Good afternoon and welcome to the MannKind Corporation Second Quarter 2021 Earnings Call. As a reminder, this call is being recorded on August 11, 2021, and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call until August 25, 2021. This call will contain forward-looking statements.

Such forward-looking statements are subject to risks and uncertainty, which could cause actual results to differ materially from these stated expectations.

For further information on the company's risk factors, please see their 10-Q report filed with the Securities and Exchange Commission this afternoon, the earnings release and the slides prepared for this presentation. Joining us today from MannKind, our Chief Executive Officer; Michael Castagna; and Chief Financial Officer, Steven Binder.

I would now like to turn the conference over to Mr. Castagna. Please, go ahead, sir..

Hello, and thank you everybody for listening in today and thank you for the introduction. Today, Steve and I will give you an update on Q2 financial overview, along with some of the insights on how the United Therapeutics collaboration will come together in future quarters. And I'll close out by a quick update on the pipeline and the Q&A.

So in Q2, I'm really excited. I want to thank everyone at MannKind. We're very excited about the quarter and all the work we've done during Q2 and third quarter year-to-date.

Let me start by highlighting our total revenue was up 54% year-over-year and our Afrezza revenue jumped 43% year-over-year from pre-COVID levels back into the second quarter on 2020.

Our orphan lung disease and partnerships are growing rapidly, as we all know about our United Therapeutics collaboration, the end date was submitted in April, accepted by the FDA in June and we're on track for an October PDUFA date. Our on-site pre-approval inspection was complete as of last Friday and we expect their report within 30 days.

On the pipeline, we signed an NCE, a New Chemical Entity, for IPF for the company from Thirona where we plan to do some development work over the next 15 months, which can result in license collaboration. And we also made a small investment in the Sirona, because we need them to be successful in the dermatology indication.

A lot of the work they're doing on the API and the drug-drug interaction studies, et cetera, will pave the way for this asset in terms of an inhaled version.

And second, we've been working on several formulations with new collaborations that are currently moving forward from our facility, some are working through the process, including the one announced last week with NRF. On the endocrine disease front, Afrezza had strong growth quarter-over-quarter, with 6% TRx.

And one of the things we're going to share with you today is some clarity and transparency around the pre-drug program we created, some of the changes we made back in Q1.

Now that we have six months of data, we can start to show you what cash free goods program looks like, because when you add that in, we had 9% growth quarter-over-quarter and that's our early indicator of future growth. As we announced, CMS made a policy change on the use of Afrezza and CGM.

And let me just clarify for a second, because I know there's some confusion on this one. It's separate from Medicare coverage of Afrezza and its really specific to patients on Afrezza being able to get CGM, all while stayed to get CGM, you had to be on injectable insulin. Now patients on Afrezza on Medicare can get access to CGM.

And we don't want patients happen to feel like they have to stay on injectable insulin in order to get CGM or afraid to switch off of their injectable to get Afrezza. So that's now clear and that's a great change and we continue to work with CMS and Medicare insurance providers to ensure coverage for Medicare recipients.

Our pediatric trial is on track to launch here in Q3. We filed it with clinicaltrial.gov and our investigator meeting is over the next few weeks.

We presented new data at ADA and ACE and we continue to want to drive the science behind mealtime control as one of the big initiatives you're going to start to see from MannKind is really starting to drive the information gap that exists in terms of really what we see is an unmet need and the science behind mealtime control in diabetes.

We modified our insulin supply agreement with Amphastar which has been a great partner. We were able to eliminate $10.5 million in purchases over the near term and try to get that purchase in line with our demand. And that's moved to 2027 and we're okay with that. We need a long-term supply and the Amphastar has been a great partner.

And then other key topics here is we plan to finalize the debt restructuring. We paid off on the legacy debt and we have no major obligation to do in front of us.

And our PPP loan was 100% forgiven in July as we did the right thing by keeping people employed during the worst pandemic we've seen and we're really happy because that really set MannKind to come out of the pandemic and continue to maintain our business continuity and keep our teams focus what's doing very right and helping patients.

As I bridge over to Tyvaso, we're right here on the adjusted box here in Q3. As I said, we completed our pre-approval inspection and now Danbury is starting to begin commercialization efforts in terms of product launch. We are in the process of hiring about 100 people in Danbury which is on track despite the difficult job market.

We know it's very hard to hire people right now. The FDA inspection is complete. We are focused on building commercial supply in anticipation of the October launch and also staffing up Danbury to go 24/7 as we get into 2022, we need that staff to ready to train them here in Q4.

Steve will give an update on the financials related specifically to the supply agreement. Now let me talk a little more about Afrezza. In Q2, we had 9% overall our TRx growth. And this is due to a lot of efforts of the team. We're trying to increase education, increase awareness and really increase sales force effectiveness and execution.

