sanofi will purchase $10.2 million worth of insulin from MannKind in early December. Note that this insulin is considered surplus to our current needs and is carried on our books at zero value.

Finally, Sanofi will pay an additional $30.6 million in cash to MannKind in early January canceling and settling our insulin put agreement with them without our having to deliver any further insulin. In addition, it should be noted that the termination of the promissory note and security agreement allows MannKind to pursue the sale of its Valencia, California facility and the adjoining property which is now on the market for roughly $25 million without our being required to use the proceeds to reduce the balance of the loan. So this is another source of non-dilutive liquidity for MannKind.

Collectively, as a result of this agreement, we have improved our financial position by over $130 million. This will go a long way towards meeting our near-term financial needs. We have also taken steps to reduce our cash requirements to amplify this effect.

Which brings me to the second agreement we are announcing today. As many of you may know one of our largest financial commitments results from a long-term insulin supply agreement with Amphastar. I'm pleased to announce that collaboratively with Amphastar we have successfully updated our commitments under the contract and reduced projected spend by over $65 million for the period 2016 through 2018.

This will allow us to invest our resources to drive the success of Afrezza. We have also deferred our next purchase of insulin to the fourth quarter of next year.

Finally, as described in our 10-Q filing we enacted a reorganization in September of this year, reducing our headcount by approximately 20%. This step was taken as part of our continuing efforts to reduce overhead and offset increased spend in the commercialization of Afrezza. As a result of these steps, we now have the financial resources to embark on important initiatives that will be discussed in more detail by Mike and by Ray.

Now that we have launched Afrezza and established our infrastructure we expect to increase our investment to grow Afrezza sales faster. Based on everything we have planned, we expect the current financial resources to last into Q3 of 2017 and we will provide further updates, including revenue guidance for 2017, during our Q4 earnings call.

With that I'd like to turn the call back over to Rose to run through our financial results reported earlier today. After Rose, Mike will say a few words about our commercial activities, then Ray will discuss plan development activities as well as our label change for Afrezza. After that I will have a few additional comments before opening up for questions. Rose?

Thank you, Matt. Turning now to the financials, the third quarter of 2016 was a significant reporting period for MannKind. Our financials reflect the recognition of several previously deferred amounts related to the Afrezza collaboration as well as the first quarter of MannKind-branded Afrezza product sales.

In the third quarter of 2016, we recognized total net revenue of $162.4 million of which $161.8 million resulted from our ability to satisfy the accounting requirements for revenue recognition this quarter following the termination of the Sanofi license agreement. The total amount recognized relates to activities from prior periods which were previously deferred, including the upfront payment of $150 million and milestone payments of $50 million net of $64.8 million of net loss share amounts related to Sanofi as well as $17.4 million in sales of Afrezza and $9.2 million in sales of raw insulin, both to Sanofi. Additionally, we recognized $22.7 million of previously deferred costs from the collaboration which consisted of $13.5 million in Afrezza manufacturing costs for products sold to Sanofi in 2015 and $9.2 million for a change in estimate in our recognized loss on purchase commitments as a result of the sale of raw insulin to Sanofi.

We began distributing MannKind-branded Afrezza products to major wholesalers during the week of July 25. This being our first quarter of commercial product sales, we do not have enough sales history to reliably estimate the expected product returns at the time of shipment into the distribution channel. As a result, we are currently only recognizing Afrezza revenue at the point prescription units are dispensed to patients based on reported prescription data.

This model necessarily recognizes a relatively small percentage of sales into the wholesale and retail channel and will change as a longer history of product return patterns is established. In the third quarter of 2016 we recognized net revenue related to sales of Afrezza to patients of $600,000.

As of September 30, 2016 we had recorded $2 million in deferred revenue of which $1.6 million net of estimated gross to net adjustments represents products shipped to our third-party logistics provider and wholesale distributors but not identified as having been dispensed to patients as of that date. Estimated gross to net adjustments for the third quarter of 2016 were approximately 32%, which includes estimates of wholesaler distribution and logistics fees, prompt pay discounts, estimated government rebates and patient discount programs. Deferred revenue also includes $0.4 million we received in advance for the sale of surplus raw materials to a third-party where delivery was not completed as of September 30, 2016.

