Matthew Pfeffer - CFO Alfred Mann - Chairman and CEO.

Steve Byrne - Bank of America Merrill Lynch Adnan Butt - RBC Capital Markets Matthew Lowe - JP Morgan Josh Schimmer - Piper Jaffray Christopher James - Brinson Patrick Securities.

Welcome to the MannKind Corporation Second Quarter 2014 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 11th, 2014.

Joining us today from MannKind are Chairman and CEO, Alfred Mann; President and COO, Hakan Edstrom; and Chief Financial Officer, Matthew Pfeffer. I'd now like to turn the call over to Mr. Matthew Pfeffer, Chief Financial Officer of MannKind Corporation. Please go ahead..

Yes, good afternoon, and thank you for participating in this afternoon's call.

Obviously, as most of you know, we had a call later this morning, so we're going to depart from our normal format for a call like this and I will give prepared remarks about the financial sections and then answer a few questions we've heard and open the call to further questions, but we won't go into prepared scripts or comments from Hakan or from Al.

So, with that, I will certainly be discussing our financial results of the second quarter of 2014 as reported this morning after we reported the collaboration agreement with Sanofi. I'll then open the call for your questions.

So, 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's 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 Exchange Act of 1934. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, August 11th, 2014.

We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this call.

Turning now to the financials, the net loss applicable to common stockholders for the second quarter of 2014 was $73.4 million or $0.19 per share compared with a net loss applicable to common stockholders of $46.1 million or $0.16 per share in the second quarter of 2013 and $52.1 million or $0.14 per share for the first quarter of 2014.

Research and development expenses were $37.3 million for the second quarter of 2014 compared to $26.2 million for the first quarter of 2014, and $27.1 million for the second quarter of 2013.

R&D expenses increased by $10.2 million for the second quarter of 2014 compared to the same quarter in 2013 and by $11.1 million from the first quarter of 201 due to increased non-cash stock compensation expenses.

In the second quarter of 2014, the settlement terms for certain performance-based awards were modified, requiring reclassification of these performance grants from equity awards to liability awards, resulting in incremental stock-based compensation expense.

General and administrative expenses were $32.5 million for the second quarter of 2014 compared to $15.2 million for the first quarter of 2014 and $14.5 million for the second quarter of the previous year.

G&A expenses increased by $18 million for the second quarter of 2014 compared to the same quarter in 2013 and $17.3 million from the first quarter of 2014, due to increased non-cash stock compensation expense as previously described.

Cash and cash equivalents were $41.2 million at June 30th, 2014 compared to $35.8 million in the first quarter of 2014. In the second quarter of 2014, $16.3 million in proceeds from warrant and stock option exercises were received in addition to $20 million in Tranche B notes purchased by Deerfield.

Subsequently, after the end of the quarter, on July 18th, 2014, $40 million in Tranche Four notes were purchased by Deerfield upon FDA approval of AFREZZA. Currently, up to $70 million of additional sales of Tranche B notes to Deerfield remain available.

There was also $30.1 million of available borrowings under the amended loan agreement with the Mann Group.

At this point I'd like to answer couple of questions that we've gotten frequently about the transaction this morning and in particular, a question that we received a few times since our call was to explain the considerations that led to the deal terms with Sanofi and in particular the 65/35 profit split.

So, there are several components of this answer. First, it's important to consider the overall economics of the deal. The upfront and milestone payments to MannKind are intended recognize our significant investment in the product to date.

When these payments are combined with the payment stream from the profit-sharing arrangement, the net present value split is fairly balanced between the two parties, although obviously that depends on the assumptions used to model the product P&L over a number of years.

In fact, when we modeled the deal with our internal sales projections, which of course, we have not disclosed, but we do that kind of modeling routinely in these kind of analyses, we did obviously compare it to a traditional royalty-based deal and found that to get essentially equivalent economics, the royalty terms would be somewhere in the mid-20% range, which was pretty favorable royalty comparison.

Secondly, the profit-sharing arrangement is an important conceptual element of the deal structure, as both parties have incentives to maximize overall product profits and minimize costs. We expect this will become increasingly important as we collaborate with Sanofi in manufacturing area.

The split was designed to reflect the relative contribution of resource to the product going forward from a commercial and development perspective. There's also a retrospective aspect as well.

It recognizes Sanofi for the substantial investment and involvement has made building a market-leading commercial infrastructure and also recognizes MannKind's investment in the product today. Another topic that's frequently been raised since the call this morning was the rationale for contracting with Amphastar for a five-year supply agreement.

As we said this morning, Amphastar's facility in France has supplied our insulin for more than 10 years and produces the insulin that is referenced in AFREZZA NDA. Our supply agreement with them will ensure a robust supply of insulin while we work with Sanofi to qualify their insulin as an additional source of insulin for AFREZZA.