One of the things we talked about in Q1, but I think now we have six months you'll start to see is we made a fundamental business change in terms of our free goods program. We heard from doctors, access of Afrezza. And what we created was a co-pay card program that goes directly to the pharmacy and there was no friction in the process.

And with that we saw as the program cost MannKind a lot of money in our shareholders, but the docs just weren't doing the PAs. And in order to get formulary coverage you need demand showing up into the payers. And so we made a fundamental shift. We build the reimbursement hub over end of last year. We launched it in Q1, it's called Afrezza assist.

And now you can see here in Q1 we had 641 claims come in to our pharmacy which does not show up in Symphony. That's the blue bars on the right side and that's our cash program and our free goods. We're combining the two because in the grand scheme some patients pay cash for $100, $200 a month, but some patients get free drug.

We just want to show a transparency of what's happening in this channel because you can see Q1 to Q2 that grew 50%.

So even though our overall sales grew 6% and the Symphony reported data, we're seeing significant early indicators of new patients coming in getting started on the product and this went from about 49 scripts a week in Q1 the 74 scripts a week in Q2.

And that base will continue to build as we build up demand even though patients should come off go into paid prescriptions. This becomes our feeder pool in terms of new prescriptions. We really see on the magenta on the left is really that base refill based business. And on the right is what we see as new patients coming into the future.

So really excited about that. And just some early indicators of this is in Q1 we had six of nine districts having positive quarter-over-quarter growth and now we look at Q2, we had eight out of nine going quarter-over-quarter. So we look at this in totality as the early indicators are there and this is what's going to propel our future demand.

We are fully focused on accelerating Afrezza growth. And you'll see that in these investments as we look at year-over-year. Our free goods now are starting to show up in our eathub. This has been to streamline the process and bring transparency.

And now we can see over 1000 new prescriptions year come in and how the doctors are writing them what types of justification they're using. I'd love to get rid of PA completely, but we know that's more difficult given the PBM model that exist today. But we can see almost two or three patients get approved for a press when they come in our hub.

And then the remaining 30 are going pretty good or they pay cash. And if we continue to cover them hopefully until we can get that through the system and they either see they're getting effectiveness and satisfaction or not. Also in the quarter we ramped up our digital advertising and our retargeting on YouTube and social video platforms.

We sponsor Conor Daly and IndyCar race and he's on two regional carding events with kids. We want to start about how do we prepare ourselves with pediatrics in the future.

And we've also got -- we had a product deal or virtual booth at ADA and ATTD and we have various webinars as we progressed throughout the quarter and really looking to see how do we accelerate here in Q3 and beyond. I'll turn it over to Steve to talk about the financials and I'll close out on the pipeline. .

Thanks Mike and good afternoon. Very pleased to review select second quarter and year-to-date 2021 financial results. We supplement this call by reading again to conduct consolidated financial statements and MD&A contained in our 10-Q which was filed with the SEC this afternoon. Let's start out by looking at revenues for the second quarter 21.

Our present net revenue was $10 million versus $7 million in 2020 a growth rate of 43%. The components of growth included a demand increase consistent of Symphony reported TRx growth of 14%, as well as wholesalers increasing inventory levels in the second quarter which favorably impacted net revenue by approximately $0.5 million.

A more favorable mix of Afrezza at cartridges price including a more favorable gross to net percentage at 40% versus 41% in 2020 and the negative impact of the onset of the COVID-19 in the prior year period when patients and wholesalers stocked up in the first quarter of 2020 only to reduce demand by about $0.5 million in the second quarter.

A more normalized view of Afrezza growth is demonstrated by looking at the year-to-date growth of 21% which normalizes the prior year COVID stocking issue but Symphony shows strong demand growth reported TRx up 9% a more favorable mix of Afrezza cartridges and price including a 2% more favorable gross to that percentage.

Please note that the change we made to our free goods program as of January 1, 2021 is paying off and helping lower our gross to nets as we do not pay wholesale fees and discounts on free product which is now distributed directly from MannKind instead of going through the wholesale and retail channels.

This will also have a beneficial impact of future product returns as less product is sold into the distribution channel that can be returned to unused. Moving to collaboration and services. Revenue for the second quarter was $13.3 million versus $8.1 million for 2020 representing a 64% increase.

The increase was mainly due to a change in the period for recognition of the license agreement revenue which is now estimated to end in October of this year the expected PDUFA date as well as additional Tyvaso DPI pre-commercialization activities agreed to with United Therapeutics in the fourth quarter of 2020 and the second quarter of 2021.

In addition when comparing to the prior year, we are recognizing revenue from our co-promotion agreement for liquidity, as well as new collaborations for Technosphere formulation work.

