Rose Alinaya - IR Michael Castagna - CEO Steven Binder - CFO Pat McCauley - CCO David Kendall - CMO.

Oren Livnat - HC Wainwright.

Welcome to the MannKind Corporation 2018 Second Quarter Conference Call. As a reminder, this call is being recorded on August 2nd, 2018, and will be available for playback on the MannKind corporate Web site shortly after the conclusion of this call until August 16th, 2018.

All participants will be in a listen-only mode of the duration of this conference. Joining us today from MannKind are Chief Executive Officer, Michael Castagna; Chief Financial Officer, Steven Binder; Chief Commercial Officer, Patrick McCauley; Chief Medical Officer, Dr. David Kendall; and Rose Alinaya, Senior VP Investor Relations.

I'd now like to turn the call over to Ms. Rose Alinaya. Please go ahead, ma'am..

Good afternoon and thank you for joining us on today's call. Please note that comments made during this call will include forward-looking statements within the meaning of federal securities laws. 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. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, August 2nd, 2018.

We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this call. I will now turn the call over to our CEO, Michael Castagna.

Mike?.

Thanks, Rose Alinaya. Good afternoon everyone. Diabetes is one of the greatest healthcare challenges we face today. It's been a year since I became CEO, and we have assembled one of the best leadership teams I've ever had the pleasure to work with in the past 20 years.

I believe after today's call you will see the tremendous progress we have made in our first year together. Also, I want to say thank you to our shareholders who have been extremely patient with us as we reshape MannKind from the platform technology company to a fully integrated biopharmaceutical company.

It was not an easy transition, and we've had our share of growing pains. But I believe we are now in a strong position to drive continued growth for year's to come. I enjoy the open communication with you all, as well as meeting the loyal humanitarians, who came to our annual shareholder meeting, in May, where you packed our new offices.

Over the last year, we've met with potential future investors around the world, including our most recent New York City investor luncheon last month, where we had over 600 people listen in on the clinical update by Dr. Edelman and Dr. Kendall. Many of the analysts and people we have met with are excited to see MannKind return as a growth company.

And I believe we'll start to buy in to the future as we continue to build upon the progress we have made. Our employee commitment has never been stronger as we have low rates of voluntary turnover, and over 65% of our employees are participating in our employee stock purchase plan, which is three times the industry average.

During my first year we've made incredible progress at transforming us into a commercial stage growth company by driving Afrezza growth, increasing our pipeline with TrepT, progressing our pediatric program, and expanding our international focus.

But unfortunately the barometer that I measure shows we have failed to see any major appreciation in our stock price. I believe we are undervalued when I look at the sum of the parts. We have over 800 patents, as well as hard assets such as our Danbury infrastructure that alone are worth close to $200 million.

We have over $2 billion in non-operating losses on our balance sheet which will save us over $400 million in future taxes. Additionally, the market has put evaluation on an improved Treprostinil program when you look at the IPO last week of Liquidia -- single-product emulation company at $175 million.

And to top it off, we have an FDA-approved asset in Afrezza, which is shaping up to likely become the next standard of care for meal time insulin. Al Mann was a true visionary, and I believe the sum of the parts will start to reflect the true market value once we finish up the recapitalization which I will provide some clarity on today.

We have to remember we are changing 97 years of habit around using injectable meal time insulin, and we continue to make progress every day on gaining new prescribers and helping patients start and stay on Afrezza. Pat will share with you some more detail around our commercial performance later on our call.

Our goal is to become one of the premiere customer-focused diabetes companies. And we're committed to growing towards cash flow breakeven by growing our revenue and more tightly managing our expenses.

We have conducted listening session around the country with hundreds of doctors to ensure we're on the right path for growth, and remain very confident in our future. We continue to see strong weekly wholesale sales and consistent unit growth as we entered our second-half of 2018, and this is before any clinical exchange of the new data post ADA.

Now that we have announced positive results for our TrepT program and Afrezza continues to grow, the interest in Technosphere technology as a platform is increasing. Let me review some of the key highlights in Q2.

I think this is one of the first quarters where we can see net revenue growth of 142% year-over-year, and then you see TRx growth of 71% year-over-year which is you see the revenue growth be almost twice as much as the TRx growth.

We're starting to see that compound effect of what we've been describing around growing our cartridges and the cartridge mix and the pricing and packaging decisions we've made are starting to play out when you look now year-over-year in terms of TRx growth and revenue growth.

Additionally, first-half 2018 gross revenue was $11.9 million, and net revenue was $7.2 million. When you look at this compared to 2017, we had annual revenue of $9 million, and you just take a look and see now $7.2 million in the first-half, and we look forward to the second-half as we go forward.

