MannKind Corporation

Good afternoon and welcome to the Mankind 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 Mankind 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 risk 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 10Q report filed with the Securities and Exchange Commission this afternoon, the earnings release, and the slides prepared for this presentation. Joining us today from Mankind, our Chief Executive Officer, Michael Castaña, and Chief Financial Officer, Stephen Binder. I would now like to turn the conference over to Mr. Castaña. Please go ahead, sir.

Hello, and thank you, everybody, for listening in today, and thank you for the introduction. Today, Stephen and I will give you an update on Q2 Financial Review. along with some of the insights on how the United Territories Collaboration will come together in future quarters. And then I'll close out by a quick update on the pipeline and the Q&A. So in Q2, I'm really excited and want to thank everyone at Mankind. 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 is up 54% year-over-year, and our Fresno revenue jumped 43% year-over-year last year. from pre-COVID levels back in the second quarter of 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 onsite 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 IPS with a company from Verona, where we plan to do some development work over the next 15 months, which can result into an in-license collaboration. We also made a small investment in the Throna because we need them to be successful in the dermatology indication, and 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. Some are up on stability, some are working through the process, including the one announced last week with NRX. On the endocrine disease front, Afreza 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 free drug program we created and some of the changes we made back in Q1. Now that we have six months of data, we can start to show you what our 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 know, 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. This is separate from Medicare coverage of Afrezza, and it's really specific to patients on Afrezza being able to get CGM. The old rule stated 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 having 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 a Fresno. 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 the clinicaltrials.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 Mankind is really starting to drive the information gap that exists in terms of really what we see as an unmet need in the science behind mealtime control and diabetes. We modified our insulin supply agreement with Amphistar, 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 Amphistar has been a great partner. And then other key topics here is we finalized the debt restructuring. We paid off some of the legacy debt. We have no major obligations due 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 up mankind to come out of the pandemic and continue to maintain our business continuity and keep our teams focused on what's doing right and helping patients. As I bring you over to type 8, so we're right here on the Magenta 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 get that team ready and train them here in Q4. Steve will give an update on the financials related specifically to the supply agreement. Let me talk a little more about Afrezza. In Q2, we had 9% overall of 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 Salesforce 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 to La Fresa, and what we created was a copay card program that you could go directly to the pharmacy, and there was no friction in the process. And what we saw is that program cost mankind a lot of money and 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 built a reimbursement hub over the end of last year. We launched it in Q1. It's called a President Assist. And now you can see here in Q1, we had 641 claims come into 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 grant scheme, some patients pay cash for $100, $200 a month, but some patients get free drugs. We just want to show 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% in 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 to 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. And what you 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 looked at Q2, we had eight out of nine going quarter-over-quarter. So we look at this on totality, and 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 Steve's investments as we look at year over year. And our free goods now are starting to show up in our e-hub. This has meant to streamline the process and bring transparency. And now we can see over 1,000 new prescriptions this year come in and how the doctors are writing them, what types of justifications they're using. I'd love to get rid of PAs completely, but we know that's more difficult given the PBM model that exists today. But we can see almost two out of three patients get approved for a Fresno when they come into our hub. And then the remaining 30, they're going free goods or they pay cash. And 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 media platforms. We sponsored Conor Daly in the IndyCar race, and he's on two regional car events with kids as we want to start to think about how do we prepare ourselves for pediatrics in the future. And we've also got a product dealer virtual booth at ADA and ACE, and we have various webinars as we progress throughout the quarter and really looking to see how do we accelerate growth 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 the select second quarter and year-to-date 2021 financial results. Please supplement this call by reading the condensed consolidated financial statement, the MDMA, contained in our 10Q, which is filed with the SEC this afternoon. Let's start out by looking at revenues for the second quarter of 2021. Our present net revenue was $10 million versus $7 million in 2020, a growth rate of 43%. The components of growth include a demand increase consisting of simply reported TRX growth of 14%, as well as wholesalers increasing inventory levels in the second quarter, which favorably impacted net revenue by approximately a half million dollars. A more favorable mix of AFREZA cartridges, price, including a more favorable growth to net percentage at 40% versus 41% in 2020, and the negative impact of the onset of the COVID-19 pandemic in the prior year period when patients and wholesalers stocked up in the first quarter of 2020 only to reduce demand by about a half million dollars 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 still shows strong demand growth with Symphony reported TRX up 9%, a more favorable mix of Afrezza cartridges and price, including a 2% more favorable growth to net 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 growth to net, as we do not pay wholesale fees and discounts on free product, which is now distributed directly from mankind, instead of going to the wholesale and retail channels. This will also have a beneficial impact to future product returns, as less product is sold into the distribution channel that can be returned unused. Moving to collaborations 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 Tyveso 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 diquidity, 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 of present gross profit and gross margin on a gap basis, and on a non-GAAP basis adjusted for the expense recorded in the second quarter for the insulin 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 the 21 to 23 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 AFRESA GAAP gross margin was 56%. But when adjusted to exclude the one-time amendment fee of $2 million, the non-GAAP AFRESA gross margin was 76%. During our first quarter earnings call, I mentioned that the first quarter GAAP AFRESA gross margin of 47%, seen in the second column, was lower than the previous quarter in 2020 because of the low amount of a Fresno manufacturing activity in that quarter, which negatively impacted the expense recognition, meaning that there was less manufacturing cost 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 of Fresno 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 one-time amendment fee and for fluctuations in the level of manufacturing by quarter. Looking to the future, as we start to manufacture commercial-scale Tyveso DPI, we expect the Afrezza gross margin to be favorably impacted. Reviewing 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, clofazamine, increased formulation activities with collaboration partners, the AFREZA dosing study completed in the second quarter, and increased AFREZA medical science liaison headcount. To help analyze the increased expenses 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 was also increased non-cash stock compensation expense, and an increased bonus expense for expected payment of 2021 corporate objectives. The other bucket includes our increased investment behind our aggressive 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 manned convertible debt. When terms are amended, the accounting literature makes you determine whether there has been a debt modification or a debt extinguishment. The outcome of this exercise is that the changes to the mid-cap debt were a modification, while the changes for the manned convertible note were considered a debt extinguishment for accounting purposes only. You may recall that we amended the manned convertible note to lower the interest rate from 7% to 2.5%, saving the company over $800,000 annually. When debt is extinguished for accounting purposes but still exists, like the manned convertible note, the accounting literature says that we have to record the new debt at the fair value, which was significantly higher than the face value of $18.4 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. Fair value of the debt was approximately $40 million at the time of the extinguishment in April, which means that Mankind records a non-cash loss on extinguishment of debt of $22.1 million and recognizes 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 mankind, but had to record a loss because of the increased value of the debt to the holder of the debt, not to mankind. 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 becomes $13.4 million on a non-GAAP basis. And our non-GAAP loss was $0.05 per share. Now that that's confused everybody, let's go a little deeper into GAAP accounting. Last quarter I promised to shed some light on how we would be accounting for the expected manufacturing and royalty revenues associated with Tybesa 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 radical 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 Tyveso 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 30th that will be recognized as collaboration revenue in the period July through October 2021. Next on the slide, and also included in the original license agreement, is royalty revenue, which we expect to recognize on net sales of PIVASA 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 costs to United Therapeutics, will be recognized once commercial product manufacturing begins and we sell product to United Therapeutics. Next on the slide is the research agreement signed in 2018, which 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 mankind 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 mankind and allowed to be invoiced to 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 and extinguishment of debt, the insulin supply agreement amendments 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 up by the 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 of adjusting for the loss on extinguishing a debt was $13.4 million, five cents per share, which were pretty much in alignment with analysts' expectations. In summer, we're executing our plan, preparing for the commercial manufacturing of Tyvesa DPI, investing in and moving our pipeline forward, and accelerating our present growth. Thank you, and I'll turn it back over to Mike for additional comments.