The table on our next slide shows the first and second quarters of 2021 plus June year-to-date Afrezza gross profit and gross margin on a GAAP basis and on a non-GAAP basis adjusted for the expense recorded in the second quarter for the influence supply agreement amendment fee of $2 million.

As Mike mentioned earlier, we've amended our insulin supply agreement during the second quarter of 2021 by moving approximately $10.5 million of insulin purchases out of 2021 to 2023 time period to 2027 when it's better aligned with demand. Unfortunately, we had to pay a fee to accomplish this.

Focusing on the second quarter, which is the first column on the left you will see that Afrezza GAAP gross margin was 56%, but when adjusted to exclude the onetime MSP of $2 million, the non-GAAP Afrezza gross margin was 76%.

During our first quarter earnings call, I mentioned that the first quarter GAAP Afrezza gross margin of 47% seen in the second column was lower than the previous quarter in 2020 because of the low amount of Afrezza manufacturing activities in that quarter which negatively impacted the expense recognition meaning that there was less manufacturing costs capitalized inventory on the balance sheet and more that were recognized as cost of goods sold in the income statement.

With a pickup in manufacturing activity in the second quarter which was expected, the non-GAAP Afrezza gross margin improved to 76%.

It may be best to look at the last column of the table which shows the year-to-date non-GAAP gross margin of 63% to see a more normalized representation of current Afrezza gross margin as this adjusts for the onetime amendment fee and for fluctuations in the level of manufacturing quarter.

Looking to the future as we start to manufacture commercial scale Tyvaso DPI, we expect the Afrezza gross margin to be favorably impacted.

Revealing select second quarter expenses, let's start with R&D expense which increased by $0.9 million or 59% in the second quarter of 2020, which is attributable to increased development activity related to the product pipeline, including MNKD-101 clofazimine increased formulation activities with collaboration partners, the Afrezza dosing study completed in the second quarter and increased Afrezza medical science is on headcount.

Health analyze increase year-over-year included in SG&A we broke out an increase into two buckets as depicted in the pie chart on the right-side of the slide. One bucket includes the impact on spending in 2020 and the onset of the COVID impact.

For example, we implemented reductions in compensation and there were lower T&E expenses due to the inability of the field force to visit physician offices. There's also increased non-cash stock compensation expense an increased bonus expense for expected payment of 2021 corporate objectives.

The other bucket includes our increased investment behind our Afrezza commercial efforts such as marketing spend with an accelerated digital focus and our new patient reimbursement hub. During the second quarter of 2021, we restructured our debt including renegotiating more favorable terms on the mid-cap and Mann convertible debt.

When terms are amended the accounting literature makes you determine whether there has been a debt modification or debt extinguishment. The outcome of this exercise that the changes to the mid-cap debt were modifications, while the changes for the Mann convertible notes were considered a debt extinguishment for accounting purposes only.

You may recall that we amended the Mann convertible notes to lower the interest rate from 7% to 2.5% saving the company over $800,000 annually. When debt extinguished for accounting purposes, it still exists like demand convertible note.

The accounting military says that we have to record the new debt at the fair value, which was significantly higher than the face value of $80.4 million, because the convergent feature of the note was in the money. This is very complicated, and I hope that, I haven't lost anybody at this point, I'll keep going.

The fair value of the debt was approximately $40 million at the time of the extinguishment in April, which means that MannKind records a non-cash loss on extinguishment of debt of $22.1 million and recognize the additional paid-in capital on the balance sheet for the debt premium in the same amount.

The loss on the extinguishment of debt is a non-cash loss, which results in no change in the financial position of the company.

We feel that, this is a real head scratcher, because we restructured the debt with more favorable terms to MannKind, but has to record a loss because of the increased value of the debt to the holder of the debt not to MannKind. This non-cash charge significantly impacted our net loss and net loss per share for the second quarter.

On the bottom half of the slide, we have adjusted our net loss and net loss per share to show what these would have looked like without this non-cash charge. Our GAAP net loss of $35.5 million for the second quarter of 2021 to come $13.4 million on a non-GAAP basis, and our non-GAAP loss was $0.05 per share.

Now that, I've confuse everybody, let's go a little deeper into GAAP account. Last quarter, I promised to shed some weight on how would the accounting for the expected manufacturing and royalty revenues associated with Tyvaso DPI. This slide outlines the different revenue streams from our collaboration with United Therapeutics.

Starting with the license agreement, we have been recognizing revenue on a ratable basis over the expected clinical development time period, which started at contract signing in 2018, and went through the date of the expected FDA approval, which estimated date was changed from December 2021 to October 2021 this past quarter, with the acceptance of the Tyvaso DPI NDA filing by the FDA under an expedited review process.

In May, we updated the development plan associated with the license agreement and there is approximately $13 million of deferred revenue remaining as of June 30 that will be recognized as collaboration revenue in the period July through October 2021.