Cost of goods sold in the third quarter of 2016 includes a $0.1 million of manufacturing costs of Afrezza product sold to patients and corresponds to this quarter's recognized commercial product sales. The remaining portion of cost of goods sold of approximately $4.2 million for the third quarter of 2016 relates to unabsorbed overhead and other costs, a decrease of 48% from the third quarter of 2015. This decrease is primarily due to reduced depreciation as a result of the fixed asset impairment write-down in 2015 and decreased salaries resulting from the reduction in force in 2015, partially offset by a decrease in production costs in 2016.

Cost of goods sold or product manufacturing costs were $15.6 million for the nine months ended September 30, 2016 and included underabsorbed labor and overhead costs and a foreign currency exchange loss on purchase commitments for insulin, offset by a change in estimates that resulted in a gain on purchase commitments for other materials. Corresponding product manufacturing costs for the same period in 2015 were primarily underabsorbed labor and overhead costs.

Research and development expenses were $3.9 million for the third quarter of 2016, a decrease of 38% from the third quarter of 2015, primarily due to a reduction in force in 2015 along with curtailing certain research and development projects. Research and development expenses were $13.4 million for the nine months ended September 30, 2016, a decrease of 43% compared to the same period in 2015, primarily due to the 2015 RIF along with a reduction in research and development projects and facility spending offset by lower reimbursable third-party development expense and tax credits.

Selling, general and administrative expenses were approximately $13.1 million for the third quarter of 2016, an increase of 14% from the third quarter of last year mainly due to increased costs for the support of sales and marketing of Afrezza. SG&A for the nine months ended September 30, 2016 were $31.6 million, a decrease of 3% from the same period last year, again primarily due to the 2015 RIF, lower telecommunication costs in facility and insurance costs and a lowered non-cash stock-based compensation expense offset by increased sales and marketing costs for Afrezza.

Included in the results for the three and nine months ended September 30, 2016 is the non-cash effect of a $13.2 million and a $7.9 million fair value adjustment of the warrant liability related to the registered public offering completed in May 2016. Net income applicable to common stockholders for the third quarter of 2016 increased to $126.5 million or basic net income of $0.26 per share compared with a net loss applicable to common stockholders of $31.9 million or basic net loss of $0.08 per share for the same quarter in 2015.

Cash and cash equivalents at September 30, 2016 were $35.5 million compared to $59.1 million at December 31, 2015. Currently $30.1 million remains available for borrowing under the amended loan arrangement with The Mann Group along with $50 million still available under the ATM facility.

I would now like to turn the call to Mike, our Chief Commercial Officer.

Thank you, Rose. Today was an important milestone for the Company in order to transform us from a development and manufacturing Company into a fully commercialization Company. With that said, we've learned a lot about Afrezza since not only taking it back from Sanofi but also from our own real-world experience.

A couple of things I'll share with you before I go into details is we've learned that patients dropped off Afrezza for two reasons: one was because of cost and two was because of efficacy. And there are other reasons they dropped out, but the two predominant reasons are based on those two factors. One of the things we will share with you as we continue to improve formulary access we will see less dropouts due to cost.

But the efficacy part is an important one that you will hear from Ray talk about today. We need to continue to reinforce the appropriate titration early on in treatment and as we follow that we will continue to see increase in retention of our patients. Since we have launched we believe that continues to get better than it has been in the history.

The second part we've learned is almost one out of two patients receive Afrezza as a direct result of them asking their doctor to prescribe it and the other half get it because their doctor recommended it. Obviously with our efforts out there over the last three months we want to continue to shift that imbalance to doctors voluntarily wanting to prescribe it and feel it's a great option for their patients. However, at the same time we need to continue to increase our focus on driving patients in to ask for our product by raising awareness and opportunity.

Now let me bridge into why we believe we are positioned for long-term success. There has been a couple of things happening as we look out in the near term and the long term. Number one, CGM technology continues to improve and increase penetration. We all saw the FDA meeting in July for Dexcom which should continue to enhance that coverage within Medicare at some point in the future.