We released new clinical data at ADA demonstrating improved mealtime control, increased time and range, and low rates of hypoglycemia. David Kendall will talk about this later in our call. We successfully completed TrepT Phase 1 single ascending dose trial in June; our REMS requirements were completed earlier than expected.

We were able to announce our agreement for India with Cipla, and we have continued international expansion plans which I'll talk about at the end of the call. We continue to progress our pediatric development program, and we're almost complete on cohort 1.

We are now looking at assessing a 510 pathway for BlueHale as another business avenue thinking about connected care as I look at Companion Medical and what they've done with the InPen technology. Additionally, we reduced our principle debt since July 1 of last year by $52 million, and we also raised $20 million recently, in April.

And I'm happy to see that we're heading back to the Russell 2000 and 3000 index. Let me talk about our progression towards cash flow breakeven. We are providing updated net revenue guidance for the year of $22 million to $25 million. We are sticking to no change in net cash used in operating activities of $90 million to $100 million.

One of the major questions I get is why should we be confident in our guidance. Since we gave guidance, in May, a few items have brought clarity to where we see the second-half finishing up. Our underlying demand assumptions in our models are holding.

When we look at the full-year guidance previously given, we see about $4 million to $5 million impact to the following three things. First, a one-time impact on removing old SKUs in the first-half that was equal to about a million dollars.

Two, we have cartridge impair mix where we saw slightly higher Medicaid prescriptions causing our gross to net to increase to 40% from 34%. This impacts us to the tune of about $3 million on a full-year basis.

And third, we held the line of quickly filling sales vacancies and expansion territories which likely caused us $1 million to $2 million in net revenue in 2018 or we would've burned $5 million in cash, which we believe was prudent to conserve the cash in order to stick to our cash burn guidance when combined with the cost of gaining additional capital.

That said, we continue to look for eight players to join our sales team, and we'll happily hire them when we find them. As evidenced, we have 10 new people starting in August alone. When we finish up the recapitalization it will enable us to recruit some of the best talent in the market and drive additional growth as we go into 2019 and beyond.

Overall prescription demand continues to grow. Our new prescribers are growing. And the longer our field force are in their territories the more they will continue to drive growth.

Overall, we see Afrezza delivering $40 million to $44 million in gross revenue, which is almost six times the first year the original launch, which had a lot more resources than we had.

This is our first year together, and while we all want faster growth, we remain optimistic that as people continue to adopt CGM and we gain and get additional countries beyond the U.S., as well as our pediatric program completion, Afrezza will continue to grow for years to come.

Our core focus now that the balance sheet is a better position ramping up sales and manage our expenses so we can get the cash flow breakeven as soon as possible. Let me talk about progressing the cash flow breakeven. Over the last year, we have raised almost $90 million at an average price of $3.67 a share.

We've been able to reduce our debt by over $50 million, while restructuring the remaining debt outstanding to give us the runway to cash flow breakeven.

From what we know today, we expect the predominant way MannKind will get the cash flow breakeven will be through our business development activities listed on the slide, driving faster for the trial and adoption, as well as potential new debt opportunities given our asset base.

At this point, we look to finish up the recapitalization plan that Steve and I started over a year ago, and we believe this will put us on the pathway to cash flow breakeven.

As you look at the list on the slide you can see we have many options to recapitalize the company, and I do not expect equity/continued dilution will be the predominant way we grow our cash flow to breakeven. Thank you all again for your support and patience, to shareholders and employees who are listening. I'll now turn it over to Steve..

Thanks, Mike, and good afternoon. I'm so excited to discuss our second quarter and first-half 2018 results which showed triple-digit growth in Afrezza revenue, as well as continued progress in restructuring our balance sheet in recapitalizing the company. Let's start by reviewing the second quarter and first-half 2018 financial results.

I'll be discussing select financial highlights, and urge you to read the condensed consolidated financial statements and MD&A continued in our 10-Q which was filed with the SEC this afternoon. Let's start with the left side of the slide.

The first quarter 2018 Afrezza gross revenue was $6.7 million, a 155% increase over Q2 2017, while Afrezza net revenue was $3.8 million, a 142% increase over 2017. The net revenue increase was favorably impacted by volume, cartridge mix, and price.

Partially offsetting this favorability was the impact from discontinuing 2 SKUs as of April 1st, 2018, and the associated distribution channel flow-through impact. Plus product returns in Q2 mainly related to the discontinuation of these SKUs.

As discussed on previous calls, please be aware that our revenue recognition has changed between 2018 and 2017 under the adoption of ASC 606.

Looking at the right side of the graph, the first-half 2018 Afrezza gross revenue was $11.9 million, a 179% increase over 2017, and Afrezza net revenue was $7.2 million, a 161% increase over the first-half 2017 reflecting the same favorable impacts of volume, cartridge mix, and price.