Next on the slide, it also included in the original license premium, as royalty revenue which we expect to recognize on net sales of evasive DPI, once approved by the FDA and sold by United Therapeutics. As previously disclosed, the royalty rate is in the low double digits.

In May of this year, we agreed with United Therapeutics on an updated development plan, which included additional pre-commercialization activities, and an expansion of our manufacturing capacity. Revenue for the pre-commercial activities will be recognized as costs are incurred between May 2021 and 2023.

The revenue associated with the manufacturing expansion, which is a pass-through of cost with United Therapeutics will be recognized once commercial product manufacturing begins and we sell products to United Therapeutics.

Next on the slide is the research agreement side in 2018, whose associated revenues were fully recognized as of the second quarter of 2020. And finally, the commercial supply agreement which is expected to be signed shortly will allow MannKind to recognize revenue under two different revenue streams.

For product produced by United Therapeutics, we'll recognize revenue on a cost-plus basis as product is released by quality assurance to United Therapeutics. There is expected to be certain other costs, which will be incurred by MannKind and allows the invoice of United Therapeutics as a pass-through cost with no additional margin.

I know that this was a lot to digest for the quarter with the unusual accounting for the loss on extinguishment of debt, the insulin supply agreement amendment is being included in COGS and the different revenue streams associated with the United Therapeutics collaboration agreement.

Focusing on the drivers of our business in the first half of 2021, we grew Afrezza net revenue 21%, revenue from collaboration and services by 38% and total revenue by 30%, all while executing during the continuing pandemic.

Our non-GAAP net loss and loss per share adjusting for the loss on extinguishment of debt was $13.4 million, or $0.05 per share, which were pretty much in alignment with analyst expectations.

In summary, we're executing our plan preparing for the commercial manufacturing of Tyvaso DPI investing in and moving our pipeline forward and accelerating Afrezza growth. Thank you, and I'll turn it back over to Mike for additional comments..

Thank you Steve, and I hope everyone is still keeping up with us in a little bit of a complex quarter at some of these one-time new, but hopefully they're mostly behind us as we go into Q3 and beyond outside execution. Today MannKind has a very, very strong foundation.

We've never been in a good of a position between the pipeline, Afrezza growth and near-term reference filing with FDA.

When I look at Afrezza, it's really going to start to become an improved growth driver when we think about the US adult population moving forward the pediatrics, which I'll talk about in a second, as well as continued international expansion. Number two, TreT or now Tyvaso DPI is on track.

I want to commend the team that in three years from the time we got our results we signed the agreement with UT to open the filing. This has been a team effort and truly excited to start the help patients [indiscernible] all as well, we expect here hopefully in Q4.

The pipeline and partnerships are robust and we really can't take on much more work than we have and want to thank our partners for having the confidence in us and you start to see the pipeline and really often again in next year, a lot more will evolve on the pipeline, but we've been very excited about many aspects of the pipeline I'll talk about COPAS as well.

The first thing I want to talk about Afrezza because this is literally on the heel of starting our trial. We are scheduled for two investigator meetings [indiscernible] but they'll be planned here in August and we'll have about 15 sites up and running very quickly with slight initiations in October and hope their first patient no later than October.

So the team has done a great job. This study has been less and as FIRB and we're excited to get this started as we go forward here in August. Secondly is clofazimine. We continue to work really hard with the team. We have completed the inhaled GLP tox study with the two species.

These are 28-day dosing in each species of 56 days of recovery because there's a very long half-life on clofazimine, so you have to follow these and kind of to washout and to happen. There is no drug associated clinical signs observed. And now we are well on our way towards the protocol for Phase 1 healthy volunteers.

The study is expected to start by year-end study, it will be a 4-arm study with a combination of a single ascending dose and multiple seven days ending dose design for the tolerability and PK endpoints.

We've also completed some of the formulation work on the dry covers version in addition to nebulized and all these continue renal on track and are progressing nicely. And the team is also working on making sure we have GMP quality drug supply hopefully for the Phase 1 but getting ready for the Phase 2 in 2022 and have positive outcomes.

If you look at our 2021 milestones, we are on track to meet or beat all of them and a couple of ones in Blackwoods, ones we didn’t anticipate doing and we started our objectives for the year. But as you can see everything is on track. We're very excited.

And I just want to thank the shareholders, our employees, and everyone's families for putting up with all the stress in the organization.

As many people doing double time over the summer to get ready for the PAI inspection and getting ready for scale up and hiring of 100-plus people which for a company of our size, we're about 250 coming in and hiring 100 plus, there's a lot of people, and the team has done a great job.

I want to stop there and take questions and look forward to the discussion..

Thank you. [Operator Instructions] Your first question comes from the line of Brandon Folkes of Cantor Fitzgerald..