The other thing we saw recently was Abbott Libre system getting approved for the Professional Edition which also allows continued glucose monitoring. And we see that technology being adopted in the type 2 patients as well as in the type 1 segment. As people continue to get clarity on what their sugars are doing every single day in real-time we believe they are going to look for additional options to help drive tighter control of their diabetes.

The second thing that we look out on is new innovation continues to reduce injections as well as finger sticks while providing real-time feedback. This goes into CGM, but this also goes into some of the new technology we are seeing around implantables that continue to reinforce patients want two things: they want to get control of their disease for the work they are putting in and they don't want to be reminded that they have a disease they have to live with every day.

So the more we can continue to drive that seamless integration and help people achieve their outcomes in life that they desire without interference of counting carbs and living life with a disease as opposed to just living their life. So we see these two opportunities really transforming diabetes care over the coming years.

The third part is as Afrezza continues to grow and gain momentum it is a worldwide epidemic. So we will expect to grow with the natural market trends not only in the US but the rest of the world.

Patient awareness and experience with Afrezza is extremely low and I'm thankful for that because if a lot of people had negative experiences we'd have a lot higher road to overcome. Today we know that when a patient is aware, their desire to start Afrezza is extremely high. We've seen this firsthand in the numerous community events we've been doing in the last few months.

Next, I just want to highlight some key commercial activities that occurred. For those of you who have never launched a drug, it usually takes three to six months for a rep to start to make impact, not to mention all the activities it takes to actually run and build a pharmaceutical company. I'm really proud of the team and all the hard work and late nights and weekends that everybody has done in order to establish a commercial infrastructure.

This is no easy task and it's not even easy to do on the budgets that we had or the time frame that we had. But I'm really proud that throughout Q3 we continue to get Afrezza off the ground, we continue to work out the kinks in our supply chain as well as get the field the tools they need to do their job.

So some of those things are around samples. You think it's easy to get a sample out the door, there's a lot of complexity from trying to get the packaging ready, to get the laws straight, to get the programs adopted and implement it through the salesforce. Then you have contracting with the vendors as well as payers and reimbursement of third parties, not to mention speaker programs, Sunshine Act and compliance are important parameters to running a real pharmaceutical Company.

The other two parts that I'm really proud that we've been able to achieve in Q3 was continue to engage top thought leaders to get their feedback on where we've been, where we are and where we need to go. That feedback has been absolutely critical to the insights we've learned as well as the direction we are going to take Afrezza and the Company as we go forward.

And then finally, we've launched a new brand campaign. It usually takes six to 12 months to launch a new campaign. We know the one we had previously didn't really make the impact we expected. I can tell you the new one continues to grab attention and there's a lot of flexibility we have and continue to make Afrezza stand out in the marketplace.

The second big part of our commercial launch was really around the reimbursement and access team. As you know, reimbursement and access these days are challenging. There is a lot of noise in the marketplace and the paradigm of how drugs are delivered in the pricing environment has completely shifted in the last 90 days. However, we've got a great team, we've been having great discussions with the payers and I will share some data with you in a second.

Before I do that, you may have heard that we had a hiccup in Medicare Part D and Medicaid during the month of August. This was just unfortunately an oversight during the transition that typically takes about 18 months to register with CMS that we discovered right as we got the product in and put our supply chain out there.

We initially were told we couldn't get this resolved until January of 2018. However, our team was able to figure this out and fix it within a week and really minimize that lapse in coverage effective from late August to early September. But I'm proud today to tell you we are officially registered with CMS, we do get reimbursed in the Medicare Part D segment and as well as Medicaid.

The second part of that is you should know we are covered on Medicaid in almost every single state 100% for Afrezza. And Medicare while we don't have preferred coverage we do get patients covered through the prior authorization process.

I'm also proud to announce that Express Scripts we are now officially on the national formulary and covered as well as addition of other Part D starting October 1 going into 2017. There also is no prior authorization required for patients in these two formularies.

Then, finally, we did launch a reimbursement support center in late August and that continued to get good positive feedback from customers who have experienced it and we continue to see great success in reimbursement opportunities there. Additionally, it really was helpful in managing the Medicare gap that we had in August because we were able to help patients cover that time through working with MannKind care. So this reimbursement support center is continuing to become a critical part of our relaunch.