At the bottom of the slide you will see our gross to net percentages by period presented. In the second quarter 2018, our gross to net percentage was 44% versus 41% in the second quarter of 2017.

The second quarter 2018 gross to net was unfavorably impacted by the return of expired product mainly related to the discontinuation of SKUs at the beginning of the quarter of approximately $250,000. Without the negative impact of this return, our gross to nets would've been 40% of gross sales, which is line with our expectation.

The increase in gross to net for our second quarter 2018 versus 2017 is primarily driven by an increase in managed care, in government program rebates as a result of price increases, as well as the impact of accruing for product returns as there was no gross to net deduction for product returns in 2017 through our method of revenue recognition where we recorded sales when Afrezza was dispensed to patients, and there was no longer a right of return.

The gross to net percentage for the first-half 2018 versus first-half 2017 was 40% versus 36% which effects the impacts just discussed for Q2, and the normalization of quarterly fluctuations due to the timing of charges and credits flowing through our gross to net.

To sum up, we have strong fundamentals supporting our revenue growth for both second quarter and the first-half 2018 demonstrated by volume growth, the favorable impact of price and product mix trends. We've been working hard to restructure our balance sheet.

When I joined the company about a year ago we had almost $60 million in debt due within the following 18 months, $10 was due within six months. And we had few paths available for raising money. We were overleveraged and our hands tied with stock warrants that a ratchet provision is preventing us from effectively raising capital.

To turn the company around we needed some breathing room. We purchased the warrants back September of last year, and went to work on restructuring and paying down our debt. This slide details the debt principal changes from July 1, 2017 through July 2108; remarkable 13 months of activity that has significantly strengthened the company's balance sheet.

Since July 1, 2017, we had substantially reduced our principal balance outstanding in the amount of $52 million, or a decrease of close to a third. This decrease is inclusive of the reduction in Deerfield debt of $14 million in the month of July, 2018, which is $12 million from a debt to equity conversion and $2 million paid in cash.

We have also restructured our debt to allow for the convergence to equity at different price levels, and have cleared out most near-term debt maturities with $90 million or close to 80% of the debt balance due in the second-half of 2021 or three years from now.

To put it all in perspective, at July 1, 2017, our debt to market cap ratio was 1.14, meaning that we had higher balance of debt than no company's market cap. As of July 1, 2018, only 13 months later, this ratio stands at 4:9, reflecting both our average to reduce the principal balance outstanding and the increase in the company's market cap.

We remain extremely focused on tightly managing our cash. We ended the second quarter 2018 with $26.8 million of cash, cash equivalents, and restricted cash.

Looking back over the last six months, we started the year with $48.4 million in cash, we raised $28 million in the registered direct equity sale in April, and for the first-half of 2018, we had net cash used in operating activities of $48.8 million, inclusive of the $2 million in cash we received from Cipla for our India licensing agreement.

And looking at the sequential quarter-on-quarter, cash used -- looking at a sequential quarter-on-quarter cash used in operating activities, the increase from $21.7 million in Q1 2018 to $27.1 million in Q2 2018 was due to a delay in executing certain commercial programs from Q1 to Q2, as well as the payment of corporate bonuses occurring in Q2.

To adjust our reduced net revenue forecast for the year that Mike discussed earlier, we've identified areas of reduced spending in the second-half of 2018 that will offset the lower forecast, and we will continue to manage cash to ensure we stay within our guidance of $90 million to $100 million of net cash used in operating activities for 2018.

To provide insights into our commercial achievement plans and activities, I'll now turn the call over to Pat..

Thank you, Steve, and good afternoon. I'm very excited to share with you our second quarter 2018 commercial highlights. And today we're going to begin where we left off on our first quarter earnings call.

If you remember back in May of this year, we reviewed our catalyst for growth in 2018, and I wanted to share with you some of the progress to-date in these areas. And I will present some data just in a moment, but we had seen a positive impact with our Type 2 selling and marketing focus from our sales team training in March.

In addition, we made a significant progress over the past year with our simplified Afrezza dosing. The other thing we've been very, very busy at is a lot of the medical meetings and we've seen a lot of data presentations, a significant booth presence, and had many important customer engagements. Now this included meetings at ACE, ADA, and Keystone.

And looking ahead, we're also going to be at the upcoming AADE meeting later this month, as one of the sponsors of the upcoming ADA PCP educational series. And David Kendall will review some of the ADA highlights in a just a few moments.

Based on our review of the fourth quarter TV pilot impact, we made a decision to further invest in our targeted direct-to-consumer advertising with the Afrezza TV commercial in the second quarter. And we really believe that this will help increase and elevate the awareness of Afrezza.

