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Executives

Hakan Edstrom – President and COO

Matthew Pfeffer – Corporate VP and CFO

Peter Richardson – Corporate VP and Chief Scientific Officer

Alfred Mann – Chairman and CEO

Analysts

Thomas Wie – Piper Jaffray

Michael Tong – Wachovia Capital Markets

Jon LeCroy – Natixis

Thomas Russo – Baird

MannKind Corporation (MNKD) Q2 2008 Earnings Call Transcript August 11, 2008 5:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the MannKind Corporation second quarter 2008 conference call. At this time, all participants are in a listen-only mode. Later instructions will be given for the question-and-answer session. (Operator instructions) As a reminder, this call is being recorded today, August 11, 2008.

Joining us today from MannKind are Chairman and CEO, Alfred Mann; President and COO, Hakan Edstrom; the Chief Financial Officer, Matthew Pfeffer; and the Chief Scientific Officer, Peter Richardson.

I would now like to turn the call over o Hakan Edstrom, President and COO of MannKind Corporation. Please go ahead sir.

Hakan Edstrom

Thank you. Good afternoon and thank you for participating on today’s call. Before we proceed further, please note that comments made during this call will include forwardlooking statements within the meaning of the Federal Securities laws. It is possible that the actual results could differ from those stated expectations. For factors that could cause actual results to differ from expectation, please refer to our reports filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934.

To begin, I want to share with you some thoughts from an email that I recently sent to all the MannKind employees. These are exciting times for all of us at MannKind. We’ve just concluded a very successful pre-NDA meeting with the FDA. We are in the process of winding up are pivotal Phase III clinical studies. We are working furiously to assemble our NDA package and we just received the final critical piece of equipment for our commercial manufacturing facility in Danbury. We are transforming from a precommercial proactive development company to a commercial revenues company whose focus is on successful product introduction. Even though this is not scheduled to happen until 2010, the preparations need to start now.

I think this email captures the mood at MannKind these days. For awhile last spring, given the external environment, there was considerable gloomy and uncertainty. But as we said at that time, Technosphere Insulin is unique and fills a very poorly met need for prandial glucose control. Also, we are a data driven company and we do not make major decisions based on inaccurate perceptions. We are seeing increasing amount of data that support the unique and important characteristics of Technosphere Insulin and Peter has a lot of information to share with you on this call, so I won’t take too much of your time.

However, I want to touch on a couple of dates in September of some significance. The first date is September 16 which I would ask you to hold open while we plan a session that will provide you with an overview of the data that is beginning to emerge from our clinical studies. By that date, we should be in a position to discuss our first completed pivotal study, the 009 and we also want to present data from some smaller studies that have recently become available. The second date is September 17, the next day, when we will celebrate the completion of construction for our new commercial manufacturing facility in Danbury, Connecticut. The day’s events will include a building dedication, a tour of the new facility for invitees including local, state, and federal government officials. The timely delivery and installation of state-of-art treatment and infrastructure is a visible sign of MannKind’s commercial and technical readiness and demonstrates our commitment to bringing a unique and different shape of technology to the market.

The 264,000 square foot facility brings the company’s total investments in plant and equipment at the Danbury site to almost $200 million. The modus operandi of our company now is the assembly of the NDA submission and preparation for commercial manufacturing and that is really all I want to say at this point in time. And before we get to Peter, Matt will present our financial report and after Peter’s presentation, I will make some remarks before we open up the call to your questions. Matt?

Matthew Pfeffer

Thank you, Hakan. For the second quarter of 2008, total operating expenses were $80.9 million compared to $75.4 million for the second quarter of 2007 and $74.1 million for the first quarter of 2008.

R&D expenses were $67.6 million for the second quarter of 2008 compared to $61.5 million for the second quarter of 2007 and $58.4 million for the first quarter of 2008. The increase in research and development expenses as compared to the same period in the prior year was primarily due to increases in manufacturing costs, clinical trial costs, and stock-based compensation expenses.