Thank you, Steve, and I hope everyone's still keeping up with us. It was a complex quarter in some of these one-time items, but hopefully they're mostly behind us as we go into Q3 and beyond. Lots about execution. Today, mankind has a very, very strong foundation. We've never been in as good of a position between the pipeline, AFRESA growth, and near-term assets sitting at the FDA. So when I look at AFRESA, it's really going to start to become an improved growth driver when we think about the U.S. adult population, moving forward to pediatrics, which I'll talk about in a second, as well as continued international expansion. Number two, TRET-T, or now Tyveso 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 ultimately the filing. This has been a team effort and truly excited to start to help patients live with PH. If all goes well, as we expect here hopefully in Q4. The pipeline and partnerships are robust, and we really can't take home much more work than we have. I want to thank our partners for having the confidence in us, and you start to see the pipeline and the readouts as we get to next year. A lot more will evolve on the pipeline, but we'll be very excited about many aspects of the pipeline. I'll talk about clofazamine as well. The first thing I want to talk about is the FREDLIB, because this is literally on the heels of starting our trial. We are scheduled for two investigator meetings, assuming COVID doesn't shut one of them down, but they'll be planned here in August, and we'll have about 15 sites up and running very quickly with site initiations in October, and hopefully our first patient will know later than that. So the team's done a great job. This study has been blessed and has passed the IRB, and we're excited to get this started as we go forward here in August. Secondly is clofazamine. Continue to work really hard with the team. We have completed the inhaled GLP tox studies in two species. These are 28-day dosing in each species with 56 days of recovery because there's a very long half-life on clofazamine. So you have to follow these and kind of let them wash out and see what happens. There was no drug-associated clinical science observed. and now we are well on our way towards the protocol for phase one healthy volunteers. The study is expected to start by year end and it'll be a forearm study with a combination of a single ascending dose and a multiple seven day ascending dose design with tolerability and PKM points. We've also completed some of the formulation work on the dry powder version in addition to the nebulized and all these continue to remain on track and are progressing nicely. And the team is also working on making sure we have GMP quality drug supply Hopefully, not only for the phase one, but getting ready for the phase two in 2022 and positive outcomes in phase one. As we look at our 2021 milestones, we are on track to meet or beat all of them. And a couple of the ones in black were ones we didn't anticipate doing. I hope we start 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 do in double time over the summer to get ready for the PAI inspection and getting ready for the scale-up and the 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 for here, and the team has done a great job. So I'm going to stop there and take questions and look forward to the discussion.