And, finally, accelerated patient outreach. So this is one that we danced around delicately. We really want to test out a few new concepts as we went to TCOYD, Take Control Of Your Diabetes Conference, in San Diego and we will also be at one next weekend in Florida.

We have been participating in the JDRF and ADA walks and continue to expect to be at type 1 summits as well as ADA expos going into 2017. We have seen tremendous activity at our booths. We've seen amazing interest from patients and we have had headlines nonstop throughout these events when we are there.

The second part of the accelerated patient outreach is continued expansion of journal advertising. You will see us in the for Diabetes Awareness Month in the USA Today online and print editions coming out shortly.

We continue to enhance our public relations activities. As you may have seen the Fox News segment a few weeks ago we have several more opportunities where we continue to work with third parties to get these out the door.

And then finally one of the big things we heard from patients is, hey, I want to start Afrezza but where do I go? My doctor may not want to prescribe it. And so we did update Afrezza.com with the new branding, tried to make the layout better, make the website more mobile friendly as we see probably 70%, 80% of all the website traffic continues to come from tablets as well as iPhones.

The other part of the website that you will see that we recently added is spirometry testing is available on site at a doctor's office as well as a validated referral is available. This Find a Doctor website will continue to be updated and the data in is only as good as the reps that put the data in their CRM system. So while we have about 1,200 doctors listed today, as we continue to expand the salesforce and add these data parameters we expect to continue to see the increases in the Find a Doctor.

Since launch Afrezza has had almost 4,000 prescribers prescribe the drug. We continue to see repeat prescribing and we will continue to see that effect compound over time as we go out there. Just since July we've had over 200 new prescribers to date.

The next thing I wanted to shed some light on is our established -- is that we established our wholesale and distribution network. And what you may not realize is just because we started booking sales for a large part of the quarter those sales were not MannKind -- they were MannKind sales that we booked, but a large percent of prescriptions dispensed at the pharmacy and captured through the Symphony as well as IMS were a Sanofi prescription that remained in the drug distribution channel.

So what you can see in July, August and September, the percent of prescriptions filled with MannKind-branded product went from 10% in July to almost 80% in September and sitting here today we see about 90% of all prescriptions dispensed are pretty much MannKind-branded material in November going forward. We fully expect the remaining Sanofi inventory to clear out no later than December 31, 2016. 100% guarantee on that because the product that is in the channel from Sanofi expires at that time point.

The other part that we continue to see is weekly TRx average increasing from 268 up to 274. And while that may not seem significant I will share with you in a second all of the new Rx trends, which I think is really what we need to focus on, partially because of the continued decline in the white space where we don't have coverage.

Then the final comment I will make here is this next comment is around penetration in terms of retention of patients. We've seen the average cartridges per prescription rise from 169 three months ago to 180 and it's has stayed about 180 right now. What we think that means is people are retaining the drug, they are continuing to titrate it more effectively.

And these prescriptions are not just for 30-days supply. Many of them are for 45- average or 90-day supply either due to mail order or prescription coverage. So we do see patients ranging in doses from 90 a month up to 180, and some patients we know use this not consistently with just three meals a day.

So the first question we had when we got the product back from Sanofi is this product really promotionally sensitive? And so before we burn through a lot of cash in hiring a bunch of people and really trying to understand do the tools work that we've created, is the messaging resonating with customers, we wanted to really first understand the question, is the product promotionally responsive? And I'm really proud to say that within the first 30 days of launch we saw an immediate trend reversal from an eight- to 12-month decline into a growth trajectory for NRx.

There has been a lot of confusion on how many sales reps we have out there. I want to clarify for you this data right here is based on 42 sales reps. Approximately 1/10 of the efforts that Sanofi had out there from a salesforce reach in frequency and coverage.

We expect this NRx trend to achieve roughly by the end of Q4 where Sanofi ended the year in Q4 of 2015. So while we have done this with minimal resources, we are excited that we can see that impact in such a short amount of time. As I can tell you, having had many sales forces over the years it sometimes takes three to six months for a new rep to make an impact in any given geography.