Hi, thanks for taking my questions and congratulations on all the progress. Maybe firstly just on Afrezza, I appreciate the additional color around the Free Goods Program.

But any color on the profitability of a cash script versus those showing up in Symphony and then maybe I've got an answer, but are you prepared to just any indication of the split between cash and free goods in that MANN-54 characters you showed there? Then secondly maybe just trying to -- I appreciate the color, Steve, I think I followed, but I just wanted to see you gave us color on Afrezza gross margins.

What -- how should we think about company gross margins going forward with the price of manufacturing expansion, is that running to COGS, just any color there? And then lastly the hiring of 100 additional people, how quickly do you need to bring them on Board? And how many do you need to meet the initial demand around Afrezza? Thank you..

Okay. Brandon I got the cash profitability per script and I'll talk about that. Steve will take the gross margin on the company and the manufacturing how that flows through. And then I'll also comment 100 people expansion with you.

So, on the cash program, my first objective is to make sure that a doctor and a patient do not get offered Afrezza because of cost. I think the health care system country is not fair to patients. And if you think about patients they're paying 20% cost share, the insurance companies want high double-digit rebates on injectable insulin.

And our model is very different. We're taking care of the people that have failed injectable, but for the most part and we're not getting -- they're not giving us 100% market share for those rebates that our competitors give them. And so it's a very different business model.

And so the cash program for us is a means that we're not looking to lose money, we're not looking to make we're just looking to make sure patients have access. So, that's why we don't report it. It's not a significant contributor to earnings. Now, became thousands of scripts in the quarter then yes, I think that's a different story.

But the percent of the scripts that are paid versus free maybe 40%/60%. But that's -- we want to make sure now is flowing through at our COGS and that's really the key point here is we cut out all the middlemen and you can see online, our price per box of $99 and $199 per cash script.

And the reason we're able to offer that low price is we've cut out the wholesalers, the CBS, all the return issues, it's all at our inventory our cost and we basically try to make sure we're not losing money as best we can. But it's really meant to take away any type of cost plus reimbursement objection that somebody could bring on.

And that's really one of the things we hear from docs, they talk about, but we kind of remind them all the programs at post-placebo patients starting to join for these reasons. So, that's why it's there. Hopefully, that helps you and it's consistent with probably the cost of other insulins in the marketplace we see what people are paying for cash.

On 100 people, we got about 50% of the way there by July, which was our goal because that's what we needed to have higher in order to continue to hit our time lines for production, training, quality systems, et cetera. And so, we were on track for that. And then the hire will continue but we only train so many physical people on time.

And so we are stating this and it's much more about the onboarding and the training of people and the hiring of people. So we can find some extra talent in sooner. But I think Stuart, our Head of HR and the team has done a great job of recruiting people. And the next phase of the training will be getting people ready for the overnight shift.

So they want to train them during the daytime and then 20% production which put them up to overnight. And so again, finding those people who want to work, finding them in training during today and then being ready for that shift here in the next year for.

So, Stuart, I haven't missed anything?.

60% of them..

60%, now I tell. So we're on track. We need them and mainly we need them because it takes time about two three months to train somebody on the manufacturing process to make sure they're capable and confident. We're comfortable we can have people make mistakes, and so, especially critical to our success. Steve, I'll leave it to you for the gross margin..

one is we'll start manufacturing by the end of the third quarter; and then, in the first half of next year, we actually increased the manufacturing to be running 24/7. So, as we continue to crank more volume to Tyvaso DPI, it's going to impact positively the Afrezza gross margin.

And when you think out into the future and the expansion of the manufacturing capacity, when that additional manufacturing capacity comes online in a few years then that will also will be cranking out more units and the cost per unit of both Tyvaso DPI as well as Afrezza should go down.

So we look forward to the continued growth in the gross profit and the gross margin..

Great. Thank you very much..

Next question comes from the line of Daniel Busby of RBC Capital Markets..

I've got a couple more on Afrezza. First with respect to the pickup in Afrezza sales, I realize there are a lot of moving parts.

Are you able to tease out how much incremental contribution in the second quarter can be attributed to your sales force expansion and other recent commercial initiatives? And then second, can you talk a little bit about progress in growing the Afrezza prescriber base? I think the last time we spoke you were at about 3,000 physicians.

Have you made any progress growing that number? And as we look out over the next one, two, three years, do you have any specific targets in place with respect to prescriber growth?.

A great question, Daniel. On the prescriber base, we actually just engaged in a conversation this week do we go deeper on the 3,000 or trying to get to 4,000 -- what's the more impact we think we can have. And I think there's a lot more we can drive success in the shorter term by getting doctors to we already wrote the product to write more.