General and administrative expenses were $13.3 million for the second quarter of 2008 compared to $13.9 million for the second quarter of 2007 and $15.6 million for the first quarter of 2008. The decrease in general and administrative expenses was primarily due to lower professional service fees, partially offset by increases in stock-based compensation expenses and salary-related expenses. For the first six months of 2008, operating expenses totaled $154.9 million compared to $152.7 million for the first half of 2007.

R&D expenses for the first six months were $126 million compared to $125.3 million in 2007, primarily related to increase in manufacturing costs and stock-based compensation expense, partially offset by lower clinical trial costs.

G&A expenses increased by $1.5 million to $28.9 million for the first half of 2008, primarily related to increased stock-based compensation expenses and salary-related expenses, partially offset by lower professional service fees.

The net loss applicable to common shareholders for the second quarter of 2008 was $79.8 million or $0.79 per share compared with a net loss applicable to common stockholders of $72 million or $0.98 per share for the second quarter of 2007. The net loss for the first half of 2008 was $151.2 million or $1.49 per share compared with a net loss of $145.1 million or $1.98 per share for the first half of 2007.

Our cash and cash equivalents as of June 30, 2008 totaled $180.5 million – $269.1 million at March 31, 2008, and $368.3 million at December 31, 2007. Our cash burn during the past four quarters was $79.8 million in Q3 ‘07, $85.7 million in Q4 ’07, $99.2 million in Q1 ‘08, and $88.6 million in Q2 ‘08.

We anticipate our cash burn could increase over the next couple of quarters and would then decline. The fluctuations in the quarterly burn rate over the next few periods will be due in large part to the timing of our expenditures for our clinical trials and for obtaining capital cost for the new Danbury manufacturing facility. With the availability of the $350 million credit facility from Al, we continue to believe we will be able to fund our operations through at least the end of 2009.

I would now like to turn the call over to Peter for an update on our research and development program. Peter.

Peter Richardson

Thank you, Matt. Technosphere Insulin development program continues to progress according to plan. Our goal to submit the NDA around the end of 2008 remains the single most important objective for the organization. We have once again passed several important milestones over the past quarter, considerably increasing our confidence in achieving this goal on time and with a robust package of data for review by the FDA.

One of the most important recent events is to completion of planned pre-NDA meeting with the FDA on July 14. We are encouraged by the agents these written responses to our vision [ph] and comments during the meeting about the proposed NDA. In particular, the agency accepted several chemistry manufacturing and control proposals and gave us positive indications about the overall adequacy of the development program design.

The agency focused on several areas of potential clinical importance, such as the assessments of hypoglycemic episodes in the clinical studies. However, the agency gave us no indication at this stage that they will require additional specific pre-approval studies to assess cardiovascular or cancer risks. We will of course design the usual analysis of the data and adverse events from the comprehensive clinical program we have conducted over the past three years. We have agreed with the agency to conduct a bioequivalent study to compare the version of the inhaler used in clinical studies to the version that is optimized for commercial production. We are presently evaluating several scenarios in order to complete this study in the fall, so that it will be incorporated into the NDA.

As the leader of MannKind’s research and development group, I’m very proud of what we have accomplished with the TI clinical program. In the planned NDA submission, 5,296 subjects will have participated in our clinical program of 42 trials. Of which, 2,936 subjects will have taken Technosphere Insulin. Approximately half of these patients come from US centers and the remainder from countries in Europe and South America. The aggressive timeframes we set ourselves over three years ago have not changed and I am constantly impressed by the quality and depth of the program that we have carried out. Recently, we reached several milestones in this ongoing clinical development program and let me touch on some of those now.

The database has been locked on our first major Phase III trial, study 103. The overall efficacy and safety findings in all these specified measures for [ph] TI clinical profile seen previously. This study was a complex design in 528 patients with type 2 diabetes comparing the withdrawal of the oral hypoglycemics and treatment with TI either alone or in combination with metformin versus maintenance with the combination of a novel insulin secreter [ph] and metformin. All three treatment groups showed statistically and clinically significant reductions in HbA1c levels over the course of the study. At 24 weeks, the TIalone group showed a reduction of 1.84%. The TI plus metformin group showed a reduction of 1.68%. And the oral hypoglycemics group showed reduction of 1.22%. These differences in HbA1c levels did not reach the cream group's statistical significance till 12 or 24 weeks but as anticipated TI alone and the combination with metformin showed clear statistical and clinical superiority in the pre-certified assessment of postprandial glucose control in former meal challenges and this is reflected in the pattern recorded in the self-monitored glucose profile.