Qualification of a new source of the insulin involves a certain amount of CMC work, including stability studies and some clinical study to assess bioequivalence. Thus, it takes some time to qualify a new resource of insulin.

Amphastar insulin is essential to ensure that we have a sufficient amount of raw API, or active pharmaceutical ingredient, for the first few years of launch until and beyond the point in time when Sanofi insulin is expected to be qualified. At the same time, we have not yet qualified Pfizer insulin as a source of insulin for AFREZZA.

The necessary CMC and clinical studies have been performed and supplemental NDA is nearly completed. But with the transfer of the regulatory responsibilities to Sanofi, it will ultimately be their decision as to whether or not that insulin will be used as source of insulin for AFREZZA.

The Pfizer insulin represents a potential upside from a supply perspective and in any event, between Amphastar and Sanofi, we should have plenty of insulin to support Sanofi's marketing efforts for AFREZZA.

And with that, I know that there are a number of questions from a number gotten the phone, but I'd like to turn over to those who are waiting on line rather than take the time with things I guess are questions and get to your actual questions.

Operator?.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question on line comes from Mr. Steve Byrne from Bank of America..

Hey Matt, can you provide any commentary on the post approval studies; do you have any projections on what the total cost might be and how long they might take? And are we correct that those will be included in though the cost sharing agreement?.

Well, the cost absolutely will be included in the cost sharing agreement. It's difficult to project precise cost until we finalize the protocols with the FDA. Those efforts are underway even as we speak and should be completed relatively soon, but certainly by early next year.

I think those are the requirements for doing that and at that time, we could probably do better as to make cost. But at this point, it's a little too speculative. Other than to say they certainly are included in the collaboration agreement, so, will essentially be funded in that partnership..

And what do you think your longer-term G&A and R&D cost run rate might be, once this agreement is established and those most of those cost flow through the agreement?.

While some of them do and some of them don't. Most of the costs that flow through the agreement really are in the forms of cost of goods from us. But in addition there are some product development work that could flow through. So, if you want to think about what our future P&L would look like, I tried to touch about, this is complex in a lot of ways.

And some of it's a little bit being formed even as we speak.

But if you look at our recent G&A and here I want to caution you to look at only cash G&A because as was pointed out on the text of the earlier part of the call, we had some extraordinary non-cash things flowing through, but those were extraordinary, they're not going to be continuing in the form of stock compensation expense.

And if you want to analyze what our G&A expenses are, you can look to the actual cash portion as being somewhat representative, but some of those cost go -- in fact, go away as well. So, it's not certainly going to go up much from there.

If you look at R&D, the continuing R&D is primarily non-AFREZZA R&D, which at this point, there isn’t a tremendous amount.

So, while it won't happen instantly, I don't think you're going to see our R&D numbers on P&L drop nothing by tomorrow, over time as we essentially shift those costs either to Sanofi or shift the cost into (Inaudible), so essentially capitalize the vendor inventory, they will essentially disappear off our P&L.

So, our cost structure declines quite dramatically as a result of this agreement. Being more precise than that at this point is little bit tough, but if you give me till next quarter, I will give you a much more precise answer..

Okay.

And then on the share count, if you were profitable or I should say when you are profitable what would be that diluted share count if you were to include the options that are in the money and the warrants that are in the money?.

I should have that number, but I don’t have that in front of me. Because you are right, once you reach profitability, you will certainly rope in all those otherwise dilutive securities. Why don’t I get back to you with the right number, rather than try to guess based on my rather tired memory at this point..

Okay. Thank you..

Our next question on line comes from Adnan Butt from RBC Capital Markets. Please go ahead..

Hey, thanks for taking the question. Congrats again everybody. I just want to make sure that -- that the company -- you know there are processes in place that will ensure that Sanofi will make an effort to sell AFREZZA.

So based on your discussions, what you think the optimal rate of market effect, is it any different than kind of the company is quoted to previously. .

Well, I think we have really good answers to those questions. Unfortunately, there are not things we can much talk about.

I can tell you that these were things that were we spent a dramatic amount of time going over with Sanofi and getting comfortable with their approach and the amount of resources they were going to devote, and how to ensure that in fact happens and what commitments they were making.

But as you heard on the call this morning, from their Global Head of Diabetes, they consider much of that, if not all of that, proprietary, and I'm not anxious to disclose it or tip their hands to competitors and such about how they are going to about that. So, obviously, we can't either.

I can tell you that we are very, very pleased and thrilled and quite excited about some of the approaches they are taking. We left their believers and convince that that there is nobody literally in the world that could do a better job than we think they can marketing this, and making this a huge success, we think it has the potential to be.