Thank you. If you'd like to ask a question, please press star, then the number 1 on your telephone keypad. First question comes from the line of Brandon Fox of Cantor Fitzgerald.

Hi, thanks for my questions, and congratulations on all the progress. Very firstly, just on a further, I appreciate the additional color on the free goods program, but any color on the profitability of a cash script versus those showing up in symphony? I mean, maybe I've got to ask it, but Are you prepared to just give us any indication of the split between cash and free goods in that 964 character as you showed there? Then secondly, maybe just trying to, you know, I appreciate the color, Steve. I think I followed. But I just wanted to see, you gave us color on the phrase of gross margins. How should we think about company gross margins going forward, you know, with the posture of manufacturing expansion? Is that running through COGS? Just any colors there. And then lastly, the hiring of 100 additional people, you know, how quickly do you need to bring them on board and how many do you need to meet the initial demand around Paveza? 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 on the 100 people expansion if we need So on the cash program, my first objective is to make sure that a doctor and a patient do not get offered a Fresa because of cost. I think the healthcare system in this country is not fair to patients. And if you think about patients, they're paying 20% cost share. The insurance companies want a high double-digit rebate on injectable insulin. And our model is very different. We're taking care of the people that have failed injectable insulin for the most part, and 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, you know, we're not looking to lose money. We're not looking to make money. 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, if it became thousands of scripts a quarter, then, yeah, I think that's a different story. But, you know, the percentage of scripts that are paid versus free is, you know, maybe 40, 60. But that's, you know, we want to make sure now it's flowing through at our COGS. And that's really the key point here. We cut out all the middlemen. You can see online our price per box of $99 and $199 for a cash script. And the reason we're able to offer that low price is we've cut out the wholesalers, the PBMs, all the returns 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-less reimbursement objection that somebody could bring up. And that's really one of the things we hear from docs they talk about, but we kind of remind them all the programs we put in place to avoid patients not starting to drug for these reasons. So that's why it's there. Hopefully that helps you. And it's consistent with roughly the cost of other insulins in the marketplace we see when people are paying for cash. On the 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 timelines for production, training, quality systems, etc. And so we were on track for that, and then the hire will continue, but we can only train so many physical people at one time. And so we are stage-gating this, and it's much more about the onboarding and the training of people and the hiring of people. So if we can find some extra talent, we'll bring them 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 we want to train them during the daytime, and then as we move to 24-7 production, we should We shift them up to overnight. So, again, finding those people who want to work shift work, finding them and training them during the day, and then being ready for that shift here as we go into next year will be important. So, Stuart, did I miss anything? I've got 60% now. 60% now, he tells me. 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 and we're comfortable. We can't have people make mistakes, and so it's mission critical to our success. So Steve, I'll play you into the gross margin.