Also, our market access and medical teams have continued to meet with key payers to review the Afrezza critical value proposition, and are working hard to enhance and expand patient access with payers. And I can guarantee this will continue to be a high priority moving forward.

When it comes to recruiting top talent, I'm really excited about our upcoming August sales training meeting, where we will have 10 new MannKind sales representatives, who really have a wonderful background and many collective years of strong sales performance, industry experience, and diabetes disease state knowledge.

We're going to continue to be very selective in our hiring process to make sure we only bring in the top talent in the future.

And speaking of recruiting top talent, I'm pleased to share with you that Garrett Ingram has joined our MannKind team as the Chief Marketing Officer, he should be a member also of the Executive Leadership Team, and in her role, Garrett, will assume full leadership responsibility over the marketing, market access, and customer experience center department.

A key focus of Garrett is going to be making sure that more aligned across these functions to best support our Afrezza promotional efforts and educational support for patients.

And when I think about Garrett, she brings a lot of things to the organization, over 20 years of industry experience in market access of marketing; she has held leadership roles at many companies including Dexcom, Sanofi, Bristol Myers Squibb, Novo Nordisk, and Pfizer.

And finally, she has a deep understanding of diabetes and extensive customer relationships with healthcare providers as well as payers. So I can assure you Garrett has already hit the ground running is making a positive impact, and will look forward to future contributions.

So let's take a closer look at our Afrezza packaging transition and transformation. And as we shared with you on previous calls, our commercial team has been highly focused on transitioning to our five primary SKUs. And I'm really pleased today to share with you that is almost fully complete.

And this is really important because it helps patients with flexibility, individualized dosing, and titration that helps our healthcare professional by making it much easier for them to prescribe Afrezza, especially within the electronic health records systems, and within the wholesale distribution channels, it really smooth the process for stocking and ordering.

And that's really important, because ultimately it helps our patients minimize disruption and get their prescriptions filled. So if you look at the chart you go to the left-hand side of the chart, you can see in the first quarter of 2017, almost 70% of our Afrezza TRXs were in SKUs that have been discontinued.

And if you look over the next five quarters, you can really see this transition taking place, where only 10% of our TRXs in the second quarter of 2018 were actually in the discontinued SKUs. Even if you look at just the first few weeks in July, we're already down to 6%.

Now as we move forward in 2018, there will be overall less disruption for patients getting Afrezza prescriptions filled due to the completion of our SKU mix transitions. So we're really excited about that. Now, we believe that this choice that we made was the absolute right decision to do for the long –term.

At the same time, we know this decision would create some short-term disruption insurant within the prescriptions as we transition, you think about it we came into 2018 with just about one-third of our sales in the SKUs, one-third of our TRX is in the SKUs.

As Steve mentioned earlier, as we move through this, we do believe that contributed to a reduction in some of our second quarter sales.

Now, if you look at the right hand side of the graph, we continue to see strong year-over-year growth in Afrezza cartridges, especially in the 12-unit cartridges that increase 276% from the second quarter of 2017 to the second quarter of 2018, and we really think this indicates that our patients are individual titrating to achieve what I see in the control.

For example, we know that for Type 2 patients many of them made between 12 to 24 Afrezza units with each label. With also with our reinforced packaging materials and our promotional materials make sure that our customers are fully aware of the SKU mix. So we're very, very excited, and we've talked about this I know on a number calls.

So let's shift to Afrezza TRX performance. And when you look year-over-year, Afrezza TRX has increased 71% from the second quarter of 2017 to the second quarter of 2018. Since we launched our MannKind sales team in the first quarter of 2017, Afrezza TRX has continued to grow each quarter throughout the year.

In last call, we discussed some of the reasons for the first quarter of 2018 decline; it had to do with some insurance plan changes, and some deductible changes, decreased outer utilization. We also resized some of our territories that created some customer disruption, and obviously the SKU mix we just talked about.

But the good news is we've moved through these, and as you can see in the second quarter of '18, Afrezza TRX has continued to grow. I also want to give some important highlight on our enhance Type 2 diabetes Afrezza messaging, and what we implemented back in the first quarter.

As you are aware we received our FDA label update back in October of '17, and we didn't quite see the lift that we were looking for in sales. We conducted our market research, had one-on-one discussions with our healthcare providers really to gain their insights.

Based on that feedback, we updated our materials with our enhanced messaging, trained the sales team, and since then we've been out executing, and we believe that's part of the lift that you're seen in the second quarter. Let's take a look at, I think, one of most important things that we look at and that's the new to brand Afrezza patients.

NBRx has increased 93% from the first-half of '17 to the first-half of 2018. Now this growth represents new patients to the Afrezza brand and it's really important as we continue to focus on awareness, trial and adoption of Afrezza. You could also see in the chart that our Afrezza base business continues to increase over this period as well.