The two lines on the bottom I've put here for transparency purposes. It's important to understand we have had about a 20% vacancy rate and that's due to either medical leaves of absence or because we just didn't find the right person to hire and we weren't willing to settle. So you can see in the purple space we did have a few reps, we saw a nice small uptick but, again, we put those territories in a vacant position, and you see that there is no impact in the places, even though we wanted to put somebody we didn't.

And then you have the white space where we never had an intention of putting a rep at this point. We will continue to reevaluate the white space as we go into January 2017. But you can see the drag on TRx is coming from the fact that our NRxes continue to decline as well as TRxes in that white space as well as vacant territory.

But where we have put reps this compound effect of seeing prescriptions grow week over week will continue to be what we see driving TRxes. And the weight hanging there from the white space as well as vacant territories will continue to decline. As you can see here they are probably less than 25 to 40 scripts a week.

The next thing I wanted to share with you some early indicators we see which is samples. So we see in the early parts when we launched the sample program there is a huge demand to get samples and all, so it was mainly because they were vacant for so long between the transition of Sanofi to us. That then got supplied, doctors saw those patients and started to use that supply throughout the month of September and in October we've seen our sampling requests continue to increase.

I won't say this is 100% due to patient, doctors want to start more and more patients. I would also tell you we know in the fall a lot of patients hit s Part D doughnut hole and then you often use some samples to cover that gap.

However, Afrezza in four unit samples, the way it is sampled today is only a 30 count and it's not sufficient enough to cover that gap for most patients where insulin pens and basal pens, they really are sufficient for coverage during that doughnut hole. However, we continue to see good progress with our sampling as well as other early indicators.

Next, I wanted to share with you payer coverage. So we have a lot of requests and people suggest we just lower the price of Afrezza. Fortunately or unfortunately, depending on the environment you want to look at, there's been a significant price increase in rapid-acting insulin over the last 24 months since Afrezza was approved.

We have not taken a price increase since launch. That doesn't mean we never will take a price increase of Afrezza. But it does mean the price gap between mealtime insulin and injectables and Afrezza has now been narrowed.

So when we do talk to payers the discussion around being overpriced is no longer the primary issue. The discussion really centers around formulary position, can we become Tier 2 or Tier 3, do we have to have a prior authorization? And what I show you here is since launch seven out of 10 patients who complete a prior authorization absolutely regardless of our formulary position are approved for Afrezza. So we are not going to look to just go out and give deep discounts in an environment where we are getting seven out of 10 patients approved through our MannKind care support.

What you can also see is about a third of patients are not fulfilled. But once those patients don't get approved via prior authorization we do work to try to help the doctors and the insurance company and the patient achieve coverage through a secondary prior authorization and/or appeals. So a lot of times these patients just because they are not fulfilled today doesn't mean they eventually fall into an approved category.

Next, I wanted to show you that our national reimbursement closely mimics the rapid-acting market. So almost two-thirds of our business is commercial, one-third is government, a small percentage is cash. In that government you probably want to understand Medicare is roughly 20% any given week and Medicaid is around 5% to 10% any given week, so we do see about a third of our business continuing to come from government programs as well as two-thirds commercial. So our reimbursement and access activities are fully focused on these two segments and making sure we continue to remove barriers to access, we continue to help doctors achieve patient outcomes that they are looking for and we continue to simplify the out-of-pocket cost that patients experience given the cost-sharing design of health plans that continue to grow each year.

Now I want to touch on what to expect as we close out Q4 going into 2017. There is roughly 40 selling days left, if not fewer depending on holidays between now and the end of the year. So while we do have some vacancies, I'm not sure it makes sense to fill them and I expect very little impact in the remaining part of the year by the time these sales reps would get out in the field. So we will probably continue to source and recruit talent for a January 1 hire date and really set ourselves up for a nice trajectory as we go into the new year.

We continue to have momentum going into Q4. One thing I didn't say is last year few weeks I'm sure you saw some of the new Rx declines. What's important to understand in those new Rx declines is we saw double-digit declines in all along the East Coast, partially due to Hurricane Matthew, especially due to the holidays that occurred in those segments. We saw declines in single digits through the entire rapid-acting insulin class in that same time period.