And that's our short-term focus. I think especially with COVID access, it's still difficult. I mean I think I went through the number of peak with the team that is about 40% in 20% 30% virtual on 25% [indiscernible] that vary by area of the country.

And so I think until we get fully open let's continue to help those who understand the product and get them to help more patients and I think we have tons of upside within our 3000 prescribers on quarterly basis.

In terms of what's driving some of the improvement, I think it's consistency across the districts and across the territories that we work in. Some of that is the sales force expansion but it generally takes six to nine months for a rep to come in, make their impact, be trained, feel confident and start to see that.

But some of the newer we just hired out of the has come in to hit the ground running I think it was two or three in the top 10 as we get into Q3. So they just started in the last three months. And so we do see that new people coming in are able to make types the historical and that could be part of it.

But I think it's more consistency across all districts alternators [indiscernible] thing worth mentioning. As we grow and then one-third will grow a lot, one-third may shrink and one-third will stay flat. And we're kind of like slow growth. Now we're looking at a consistency across four territories. And I think that's what we're starting to see.

And then on the increased marketing investments, we're doing things like Outcome Health with the in-office TV advertising we have more commercial, we've done some nurse outreach programs on Facebook and really trying to recruit patients is for doctor about Afrezza.

And I think the number one thing we still continue to see is we have to get doctors comfortable prescribing give them to try five or 10 patients so they really see the clinical merits of the drug because we can see people aren't operating five or 10 scripts.

If you're going to write five or 10 scripts and then tell me they are not covered or whatever excuse you want to make that's fine. But we got to get doctors really comfortable with the product and I think it's been on the margin for enough time that there's really no excuse at this point to not offered to a patient in fact.

We just had an advisory board on Friday of that, one doctor said I'm embarrassed to offer to my patients now because they're going to had to be wide an offer for the last five years. And so they're starting to believe in the data they're seeing the data. They think it's meaningful.

We were able to share new study which just to called the docs trial which really looked at almost a two times dose stay upfront and we saw really meaningful results there which will be shared shortly. And they said wow, this is really convincing me even though it is a small study they're seeing what Afrezza can do real-time on CGM.

And I think that's important. The data is important, it's being full but we've got to get them adding it to their patient regimens and adding in situations. And I think that's a big part of our focus here. With sales force expansion, we're looking at a primary care pilot here to launch in Q4 and continue to drive faster growth.

There's a lot of things in the works here for as we get through Q3..

Is like I think specifically on that question sales force. We grew TRx 14% year-over-year and we had a favorable cartridge mix which continues to help our net sales gain. I'd kind of put together and tie the sales force, as I mentioned [indiscernible]..

And that's important Daniel because as you titrate appropriately natural at patients are going to go to 8- 12-unit cartridges from 40-cartidges, so there is a benefit there as well..

Great. Appreciate all the color..

Next question is from Steve Lichtman of Oppenheimer..

Thank you. Hi, guys.

On the free goods program, what are you seeing in terms of conversion to paid prescriptions? And what do you think is a reasonable goal on that metric?.

Yes. We look to some of them that come in don't have a prior off some do have a prior off. So the overall number, if 100 scripts came in 65 will go through whether it's a PA or no PA. We see 65 go through. So that means you now have 35 patients that would move into free goods or cash.

And the way this works Steve, is we offer the free goods for a limited period of time, so that they could show the merits of the drug get the benefit effect the safety and side effects to make sure they're comfortable with it. And then, that gives the doctors the evidence to peel that to an insurance company. And get that appeal returned.

So I think, overtime, we'll be able to take that 65%. Hopefully, I would expect 80-plus percent, as we go forward, because some of what we're learning Steve is doctors don't know what failure means. So they don't want to admit a 7.5 A1c is failure in their mind.

And so they've been able to tell to their patient hey, you're doing, good you're at 75% for three four years. And now they switch to a presenter to 6.5. And part of the insurance companies, they just want to document that these patients tried and failed to refer agent.

And then the dogged mind 7.5 A1c is failure for example we just got to get comfortable documenting certain things for insurance company's reimbursement of coverage. But that's the feedback we get from the hub. And we can share that back from the doctor and the patient.

And so we do expect that people learn how to properly prescribe it, probably do the PAs and appropriately then, that's all feedback we get. There's things we can definitely prove. With [Indiscernible] we can see like on Express Scripts you've got 85%, 90% approval on CBS you have roughly approval.

So we're able to see, on the two big insurance companies you're talking 80-plus percent average. And then, we deal with the smaller regional ones where you may have 50%. Now let's go in there and focus on making up on Texas [Indiscernible] with that local market. So that's the insights we're getting right now which are extremely helpful.

Now we've gone to a payer and say "Hey, we had 200 people come in. And here's what's happening." So hopefully, I bring some clarity for you..