And as we move forward with our Type II message focus as well as our personal and non-personal promotion efforts, we do expect growth in both our base and our new to brand business. We're now going to take a look at the impact of some of our sales and promotional efforts, really within two groups; the Afrezza targets and Afrezza writers.

So first, let's look at our targets. And what you see in this chart is the Afrezza TRx and NRx market shares over time of the targets that we call on in the market. And when you think about it, this is obviously a subset of the overall rapid acting market.

Now the bottom-line in the chart is our target TRx market share and you can see that the share continued to increase throughout 2017. You can also see the TRx market share just about doubled from the first quarter of '17 to the second quarter of '18.

I think even more importantly, the top line represents our target NRx share and it increased at a greater rate in 2017 and more than doubled from the first quarter of '17 to the second quarter of '18.

As you may know, it's always really important to see your NRx is outpacing your TRxs when you are trying to drive your Afrezza brand as well as our overall sales. In the first quarter of '18, we know our target NRx did decline. We know that this was partially due to the transition period that included some territory and customer realignment.

Some of the newer benefit changes we discussed and reauthorization per prescriptions. The good news is that the target NRx share increased in the second quarter of '18 and we expect this to continue moving forward through the rest of the year.

On the right-hand side of the graph, I just wanted to call out that we looked at our shares in June of 2018, which was the last month of the second quarter and we're continuing to see starting out a really good growth there compared to some of the previous quarters that we've seen.

So we like that we're ending on a high note, we're continuing to move forward with that. If you switch over now, let's take a closer look at the writer, same format, and what you see here are unique Afrezza writers per quarter, and that's just a simple way of saying that they prescribed at least one Afrezza prescription in a given quarter.

Now as you can see in the second quarter of '18 in the top line, our Afrezza NRx market share exceeded 4.5%. You can also see that TRx has increased each quarter since the launch of the MannKind sales team.

And we think this is really important, because it demonstrates that once a physician has made that clinical decision to prescribe Afrezza, we have a great opportunity to increase breadth and depth of prescribing.

And when it comes to MannKind cares and patient referrals, I'm really excited to share with you that referrals have increased 73% from the first quarter of '18 to the second quarter of '18.

Now as you may recall, we launched a customer experience center in April 1st of this year, it was a strategic decision that we made to really help patients work successfully through the benefit verification process. It really improved the overall patient experience with things like live follow-up calls for patient support.

We know that approximately 70% of all patients referred to MannKind Cares eventually get approved. Just think about that. That means seven out of every 10 patients referred to MannKind Cares get their Afrezza prescriptions filled.

Now the sales team is also working very hard to staying highly focused on appropriately communicating MannKind Cares' information to health care providers to make sure that they're aware as well. So when we look ahead at the second-half of 2018, our top priority is the successful execution of our commercial strategy in Type II diabetes messaging.

And I really believe that we're well-positioned to do this, because of all the work that the commercial team has done to get where we are. When you think about it, we enhanced our Afrezza messaging based on market research and customer input. We've updated promotional materials for the field, which simplified our dosing and titration.

At the same time, we've been very, very selective in hiring talented representatives while continuing to drive accountability for sales performance at the territorial level. So with all of these things behind us, we're highly focused on executing against our plans for the rest of the year to increase sales and drive demand.

One of the ways we're going to continue to do that is keep a high focus on driving awareness trial and adoption, our targeted direct to consumer advertising with the Afrezza TV commercial will continue. And we're also in the second-half going to enhance the clinical conversation.

What I mean by that is we have increased our peer-to-peer educational program opportunities, we've added an in-office Webex program capability. And with multi-channel marketing, we're going to continue to increase the Afrezza non-personal promotion to support the efforts of our sales team.

When it comes to patients that start on Afrezza via onboard, I know that we're going to continue to focus on removing and reducing prior authorizations with key players and for MannKind Cares, we expect that base of business to grow, so we will continue to support patients so they can have a successful trial with Afrezza.

And you know the one thing that I'll end on and I think is really exciting when I look at the back half of 2018, I think one of the best place that we've been in when I think about the scientific support that's going to be provided for our organization and I really look forward to working with Dr. Kendall and our medical colleagues.

And one of the things that they do is related to data publications and peer-to-peer interactions really help support in the medical side what we do on the commercial side. And these efforts that they do really complement what we do and we'll look forward to the continued collaboration moving forward into 2018.

And we really know by working together, we're all focused on Afrezza becoming the standard of care for meal time insulin. And with that I'll now turn the call over to our chief medical office, Dr. David Kendall..

Thank you very much, Pat, and again thanks to all of you on the phone call today.