But as for how they are going to go about that, I think you just going to have to wait and see..

If can get a follow-up, Matt, so what are the plans for cash that you received.

How should we view R&D going forward? The company will -- I mean, are there plans to do some R&D or pretty much it's going to be an AFREZZA-focused company?.

No, there is definitely plans to do R&D. I mean, we have a lot of exciting possibilities in front of us. We are using this technology in other applications, who was mentioned briefly on the call this morning, although it was primarily about the deal.

We did not want people to forget that we view this as a platform technology with a lot of exciting applications and you should expect to hear more from us in the future about that. I mean, it’s the obvious next question post Sanofi..

Good. Thanks. .

In that regard, I've been asked this a couple of times on the phone, so probably clarify it, because people will say what rights in those other areas do Sanofi have? They do have a right of first negotiation if we were to take a formulation of inhalable GLP-1 forward. But they have not rights to those -- any other products beyond that.

So, I can't say we would mind talking to them about them when they get to the point when that’s appropriate. But under the current agreement, the only future potential right they have is on the GLP-1..

They also have rights to our new process. .

We've not disclosed that yet Alf..

Sorry..

Yeah..

So are there….

As is expected if there are other developments of enhancements to AFREZZA, you can anticipate that that would be included in the agreement like this. .

One more follow-up.

Is there any engagement with anything from their pipelines with your technology platform?.

Not really at this point, nothing formal on the agreement, except the customary things that make it clear that we are not planning to compete against each other in this space..

Okay. Thank you..

So the agreement that is eventually filed, you will see that kind of customary things say we can't compete against other, except that they say it might ultimately end up in the collaboration except in very limited circumstances. But that’s kind of a….

Okay. Thank you everybody..

Thank you. (Operator Instructions) Our next question on line comes from Michael Faerm from Wells Fargo. Please go ahead..

Michael….

Mr. Faerm your line is open. If your line is muted then you please unmute it. Our next question comes from Cory Kasimov from JP Morgan. Please go ahead..

Hi there. It's actually Matt Lowe in for Cory. Firstly congratulations on deal.

A few questions, the first one I have is, if Sanofi contractually obliged or obligated to provide a certain number of PCP details annually or is it just commercial best efforts?.

Well, I mean, it's typical to prescribe certain limits like that into an agreement like this beyond commercial best efforts. That said, I mean, these efforts are dedicated by a Joint Advisory Commitment in which we have equal amount of representation. So we have a lot to say about it.

And they have certainly presented their initial plans to us and satisfied us what they are going to do. It will be difficult to back away from that at this point in the near term. .

Okay. .

But you will see it in the agreement….

Okay, got you.

And just a quick follow-up, how -- just on the income statement, how will that look in terms of revenues once they start to appear for AFREZZA on your income statement?.

Well, I think you've hit the most common question I've gotten today from people trying to model this deal and also the ones that I have the greatest trouble answering. Unfortunately, the situation is this. I mean, we were making minor tweaks to this arrangement as recently as last week.

Some of which the auditors have used as an excuse to go back and revaluate and question how we might do some of this. So whereas even we -- to the extent that we thought we knew how some of this is going to accounted for, it may end up appearing in different places on the income statement. So I need to reserve that.

I could speculate, but I could prove me wrong too. We know mechanically how it's going to work, but how it will appear on an income statement is harder to answer..

Matthew Lowe - JP Morgan:.

:.

We haven’t given a lot of disclosure there, except to say that I mean, under the supply agreement, which will eventually become public as well, I mean, we are obliged to. So, the product to Sanofi at our cost and that’s our intention.

The ultimate profit from such sales will flow through when they actually make some sales and it come -- drops down to the bottom-line and into collaboration. So other than to say we're going to sell at cost, we've not said what our cost structure is at this point..

Okay. All right. Thank you..

I think it's important to note and I've tried to highlight this a few times that, one of the unique aspects of this agreement with Sanofi is what we see as their ability to help us at various points in supply chain and in fact drive down our costs.

So even to the extent I -- we're willing to answer that question today, I'm hoping that number will change and go down over time.

So, I guess, if I have to pick the two highlights of this agreement in my mind its, number on, their ability to make the sales number larger than anybody else I can think of, but also to make the margin percentages larger than anybody else I can think of. And that also influenced and why we ended up in a joint venture kind of arrangement.

More answer than the question you asked, but I couldn’t help squeezing in in there. .

Thank you. Our next question on line comes from Josh Schimmer from Piper Jaffray. Please go ahead..

Thanks for taking the questions.