Great. Yeah. Thanks Mike. And then, I was wondering if you could provide some more color on the headwinds you experienced prior to CMS recently listing the restrictions relative to CGM.

Just to give us a sense of how things change in the field? And was this also an issue on the private pay side or is it just Medicare?.

Yeah. No. Specifically CGM they issued your CMS coverage policy. And I want to say it was 2018, that could be off maybe in 2017. I think or they issued coverage for the MAX to decide how to appropriately cover CGM. It's simply state you need to be on injectable insulin 6% of times a day.

And so we had docs who either were hesitant to prescribe Afrezza because they really value the CGM insights or we had patients who want a fresh really want a CGM and they were getting rejected by Medicare. So we kind of reached out on Medicare last year.

And they hesitated a little bit because they didn't want to open up the policy, but they did open up the policy for comment which was through our efforts.

And the good news for patients at the end of the day is Dexcom jumped on it and believe opponent and everyone is including the company's there as well as the patients benefited from the change is basically they eliminated the need to be on injectable insulin in your finger.

And it just goes to show you, it also opened up a dialogue with CMS, for us around here's our clinical data. And here's why Medicare needs to be more forcefully covering, Afrezza. Because we've shown that we did two studies at 60-and-65-year-olds, where we got really good results just by switching from Dexcom one to Afrezza. We improved A1c.

We improved potline. And yet, we still see Medicare providers restrict patient access and drive up their cost. We really want CMS to be aware of that, because taxpayer dollars. And then, patients shouldn't have to suffer complications from diabetes.

So help us create that dialogue with CMS and also as well as the payers, now that team is paying attention. And we were lobbying for a 35-month pilot program to include Afrezza or just improve the formulary coverage care. And I think we're having some good dialogue with the conversation.

So I think overtime, Medicare is on its way will continue to get better. These are long-term plays. These just don't change overnight. And we do see good coverage. I think 20% of our sales today are Medicare. I think if you look at the entire insulin market, it's 30% roughly.

And so we're slightly below but we also want to know how the older patients we have in type 1 and 2. So it is fine. Hopefully it helps you on that..

Okay. Thanks. And then just lastly Steve thanks for the breakdown on SG&A.

Relative to 2Q, how should we be thinking about trend on that line in the back half?.

Yeah, Steve, we generally don’t talk about our future P&Ls or terming or anything, but I don't think -- I think it's going to be in the same ballpark approximately without getting very specific about it..

Some of the retiming the festive pizza is going to kick off. And so depending on how quickly they roll up could change some of the expense line on R&D with the R&D, but I think in general we're being prudent with our cash..

Okay, great. Thanks guys..

Next question comes from the line of Thomas Smith of SVB Leerink. .

Hi, guys, good afternoon and thanks for taking the questions, and congrats on the progress. Just on the FDA pre-approval inspection.

Can you provide any more color or granularity on the inspection process itself? It sounds like you're expecting the formal Brick report within the next 30 days, but anecdotally where some cases where if there are issues cited during the inspection they're communicated on-site in real-time, can you just comment on what your experience has been like with this PAI?.

Yeah Thomas. Thank you for the question. You’ll wait and see, we’re waiting for itself. So what I say is the FDA completed -- there's two parts of the inspection is the pre-approval inspection for Tyvaso. And then they completed every two years probably a GMP inspection. So they came back in 2018, and so they also did that back-to-back.

Overall we're extremely proud of the work that we did during that FDA inspection. There was only one finding and it was not related to the product, much more related to the equipment application but does not impact our time lines or anything.

So we'll wait for the full report before making any comments, but there's no showstoppers here that the feedback we got or the result from online inspection..

Okay.

And I guess Mike, did they indicate point on the one finding that it was -- there are certain designations here, I guess voluntary action indicated or mandatory action indicated?.

Yeah. I think the -- like it's -- I'd say one thing, there's varying degrees, right? There's a major, there's a warning letter and then there's minor 43. I put this in the category of 43 minor thing, and I think it’s okay. I think it’s perfect for FDA you have to look for things and that's their job.

And our job is to make sure we correct those things would be as possible. But specifically around an equipment specification, around how do you validate some of the qualifications as you install the equipment or reinstall equipment. So there's nothing -- some of that can be resolved is not contingent upon review process or like that.

So we're comfortable with where we are. I think the team did a great job. And we don't want to go over a lot of details, but there's not -- it’s a minor in the grand scheme of things. And it's a pretty tough inspection. I think the FDA did a wonderful job and very collaborative dialogue with a lot of subject matter experts. So it was very thorough.

It was….

Okay. Yeah. I appreciate the color on that. And then, just one on the prelaunch preparations here. Obviously the early days of the United launch for Tyvaso into the PH-ILD population looked really strong.