So I think there are two pieces to the gross margin. First is the Fresa gross margin. Focus in right now on the non-GAAP gross margin for the first half of the year at 63%. I think that gives you an approximate margin for where Fresa manufacturing and COGS are right now. As we move into commercial production for Tyveso DPI and start to absorb more costs from the factory over to Tyveso DPI, there's two steps that are going to happen. One is we'll start manufacturing by the end of the third quarter. And then in the first half of next year, we actually increase the manufacturing to be running 24-7. So as we continue to crank more volume to Tyveso DPI, it's going to impact positively the AFREZA 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 be cranking out more units and the cost per unit of both Tyveso DPI as well as AFREZA should go down. So we look forward to the continued growth and the gross profit and the gross margin for Afreza.

Great. Thank you very much.

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

I've got a couple more on Afreza. First, with respect to the pickup in Afreza sales, I realize there are a lot of moving parts. Were you able to tease out how much incremental contribution in the second quarter can be attributed to your Salesforce 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?

Great question, Daniel. On the prescriber base, we actually just engaged in a conversation this week, which is 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 who already wrote the product to write more. And so that's our short-term focus. I think, you know, especially with COVID where access is still – you know, difficult. I mean, I think I went through the numbers this week with the team that said about 40% in person, 20%, 30% virtual, and 25% mostly, and that varies 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 still have a ton of upside within our 3,000 prescribers on a quarterly basis. In terms of what's driving some of the improvements, I think it's consistency across the districts and across the territories is important. Some of that is the Salesforce expansion, but it generally takes, you know, 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 new reps we just hired, honestly, have come in and hit the ground running. I think two or three in the top ten as we get into Q3. So, I mean, they just started in the last three months. And so we do see that new people coming in are able to make impact there. So this is historical. and that could be part of it, but I think it's more consistency across all districts, all territories. That was one of the things I was mentioning. In the past, we'd grow, and a third would grow a lot. A third may shrink, and then a third stay flat, and we're kind of like slow growth. Now we're looking at having more consistency across more territories, and I think that's what you'll start 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 commercials. We've done some... outreach programs on Facebook and really trying to recruit patients to ask their doctor about Afrezit. And I think the number one thing we still continue to see is we have to get doctors comfortable. We have to get them to try five or ten patients so they really see the clinical merits of the drug. Because we can see people are not writing five or ten scripts. And if you're going to write five or ten scripts and then tell me they're not covered or whatever excuse you want to make, that's fine. But we've got to get doctors really comfortable with the product. And I think it's been on the market for enough time that there's really no excuse at this point, to not offer it to their patients. In fact, we just had an advisory board on Friday on that, and one of the docs said, I'm embarrassed to offer it to my patients now because they're going to ask me why I didn't offer it 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 a new study we just did called the DOS trial, which really looked at almost a 2x dose rate up front, and we saw really meaningful results there, which will be shared shortly. And they said, wow, this is really convincing me that even though it's a small study that they're seeing what a president can do in real time on CGM, and I think that's important. The data's important, it's meaningful, but we've got to get them adding it to their patient regimen and adding it to choice, and I think that's a big part of our focus here. On the Salesforce expansion, we're looking at a primary care pilot maybe here to launch in Q4 and continue to drive faster growth of our president. There's a lot of things in the works, and we'll share more as we get through Q3.

Yeah, it's like I think specifically on that question of the Salesforce, the group TRX was 14% year-over-year, and we had a favorable cartridge mix, which continues to help our net sales gain. And I kind of put those two together and tied that to the sales force.

And that's important, Daniel, because as you titrate appropriately, it's natural that patients are going to go to 8, 12-unit cartridges from 4-unit cartridges. So there's a benefit there as well.

Great. Appreciate all the callers.

Next question is from Steve Lechman 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?