As I approach the six-month period of my time as chief medical officer here at MannKind, I'm pleased not only to increase the collaboration between the medical and commercial organization, but to see that we are beginning to realize some of the great potential that I know I as a clinician and many of my colleagues have seen in the meal time insulin space.

And what I'd like to do during this medical and regulatory review is provide some highlights from the second quarter, many of which Mike referred to in his opening.

Many of you are well aware that scientific disclosure of new data including the staph study results, collaborative clinical trial performed with colleagues at the Barbara Davis Center for diabetes at the University of Colorado and post talk analysis of the data on hypoglycemia rates the pivotal affinity one trial, both presented at the American Diabetes Association's 78th scientific sessions.

The other achievement that -- I think it is well worth noting in terms of advancing the availability of Afrezza to the population affected by diabetes is our anticipated completion of the pediatric PKPD study cohort 1 which we anticipate will be completed early in the third quarter.

We have also convened the first meeting of the MannKind Diabetes Scientific Advisory Board, including clinical experts in insulin therapy, experts in the complications of diabetes in particular those with an interest in understanding and reducing the risk of hypoglycemia and understanding the long-term safety of insulin therapy.

In addition, Mike mentioned the completion of our Treprostinil Technosphere single ascending dose study and this is now a Phase III ready asset and we are progressing to development of the Phase III program for this 505(b)(2) application in IND.

It has been previously communicated, but I'd like to reemphasize that the risk evaluation and mitigation strategy that was part of the Afrezza approval and its communication plan was deemed to be met by the Food and Drug Administration and is now complete.

This REMS has now been removed so that we, as an organization, can focus even more so on the early effective and safe use of Afrezza in those in whom it's indicated. In addition, on the regulatory front, we have had successful inspections completed by both the U.S. Food and Drug Administration as well as the regulatory authorities from Brazil.

Brazil is the first country where we anticipate outside the U.S. the approval and launch of Afrezza as a meal time therapy for those who require insulin therapy at the time of meals.

And finally, to expand on those international activities and as Mike will further emphasize we have had very productive meetings with the regulatory agencies in both Mexico and Canada in preparation of anticipated submissions in these geographies.

I'd like to review and reiterate data that many of you may have seen but quickly emphasize the results of the staph study that I referred to in the highlights.

As many of you may recall, this is a real world study and the first utilizing continuous glucose monitoring to assess the impact of meal time Afrezza therapy is compared to one of the standards of care of a subcutaneous injected rapid acting insulin analog, in this case, Insulin Aspart.

And as shown in this figure, are the results of the post meal blood glucose excursions comparing Afrezza with Insulin Aspart. AFREZZA used predominantly with the potential for supplemental doses at one and two hours post meal. In great part this protocol based on our understanding of the rapid time action profile of Afrezza.

As you can see, in these data presented at the American Diabetes Association, there is a significantly greater improvement in post-prandial glucose excursions in those treated with Afrezza as compared to Insulin Aspart.

And indeed Afrezza treatment resulted in a decrease in post meal blood glucose for the first two hours following the meal in a significant difference of 15% or more in the total post-prandial glucose excursion in the first four hours after the meal.

In addition to that observation, patients who were treated with Afrezza and in summarizing the data on this slide here, we had the opportunity to assess the rates of hypoglycemia measured as time spent with blood glucose values less than 70, 60 and 50 milligrams per deciliter.

And the take home from this study even in the setting of improved glycemic control and the use of higher total unit doses of Afrezza we saw a reduction in rates of hypoglycemia measured less than 70 milligram per deciliter from 90 minutes per day to 45 minutes per day.

And more importantly, those affected by the more severe levels of hypoglycemia, namely values less than 50 milligrams per deciliter were reduced to less than five minutes per day in those using Afrezza therapy and in fact using AFREZZA therapy in addition to its supplemental doses.

So, improved post-prandial glucose control with Afrezza versus the standard of care of subcutaneous insulin with less time per day spent with values in the hypoglycemic range. The summary of the investigators who presented this study are shown here.

And I would simply like to summarize that these investigators concluded that the data presented by staph support the use of rapid acting inhaled Technosphere insulin can provide greater improvement in post-prandial glucose as measured by CGM as compared to the standard of care utilizing subcutaneous rapid acting insulin and did so not only with greater improvement in post-prandial glucose excursions, but less time per day spent with values in the hypoglycemic range.

In addition to these disclosures, one of the commitments that we have focused on as a scientific and medical group and as Pat alluded to in supporting our commercial activities is assuring awareness of the scientific information that guides clinicians.

And shown here is just a sample of the publications that have been put forth since March of this year, the last with an anticipated publication in the coming days here in early August.