I guess, first, is there a mechanism or some kind of cap on annual expenditures by MannKind as part of the collaboration with Sanofi that’s been built into the agreement to kind of prevent Sanofi from forcing you to spend beyond your capabilities?.

Well, there isn’t per se, but than our obligations under the arrangement are somewhat limited other than manufacturing, and some enhancements in the product itself, one of which Alf alluded to earlier. So we don’t see that as a major problem.

I mean, there are some protections from both sides built in for overspending and requiring spending according to budget and putting in things like we can't charge an infinite amount for the product, we have caps and they can't charge an infinite amount for sales and marketing. They have budgets there too adhere to.

So, I think those are pretty customary, but other than that not really as you describe..

Yeah, but there are joint -- say, a joint AFREZZA committee, and part of the -- that is that -- by each fall we are looking at an annual budgets for the upcoming year and where we are and certainly than signing in the agreement based on at least the plans in place in terms of the spending that would be forthcoming.

And if that would change dramatically than, of course, it would be a situation for the companies to get together and determine whether that is an intelligent investment going forward..

Yeah, so that is a sort of a protective mechanism like you are talking about, because we do have say in what that budget says. And if we felt that we couldn’t spend according to that, we wouldn’t agree to it in the budget..

Right. Sounds like a fairly robust mechanism. I know you also have a somewhat complicated or at least in the past have had somewhat complicated capital structure.

Can you just kind of review for us the composition of senior subordinate notes, maturities, interest rates, et cetera, kind of as they stand currently?.

Well, I will admit that the deal arrangement was little bit complicated, but other than it's got -- it's become some simple. We just have the one convertible debt out there at this point. It will mature in August of 15th. We hope that it will in fact convert, but it's mostly been in the money in recent months.

Beyond that we have debt at Deerfield, I think you know about. It's coming in different tranches -- future tranches. It's all essentially six-year debt. Earlier tranches were at a fairly robust interest rate at nine and three quarters, the more recent ones and any future ones will be at eight and three quarters. And we have some debt to Al.

That debt is grown rather small. It's under $50 million at this point. Certainly compared to what it once was, it's not a huge number. Beyond that, I mean, the debt to Al doesn’t have a certain maturity because it's pretty much dictated that we cannot pay anything against that debt until we -- after we've paid off Deerfield..

Okay.

But only the convertible debt maturing in August is convertible, the rest are just straight? No?.

Yes. Everything else is straight debt. There is no rights to conversion of any kind in anything else..

Okay. And then I know it's just based on the question of the fully diluted share count. I guess, it's kind of bounced around, so -- and it looks like it was around $34 million in 2011 up to $128 million in 2012, down to $78 million at the end of last year.

Just directionally do you have a sense of where it's gone from the end of last year to now?.

Well, as you might guess, and especially because of disclosures I just made about non-cash expenditures, a lot of those things will have flown through now. So the number of options and so forth and warrants outstanding has come way down and that’s part of the reason why I not sure what the number is.

I mean, much to my surprise, I would have guessed that those warrants would stay outstanding their entire term. But we already talked about lot of them were in fact early exercised in the last quarter or so. So the numbers are down substantially. But I don’t have in front of me what they are down to.

So you can see the quarter-end numbers, but they have changed pretty significantly since then in the intervening month or so. .

Got it. All right. Thank you for answering those. .

Thank you. (Operator Instructions) Our next question on line comes from Christopher James from Brinson Patrick Securities. Please go ahead..

Hi, thanks for taking my question. Just a quick question on labeling.

Have you had any additionally or at Sanofi any additional discussions with both payers and endocrinologist on the current labels, specifically with the need of PFDs?.

Well, they did extensive market research both qualitative and quantitative prior to getting into the depth of negotiations with us. The only thing I can say since I don’t necessarily have information to part of that, which was proprietary for them as part of their negotiations.

They were very comfortable in regards to the opportunity and the feedback that they did get back from both endocrinologists and dialectologists in general. But that’s really the only information have at this point in time that there is a certainly comfort level within Sanofi. .

Great. Thanks.

And then really quickly, is there an update on the 12-unit cartridge, how much additional preparation is needed with that application?.

The 12-unit basically in regards to the preparation for an sNDA, that's done, that's completed. So, I would say that we're probably talking days maybe weeks, but that will be submitted. So that is well underway and certainly part of our plans going forward..

Great, perfect. Thanks. And congrats again..

Thank you..

And we have no further questions at this time. I'll now turn the call over to Mr. Mann for closing remarks..

All right. Well, thank you very much for joining us now -- probably most of you on two calls today, which is above and beyond the call in many respects. We appreciate it. We're very happy about all the developments for today and I look forward to giving you future developments again soon. Thanks very much..

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