Yeah, we looked at some of them that come in don't have a prior auth, and some do have a prior auth. 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 them free goods for a limited period of time so that they can show the merits of the drug, get the benefit effect and the safety side effects to make sure they're comfortable with it. And then that gives the doctors the evidence to appeal that to an insurance company and and get that appeal returned. So I think over time, 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, or they don't want to admit a 7.5 A1C is failure in their mind. And so they've been able to tell those patients, hey, you're doing good. You're at a 7.5 for three, four years. And now they switch to a Fresnener at a 6.5. And part of the insurance company is they just want to document that the patient tried and failed the preferred agent. And in the doctor's mind, 7.5 may not be failing, for example. We just gotta get them comfortable documenting certain things for the insurance company's reimbursement and coverage. But that's feedback we get from the hub, and we share that back with the doctor and the patient. And so we do expect, as people learn how to properly prescribe it, and properly do the PAs appropriately, then that's all feedback we get. There's things we can definitely improve What's nice now is we can see, like, on Express Scripts, you've got 85%, 90% approval. On CVS, you have probably 75% approval. So we're able to see, on 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, right? Let's deal with that local market. So that's the insights we're getting right now, which are extremely helpful. Now we can go into the payer and say, hey, we had 200 people come in, and here's what's happening. So hopefully that brings some clarity for you.

Great. Yeah, thanks, Mike. And then sort of if you could provide some more color on the headwind you experienced prior to CMS recently lifting 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 was it just with Medicare?

Yeah, no, specifically CGM, since they issued their CMS coverage policy, and I want to say it was 2020, I could be off, I may have been 2017, but I think it was 2018, where they initiated coverage for the MACs to decide how to properly cover CGM. It specifically stated you needed to be on injectable insulin 6% of times a day. And so we had docs who either were hesitant to prescribe Afreza because they really valued the CGM insight, or we had patients who were on Afreza who really wanted CGM and they were getting rejected by Medicare. So we kind of reached out to Medicare last year. And, you know, 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, you know, through our efforts. And the good news for patients at the end of the day is Dexcom jumped on it, Everett Libre jumped on it, and everyone, including the companies there, as well as the patients, benefited from the change. Because basically they eliminated the need to be on the Jack Spoonz on a stick in your finger. And that just goes to show you, you know, it also opened up a dialogue with CMS, you know, 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 in 60 and 65-year-olds where we got really good results just by switching from injectable insulin to Afrezza. We improved A1C, we improved quality of life, and yet we still see Medicare providers restrict patient access and drive up their costs. We really want CMS to be aware of that because taxpayer dollars and patients shouldn't have to suffer complications from diabetes. So it helped us create that dialogue with CMS and also as well as the payers now that CMS is paying attention and we're lobbying for either a 35-hour-a-month pilot program to include a president or just improved formula coverage for Medicare. And I think we're having some good dialogue and good conversations. So I think over time, Medicare is on its way. We'll 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 have older patients. We have to fix type 1 and type 2, so it's fine. Hopefully that helps you on that.

Okay. Thanks, Mike. And just lastly, Steve, thanks for the breakdown on SG&A. Relative to QQ, how should we be thinking about trends on that line in the back half?

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

I'm not going to be timing, but Steve, the president's piece is going to kick off, and so depending on how quickly that rolls up, you know, could change some of the expense line on R&D with the president. But I think in general, you know, we're being prudent with our cash.

Got it. Great. Thanks, guys.

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

Hey, guys. Good afternoon. 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 written report within the next 30 days, but anecdotally, you know, we're aware of 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. We were waiting for it. So what I'd say is the FDA completed two parts of the inspection. It was the pre-approval inspection for Tyveso, And then they completed every two years probably a GMP inspection. So they came back. The last one was 2018. And so they also did that back-to-back. Overall, we're extremely proud of the work the team did. And during that FDA inspection, there was only one finding, and it was not related to the product, much more related to the equipment qualification, but does not impact our timelines 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 from the result of the on-site inspection.

Okay. Um, okay. And I guess, Mike, did they indicate kind of at that point on the one finding that it was, you know, there are certain designations here, I guess, voluntary action indicated or a mandatory action indicated.

Yeah, I think the, the, um, trying to click, it's one, you know, just to say one finding, you know, there's, there's varying degrees, right? There's a major, there's a warning letter, and then there's minor I put this in the category of 483 minor thing, and I think that's okay. Not everything's perfect. The FDA has to look for things, and that's their job, and our job is to make sure we correct those things as quickly 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 specific. Some of that can be resolved. It's not contingent upon a review process or anything like that. So we're comfortable with where we are. The team did a great job. And, you know, we don't want to go into a lot of details, but it's a minor in the grand scheme of things. And, you know, it was a pretty in-depth inspection. I think the FDA did a wonderful job and a very collaborative dialogue with lots of subject matter experts. So it was very thorough. It was 10 days. So there's a lot there.