The final thing I will tell you about that is we heard from many of our top customers that they were very nervous to continue to start new Afrezza patients given all the negative noise surrounding MannKind. Hopefully after today and people realize we continue to expect to be here for the long term, we will expect doctors to continue to reaccelerate that growth in new prescriptions and stabilize what we've seen over the last couple weeks.

So now to think about what the world will look like starting in January. We expect to expand our field force coverage. We will not share numbers exactly at this moment, but the other thing you may not realize is our reps and our nurse educators were hired through a partner called Touchpoint. They are not full-time MannKind employees; they are contracted employees through a third party, but they are 100% dedicated to us. We expect to bring people in as full employment as MannKind employees, which will be critical as we bring on new talent because we have many cases where we were able to recruit high-caliber talent from competition, but they weren't willing to join us through a contracted organization. I fully respect their decisions and I'm excited to go back out and really get some new talent on the board as we continue to grow and expand our salesforce.

The second part people have been asking is when are you going to do commercials. Well, first, we had to understand exactly what was going on with the titration; was our relaunch going to be successful and were doctors going to adopt it. Now that we continue to see and have those conversations, the tolls to start patients appropriately such as samples and new titration packs are out the door, we expect to kick off commercials in the first half of 2017. We will share with you additional details on this on our Q4 earnings call, if not sooner.

The second part people probably don't realize is that sample packaging, especially with type 2 patients, which is the largest market, was only for unit samples and inhalers were not included in that. Effective today, we are only shipping new 60-count samples of 4 and 8-unit combination packs; and shortly, probably as early as December, we will launch 8 and 12-unit combination packs, which will make the patient experience -- that's a type 2 patient -- significantly better.

I can't tell you how many times I've talked to doctors who started a patient that it was no longer working and you ask and you probe why and you see those patients were taking 4 puffs at a dose to get to 16 units or they were taking 5 puffs to get to 20 units. That is not a good patient experience. We really want to try to simplify and maintain tight control with as few inhalations as possible. So that's an important dynamic as we go out there that we wanted to resolve before we go ahead and increase our consumer efforts.

The next part you'll hear me talk about is flex pack, which was formerly referred to as the titration pack [in the market center]. The flex pack has 60 count of 4 units; 60 count of 8 units and 60 count of 12 units. We expect that packaging to hit the supply chain in January of 2017. A lot of docs are very excited to know that this is coming. They believe this will simplify their onboarding of starting new patients on Afrezza.

And then, finally, now that we have our infrastructure built and our distribution channels out the door and our salesforce continuing to build a coverage footprint, we are seeking complementary opportunities that will continue to leverage this infrastructure as we know one product sales bags are not always the easiest thing to maintain from an overhead; however, I do think we can be profitable in the long run given the model we have, but I also feel like we can accelerate MannKind's growth trajectory by finding opportunities to co-promote and/or collaborate with other products. So, with that said, I will turn this over to Ray.

Thank you, Mike. It's important to remember that insulins are characterized and used clinically based on their pharmacokinetic profile. In this regard, Afrezza is unique among all the currently available insulins. The slow absorption of insulin from the subcutaneous tissue remains to be a limiting factor in their use. This is true also for the current rapid-acting analogues where their slow absorption does not mimic normal physiologic insulin secretion.

Afrezza does not have these limitations. Afrezza has characteristics of an ultra-rapid acting physiomimetic insulin. These unique characteristics afford it a key place in the physicians' armamentarium to treat diabetes. Our recently completed pharmacokinetic and pharmacodynamic study clearly demonstrated Afrezza's ultra-rapid action. Based primarily on these results, we have submitted a label change with the FDA. This label revision will clearly differentiate Afrezza from other existing classes of insulin. Discussions with the FDA are ongoing and we are currently expecting a Q4 2017 approval for the label.

Now, looking at our clinical development program for Afrezza. We recently met with several of our pediatric steering committee members and are working through some potential protocol changes for the PK portion of this program. In addition, we have identified key partners, which we have announced previously for our pediatric program, and they are in place and already supporting our activities.

The subsequent pediatric Phase 3 trial, which we will file for a pediatric indication, will incorporate evidence not only from the PK study that we have conducted previously, but as well as data from recent publications. These publications, as you can see on this slide, include dosing simulation work and the Afrezza use with the artificial pancreas. The use of Afrezza with the artificial pancreas is impressive and promising and an area that we are actively investigating.