And these four represent just a fraction of the 20 or more planned disclosures that are in development, and in some cases, in draft form that we anticipate for submission review, and we hope publication in the coming months and years.

This is to be compared with approximately 20 or fewer review and original articles that have been published since the initial approval of Afrezza. So as Pat alluded to, awareness of the clinical and scientific effects of Afrezza is critical.

So, the understanding of its appropriate clinical use, and we're both pleased and proud of my medical regulatory safety teams, who have put forth great effort in making sure that this information is available publicly to both patients and practitioners alike.

And with that, I'd like to turn it over to Mike for conclusion and summary of today's earnings call..

Thank you, David, and thank you everyone. I understand there is some challenge on audios, so I apologize if you're dialed-in versus the web, it sounds like the dialed-in version is -- so we will continue to get better of these things. I want to talk about international updates real quickly. We obviously are approved here in the U.S. We announced India.

We announced Brazil last year. Brazil continues to go well. We just completed several inspections between us and our insulin partner, and our packaging partner as well. We expect the Q4 approval with Q1 launch in 2019 pending pricing decisions within Brazil.

India is also progressing nicely as we continue to design the new trial there and utilize our six pivotal trials, where we have a plethora of data in the premixed insulin due to the original pivotal trials done with Afrezza. Predominant treatment in India is premixed insulin.

And having that data will really help go a long way showing the weight benefits et cetera going into that market.

Additionally, we had the opportunity to talk with Mexico, and David was up in Canada yesterday, so thank you David for making it back in time for the earnings call, but we met with the Canadian Authorities yesterday, had a great discussion, and it looks to me that we will be able to file there and Mexico within later this year or the earliest Q1.

But both of those look to be file-ready. And I think that's important that we don't need additional data. And it will be two additional markets to see patients get Afrezza over the next year or two. I had a lot of question on the Tanner Pharma, I just wanted to address there is no upfront money because we still own global rights to Afrezza.

Tanner Pharma is mainly meant to help patients, we get called every single week of people wanting Afrezza around the world, and we didn't have a mechanism to enable them to get it, whether it's through the government or through them purchasing it in cash -- in conjunction with their doctor.

And Tanner Pharma has a name patient access program that enables people around the world to get Afrezza while we pursue regulatory approvals ourselves or continue to find a global partner to get the product ready registers, especially as we go to Europe and Australia. So that's why I had to explain that, so people weren't confused.

You heard a lot of information today, but if I had to summarize, we really have been through a lot over the last year. We continue to see nice positive demand on Afrezza. We've tightened up the balance sheet. We're now in a position to finish the final steps of the recapitalization.

And just last week, unfortunately we just missed the 600 TRX mark by three scripts. But however, we're focused on getting to thousand and more. And our goal is not to be the biggest volume, but to be one of the most profitable patient-driven companies that really drive and strive for diabetes outcomes.

I personally wanted to say I talked to a lot of the top payers within U.S. We continue to watch the government and what's happening within Medicare, around rebates being protected.

And if that continues to change that only benefit us and clear the ways for prior authorizations and continue to remove restrictions around, I'll say, competitive-driven restrictions around Afrezza. And as that happens, we continue to see accelerated growth as doctors don't have to continue to do prior auth.

But in the meantime, we've built the models, we continue to have great patient support, and we're seeing patients get approved seven to eight out of 10 times when they come through the prior auth process. So we feel good about where we are, and would continue to drive that demand.

So when we look out over the five years, you have to continue to be the beachhead for us as we grow. It is always one of the largest markets around the world for any pharmaceutical company. We're excited about the international expansion. These things unfortunately just take large timelines.

I'll remind you, we announced Brazil in February of 2017, so here we are here year-and-a-half later; Tacoma is two years to get that approval. It just takes time to get these things moving, but then they start growing and will continue to contribute to our growth for years to come.

We continue to look at additional pipeline opportunity to bring [indiscernible] candidates forward, bringing in licensed products that we think about fulfilling our bag P2 position. We'll be looking for that. We also look at the partner pipeline assets and continue develop additional things in conjunction with partners around Technosphere.

And then finally, the pediatric segment will be important. I look forward to seeing some of the PKPD results for pediatrics. And this will be a pivotal moment for kids and parents alike who continue to want to see a real-time control on their CGMs, and have something, like Afrezza, where they're not attached to a pump all day. So we remain excited.

The team is in place. A lot of the churn from the first-half and over the last year is behind us, and now we're fully all focused on executing growth. With that said, I'll stop there and open for questions..

[Operator Instructions] And we'll go first to Oren Livnat with HC Wainwright..

I have several. I know you hate when I do this to you, but I would really love if you could help walk me through this net value -- or gross to nets, right, just so I can understand adjustments in inven [ph] side.