Okay. Yeah, I appreciate the color on that. And then just one on the pre-launch preparations here. Obviously, the early days of the United launch for Tybaso into the PHILD population looked really strong. Can you talk about how you're thinking about the pre-launch 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 pre-launch manufacturing plans have evolved?

We work closely with UT on the manufacturing launch plan, the skew mix, the sequencing of that. As you know, it's rather complex. You've seen the Danbury facility is very large. There's multiple parts that feed into this and the packaging parts. So we've got to get that right. And we expect the ILD indication in October along with the pH. So we're prepared from a launch, quantity launch supply to deal with both. And we're close with UT. The good news is they're able to launch ILD start to see if they're on track, and that feeds into our forecast as we go into 2022 and the scale of the facility itself. So I think overall, as I heard Martin say, UT is on track. Their objective is for 2022 and double in Teveso, and 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 in being able to try the drug powder. But yeah, we remain on track with them and the forecast. We're not going to give them specifics, but we'll be able to supply the market adequately.

Okay, great. Thanks, Mike. I appreciate the call.

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

Yeah, thanks for taking the question. Congrats on the progress. Mike, you mentioned the DOBS trial. Just in general terms, what were the goals of the study and kind of the the achievements made in 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 Blue Hail, both on, you know, on AFRESA and, and otherwise, or whatever you, the directions 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 appreciate you dialing in today. The DAS trial, one of the things for the FDA PEACH trial that we really want to make sure we do right is dose patients right off the bat from the first dose they get. And we proposed a specific dosing recommendation to the FDA, which they understood and kind of agreed to. And before we kicked off the PEACH trial, we wanted to test this in adults to get some comfort around the protocol, how it works, and see, you know, it's called hypoglycemia. That's an important safety issue we want to make sure we see. And we were able to successfully dose about 20 patients in two sites and really show that, you know, if you came in and you dosed the Fresa on your normal conversion table according to the PI, what was your glucose control two hours later? And we measured them every 15 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 sugar control is over the next two hours. And there are some good significant findings. It's a small study, but I think 20 patients on a you'll be able to see, you know, some meaningful results. And so it was really meant to give us our comfort into the PEATS protocol before we went live, and these were done under clinical supervision. And so that's how the PEATS study will be run for the first dose, and that will give us the comfort and hopefully the investigators the comfort that this is safe and effective. And so we'll publish that data. Now what we'll do, Bert, is use that going forward for a conversion in our future clinical trials. So we're looking at two other studies right now. and want to use that dose in adults and 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 is this, take a follow-up dose an hour later. We're trying to eliminate that and give you real-time control and take away all the guesswork that happens. So that was the goal, and I think we did a good job on that goal, and we'll share those results probably in a member conference.

That's terrific. And then just generally on Blue Hale.

Yeah, BlueHail, 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 BlueHail, confirm some of the findings of the accuracy of the dose detection. We've also submitted a meeting. We've submitted an inquiry to the FDA on how they want to view this. I think that's just getting granted. We just got feedback recently. And we're looking to, now that the PAI inspection is behind us, how do we start to move BlueHell forward from a Tyveso side as well as a Fresno side? So it will be ready appropriately at times, but what UT would want to use BlueHell and what we would use it for in diabetes are very different, but it will become a more important aspect as we look at 2022 and beyond, building our own app and building our own digital future with BlueHell. We think BlueHell can be a critical component to that business strategy.

Okay, terrific. Looking forward to that. Thank you.

Thank you. Thank you, Bart, Brandon, Daniel, Steve, and Thomas. I appreciate the calls and the questions and your time today. And all of 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 mankind as fire in all cylinders. And I want to thank the mankind team members for all the work and energy they've been putting in this year. We've got four or five more months to close out the year strong. We've got to get through this FDA approval process, and hopefully we see it. success here in Q4 and continue to drive Afreza forward and advance our pipeline. These are very exciting times, and I look forward to sharing more updates. I think I have four investor conferences in September alone, so we'll keep you guys updated on a weekly basis, probably starting in September on how things are progressing. Thank you again, and feel free to reach out to us anytime 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 Castagne, CEO, for closing remarks.

Thank you for closing.

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