When you take all of this data around the dosing and titration of Afrezza, it helps inform us as to the proposed pediatric protocol changes that we will need in the Phase 3 trial, which we believe will substantially improve study recruitment and retention and thereby expediting our filing dates. We are planning for study execution to begin in the first quarter of 2017.

An additional post-marketing requirement was the long-term safety study. The long-term safety study is still progressing and we are on pace to begin recruitment in the second half of 2017. Currently, we remain in discussions with the FDA on some key protocol elements, including the patient population to be enrolled.

In addition, we have been able to reduce the operational cost of this study significantly and expect this to be a manageable spend once we finalize the protocol and initiate site selection.

In addition to our post-marketing requirements, we are also planning on conducting other clinical studies with Afrezza. This is to better define the dosing and titration with the drug, especially in new patients. We recently conducted an advisory board meeting to identify ways to enhance and simplify the initiation of Afrezza in clinical practice. At the AD board, they resoundingly felt that Afrezza's differentiated pharmacokinetic profile made it an invaluable option for the treatment of diabetes. Afrezza clearly offers an advantage to keep patients within a tight glucose target range potentially leading to less hyper and hypoglycemic episodes.

To accomplish this, however, the proper dosing and titration of Afrezza is of paramount importance because this is one of the areas that we have seen where healthcare providers struggle. To address these issues, we are planning a 12 to 16-week time and range dose optimization study in type 1 diabetics using CGM with Dexcom or the new Abbott Libre System.

This study will be conducted in three to five of the most well-respected institutions in the country, adding credibility to the data and providing an immediate impact on clinical practice. We expect study startup to begin in the first quarter of 2017 with results sometime in the fourth quarter.

Additionally, we are planning a short pilot study for patients with type 2 diabetes that will allow us to simplify dosing initiation and titration. This will help patients get to the optimal dose quickly and effectively.

While we have been focusing a great deal of our activities on the near-term goals related to Afrezza, we have not lost sight of what is needed for the mid and long-term success of this Company. Our current lead candidate is our inhaled epinephrine for the treatment of type 1 hypersensitivity reactions. We believe that by utilizing MannKind's innovative inhalation technology, we can not only deliver effective plasma concentrations, but the addition of a direct effect on the pulmonary system will lead to improved clinical outcomes. An inhaled epinephrine in this setting offers several other advantages over the currently available epinephrine auto injectors.

This will also provide patients and healthcare providers with another option that offers benefits related to convenience, ease of use and cost. We have a pre-IND meeting scheduled with the FDA in early December and our briefing book for this meeting has already been submitted. I will provide further updates on our type 1 and type 2 study concepts that I just articulated, as well as our epi program on our fourth-quarter earnings call. With that, I'd like to turn the call back over to Matt.

Thank you, Ray. So in summary, for the third quarter, we began reporting commercial sales and significantly cleaned up our balance sheet recognizing many items that had previously been deferred while creating the ability for us to extend our launch runway. Subsequent to quarter-end -- so not reflective of these results -- we announced today an important agreement with Sanofi providing near-term cash and improving our overall financial position by over $130 million.

We also announced today the completion of a revision to our largest supply agreement, pushing out our next purchase commitments to the fourth quarter of 2017 and reducing our contractual cash burn under that arrangement by $65 million for the period of 2016 through 2018 compared to the prior contract. As a result of these items and steps taken previously, we have extended our financial resources comfortably into the third quarter of 2017.

Getting these matters over the finish line today took significant work and extraordinary effort and I want to thank all those involved in finalizing these two agreements during the course of the last several hours.

Additionally, we've reported progress on the commercial side. As Michael said, we've learned a lot since we relaunched Afrezza. We have confirmed Afrezza is promotionally sensitive and plan to expand our sales efforts to grow sales more quickly where we believe we will have an impact.

We also plan to expand our targeted direct-to-consumer advertising to now include television. We continue to have success in our partnerships with payors such as our contract with Express Scripts, which covers approximately 50 million lives on commercial and Medicare Part D and now being covered with no further prior authorizations required.