What is the current and go-forward net value per script with the -- I understand you don't sell scripts, you sell to wholesalers, but when you model this what is that number? That gross number you gave us, of 11 point something in the first-half implies in the second quarter a full 1,100 and something for script, which would be a whack amount as far as I can tell.

What is the net value per script?.

Yes, great question, Oren. So our net value per script when you take away the one-time return event here in Q2 is approximately $590 in that range, plus of minus. I'd have to go back and calculate. I think Steve and I were looking at that, at least in Q2. So that gives you some range of what believe we see in that parameter.

One of the things that we don't include that you may see in your model is around vouchers. So that is not something we report in our gross revenue. They are excluded before we even report gross revenue. So when you look at weekly IMS or Symphony data the vouchers are in there, we never report those.

So those are excluded from our models and what you see in that slide as well..

Okay, cool….

-- some of other key things in that. So when you think about price protection of managed care contracts or Medicaid rebates coming higher, 2%-3% off on a gross sales number, let's call it, $40 million for simplicity sake, that add $1.2 million less in net revenues.

So that's when you think about the guidance for the year, some of that was that gross to net on the managed care side..

Okay, thanks. And I guess coming out of ADA, I mean you gave us a good rundown of all the exciting data presented there. And it seemed pretty eye-opening to me. And it was the first time I think a lot of people there had seen true efficacy and safety advantages versus Novolog.

And I'm just wondering what sort of feedback in the field have you had in the approximate month since the conference?.

Yes. No, David, and I have been to several key cities just doing listening sessions with doctors. And I can tell you, it's amazing to see physicians who think they're coming for an hour-and-a-half stay for literally three hours, and just want to know every single thing about the data.

But not only the data, but the history behind the technology, understanding proper inhalation technique, understanding the lunch function test required. What I'm seeing out there is a big shift over my last few years here from people saying "There's no need for inhaled insulin, I'm fine with injectable".

To all of a sudden saying, "I got to learn how to use this, I'm hearing positive things, and it seems like the data continues to evolve." And that's a big shift. And then to see 20-30 doctors sit and spend two, three, four hours with us and David I think -- it's been very exciting. And so it just takes time.

But I can tell you the tone has really shifted. And that will just keep getting better and better as more and more doctors try the drug and see this first-hand. They're going to keep adopting it, and then their colleagues will jump onboard, because, for example, one endo in a practice has nine partners.

He starts using the drug, he starts seeing great results on CGM, he teaches his other eight partners how to do that. Yes, our reps are effective, but getting that one doctor onboard within one major clinic transforms eight. And that's where you'll start to continue to see compound growth, just like you do with CGM adoption.

One person starts using it, teaches others, it'll keep going and then growing for years to come. So we remain very excited about the prospects of CGM and Afrezza combination, and even I believe we continue to see -- we're doing a trial there that we'll see results hopefully there this year..

And I would add that, as Mike said, we show up for an hour, hour-and-a-half and end up three and four hours later really having great discussions about relearning that insulin can be fit to the individual given the time-action profile we see with Afrezza, whereas over the past 100 years or so many practitioners and certainly patients have learned that there are lives to the insulin.

So we're starting with these data to see the shift that, as we say, Afrezza allows individuals to live in the moment with their mealtime use of Afrezza. And interesting, any of these meetings are held over dinners. The content of the dinner often comes up as the focus of the discussion and the potential utility of Afrezza.

So I think that's how these scientific data are translating into real-world conversations..

Okay, thanks. And if can hog some time here. On the numbers front again, what is the underlying gross margin, I guess, so maybe separating out fixed overhead versus variable cost if you can.

And help me understand what would be the breakeven on the production or gross profit basis, what sales level would that take at the current pricing and gross nets you see?.

So, Oren, this is Steve talking. We certainly have costs in excess of our standard now as we're not running at full capacity, not only just on our production line, but of course in the entire manufacturing facility. I would expect that our negative gross profit today will turn positive some time in the second-half of 2018.

I can't tell you exactly when that'll happen, it all depends on when we do production runs which take costs and put it into inventory, and then the inventory flows through COGS, et cetera. But I expect it to happen some time in the second-half..

Okay, thanks. And now I'll get back in the queue. Appreciate it..

Any other questions? Go ahead..

There are no further questions at this time, sir..

Well, again, I want to say thank you. I know the call was a little long. We will continue to work to get these shorter, but given the large retail base of investors we thought it's important to give you a broader perspective. But as we complete, really, the transition we'll continue to get tighter and tighter on these calls. But I want do say thank you.

We're always open to discussions with any of our shareholders. And look forward to continue to talk. We have a couple of outcome and investor conferences during the month of September. Thank you..

Ladies and gentlemen, this concludes today's conference. We thank you for your participation. You may now disconnect..