Can you talk about, how you're thinking about the prelaunch manufacturing plan in light of that launch? And how this has evolved over the last three months? Obviously, you're hiring pretty aggressively in Danbury, but any additional color on how the prelaunch manufacturing plans to evolve?.

We worked closely with UT on the manufacturing launch plan the SKU mix, the sequencing as you know is rather complex you've seen the amber facility is very large. There's multiple parts that feed into this in the packaging parts. So we got to get that right and we expect the ILD indication in October along with the page.

So we're prepared from a launch, quality launch supply in the deep and more close to UT. And the good news is they're able to launch ILD, start to see as they're on track and that feeds into our forecast into 2022 and scale facility itself.

So I think overall or [Indiscernible] said UT is on track and it is their objectives for 2022 at [Indiscernible]. I think that's great for us and patients and shareholders because we want to get our product in their hands as quickly as possible. We think patients are going to have a tremendous benefit to be able to try the drug comer.

So yes we remain on track with them and forecast. We're not going to get into specifics, but supply market adequately..

Okay. Great. Thanks, Mike. Appreciate the color..

Next question comes from the line of Bert Hazlett of BTIG..

Thanks for taking the question. Congrats on the progress. Just Mike, you mentioned the DOS trial. Just in general terms, what were the goals of the study and kind of the achievement made a little more detail if you can.

And then secondly, you may have talked about this but could you just discuss the broader applications of BluHale both on Afrezza and otherwise? Or whatever you -- the direction you're headed. Thank you..

Great. Thanks for dialing in. I know you had your conference this week and thanks for hosting us yesterday and I appreciate dialing you today.

The DOS trial, one of the things for the FDA PAH trial that we really want to make sure we do right is those patients right off the back of the first dose they get and we proposed a specific dosing recommendations at FDA which they understood and tidily agreed to.

And before we kicked off the PEACE trial, we wanted to test this in adults to get some comfort around the protocol how it works. And see discussions that we called, but by senior that's an important safety issue we want to make sure we see.

And we're able to successfully dose about 20 patients in two sites and really show that if you came in you dosed Afrezza on your normal conversion table according to the PI, what was your glucose control two hours later, we measure them every 50 minutes. And then we said, okay now, let's double that dose.

So if you're never going to take four, now let's give you eight on the same meal and see how your control is over the next two hours. And there are some good significant findings a small study, but I think 20 patients on a tolerance were able to see meaningful results.

And so it's really meant to give us more comfort in PEACE protocol before we went live. And these were done under clinical supervision. And so that's how the Afrezza to be run for the first dose and that will give us the comfort and hopefully the investigators to come for that this state effective. And so we'll publish that data.

Now we'll do Bert is to use that going forward for a conversion in our future clinical trials. So we're looking at two other studies right now and I want to use that dose and is feel good about that as well.

So, I think it just sets us up for the future, in terms of making sure from the very first dose We don't need all these complicated if your sugar does take a follow-up dose an hour later. We're trying to eliminate that and give you real-time control gear and take away all the guess work that happens. So that was the goal.

I think good job on that goal and we'll share those results probably in November conference..

That's terrific.

And then just generally on Blue Hill?.

Yes. Blue Hill unfortunately think about the chip shortage across the world has also been impacted by the chip shortage. So we were able to run a pilot on Blue Hill confirm some of the findings of the accuracy of the dose detection. We've also submitted a meeting -- we spend acquired FDA on how they want to do this.

I think that's just getting [indiscernible] just company back recently. And we're looking to now that the PAI section is in no how do we start to help forward from Tyvaso side as well as Afrezza side. So it will be ready appropriate times but what UT would want to use Blue Hill and what we would use it very different.

But it will become a more important aspect as we look in 2022 and beyond building our own app and building our own digital future with we think Blue Hill can be a critical component of that business strategy. .

Okay. Terrific. Looking forward to that. Thank you..

Thank you, Bert. Brandon, Daniel, Steve and Thomas I appreciate the calls and questions and your time today and all our shareholders thank you for your patience. We're moving in the right direction. I know it's been a long journey but there's not -- MannKind is firing on all cylinders.

And I want to thank the MannKind team members for all the work and energy that we're putting in this year. We've got four or five months to close out the year strong. We got to get through these based on FDA approval process. And then hopefully we see success here in Q4 and continue to drive Afrezza for and advance our pipeline.

These are very exciting times and I look forward to the share more updates. I think I have more investor conferences in September alone. So we'll keep you guys updated weekly basis probably starting in September on how things are progressing. Thank you again and feel free to reach out to us at any time we can answer questions. Thanks..

There are no further questions at this time. I would now like to turn the call back to Mr. Michael Castagna, CEO, for closing remarks. .

Thank you, we're closing..

This concludes today's conference call. Thank you for participating. You may now disconnect..