On the development side, we have filed and are in discussions with the FDA regarding an improvement to the Afrezza label and we will keep you informed as this develops. At the same time, we are investing in our future clinically, not only by starting our pediatric clinical studies in Q1, but also additional studies to better demonstrate the advantages of Afrezza's PK and PD profile by focusing on our near-term investment into starting and titrating the product quickly and effectively with CGM and/or standardized dose titration schedules.

We are also making progress with our inhaled epinephrine program. As Ray mentioned, we will be meeting with the FDA next month to agree on the path forward to approval and we will have a lot more news once that has been accomplished. We think the time is right for a simple and affordable alternative in the epi market.

We also continue to make progress in our Receptor Life Sciences collaboration and will achieve certain predetermined technical objectives later this month. MannKind remains committed to assuring Afrezza's place as a leading mealtime insulin for people with diabetes. We know Afrezza disrupts the status quo, but as doctors continue to start patients and see them return with success, their own confidence to prescribe will continue to increase. So with that, I'd like to now open the call for questions. Operator.

Thank you. (Operator Instructions).

We seem to be having some technical issues getting our question queue organized and they are popping in and out, so bear with us for a moment and we will be right there.

[Stephen Weil], Oppenheimer.

This is Stephen Weil. MannKind Corporation has many patents for various products with Technosphere. Can you give us any information on things other than Afrezza and the epinephrine?

Yes, we've done that multiple times before. I can ask Ray if he wants to talk about them. I'm laughing a little bit to myself because Ray actually had a section answering that very question, which we removed because we thought the presentation was running a little long and we had so many other things to talk about. But, Ray, do you want to say a couple words on that topic?

Yes, certainly. So we have a range of compounds in development, slightly more than 10 on the list. Some include NCEs related to pain management. Others are B2 type of drugs, which we will be looking at. Some are related to diabetes such as Symlin, for example. Others are related to other disorders like parathyroid hormone, for example. So we do have a fairly extensive portfolio that we are still looking at to leverage our innovative oral inhalation technology and the pharmacokinetic profile that it provides. We believe we will have several compounds in development in 2017.

Thank you.

(Operator Instructions).

Once again, I will ask everybody to bear with us a little bit. Our typical practice has always been to -- we have so many retail investors, it's impossible to take all the retail investor calls and so we've tried to limit calls to analysts and 5%-or-more stockholders and such as that. Today, we seem to be getting buried in private investor calls, so we are having a little trouble weeding out the other ones.

We are getting some questions coming through online though, so while we try to work this out, I guess since Mike was good enough to hand a couple of them to me right now, I can try to address them. One of the most frequently asked questions that are coming through in the online way to ask has to do with delisting. I'm not sure what exactly to say about that. I am not terribly concerned about delisting. I think the news today will go a long way to solving that problem. It's not going to be an issue until sometime in the second quarter of next year, by which point we expect to have a lot of things accomplished that will make this whole issue go away.

But I can tell you that a reverse split or such as that is not currently on the table. It doesn't mean we would never consider it if it came to that, but currently we have no plans to do it and I'm hoping our dramatically improved financial position will help resolve some of this issue.

I also had a question come through related to some confusion about our cash position and what cash is actually available, so I will try to answer that one because I have actually seen that misrepresented a bunch of times because many talk about a requirement under the Deerfield debt agreement that we maintain $25 million worth of cash and they say, well, gee, if you are down to, as we were at the end of the quarter, $35 million, that means you really only have $10 million available.

That's not actually true. The way that agreement was structured is that it included not only cash, but also available borrowings. So as long as we have $25 million or more available from the Mann Group, for example, we don't have to maintain a minimum cash balance under that agreement.

So were we able to work out our other issues? No. It looks we are done. Well, with that, I want to thank you all very much for joining our third-quarter call. Before I do close though, I wanted to acknowledge World Diabetes Day on Monday, November 14 and encourage people associated with MannKind to join me in supporting the diabetes community by making a donation to the ADA or JDRF, participating in a local walk for diabetes, or simply by supporting a friend or family member with diabetes. Together we can change lives. So thank you again for your support.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation and you may now disconnect.