(inaudible) the severe hypoglycemia with result [ph] to the de novo treatment groups, with no cases occurring in new patients treated with TI alone or with oral hypoglycemics and 2% of patients using TI and metformin combined. Even with such large reductions in HbA1c overall, no increases in weight were seen. Detailed specimen to pulmonary safety including FPP-1 and GLCO over the 24 weeks of the study showed no difference in pulmonary function between patients inhaling TI and those on oral (inaudible) alone. We are very encouraged by these initial results and will be presenting them in greater detail at an appropriate upcoming scientific meeting.

In addition, the first of our pre-pivotal studies to the 009 achieved last patient, last visit as planned last month and our database lock is schedule for this month. The remaining two feasible studies will complete last patient visit by the first week in September. All patients in the phase B program are now off investigational treatment with Technosphere insulin and have been transferred to their usual care for ongoing follow-up and detailed final pulmonary assessments. The remaining phase I studies have also present [ph] satisfactorily towards completion by the end of August and are on track to have final study reports completed in quarter four.

Integration plans for the summary of the safety and efficacy have been taken to an advanced stage of preparedness and medical writing is also in place to support the challenging schedule for NDA submission. Two new phase 3B studies of Technosphere Insulin have been initiated. Study 117 is an intensive treat to target design in type 1 patients using special senses [ph]. This study requires fasting glucose levels to be brought to near normal, the continuous glucose monitoring to safety.

We also initiated study 134 in patients with mild to moderate obstructive airways disease, aiming to provide additional safety information as per agency guidance. Study 119 with varying carbohydrate intake and fixed dosing to evaluate the need for dose verification, if any, is planned to start soon. We have completed an interim assessment of one of our most interesting experimental studies to date. Study 118 has the joined effects of Technosphere Insulin, Exubera, and the rapidacting insulin analog, insulin lispro on suppression of endogenous or hepatic glucose production and the rate of glucose disappearance following a meal in 18 type 2 patients. The results to date indicate that the rate of hepatic glucose production was eventually suppressed to approximately the same level by all three treatments which indicates that sufficient insulin was administered with all three products to reach maximum suppression. However, the observed nadir of the suppression was earliest with TI at 40 minutes followed by the rapid-acting analog which took twice as longer, 80 minutes and the slowest with Exubera which was over three times slower as 125 minutes. Interestingly, hepatic glucose production remains stressed for hours after dosing in all three groups. Insulin dosing and meal ingestion were accompanied by an increase in the rate of glucose disappearance with only TI showing no lag in effect.

The rank order in the onset of glucose disappearance was consistent with the effect on hepatic glucose reduction. TI was faster than lispro which was faster than Exubera.

Additional dosing expanded TI under the insulin lispro in order to further characterize those effects with the standardized meal as well as during the fasting glucose trial. When completed, this study should provide some important insight into the unique of benefits of TI’s pharmacokinetic profile of ability to mimic physiological early-phase insulin release and/or impact on glucose production by the liver.

The studies required in support of the toxicology assessment of TI has all been completed, including the successful read out [ph] of the histology in the six-month transgenic mouse carcinogenicity study which showed no signal, as did the earlier two-year rat study.

Several potential studies have been rendered unnecessary as a result of the reassuring profile emerging for our impurity analysis, etc., and barring unforeseen events, the toxicology program is now in the reporting phase and will be complete in time for our submission schedule.

Clearly, we are entering a period where the data for TI is evolving every quickly. As Hakan mentioned, we are making plan to present de novo view of the emerging clinical data including study 009 at an open forum in mid-September.

We have also continued to progress our other diabetes program. MKC253 is a novel formulation of Technosphere GLP-1 for pulmonary delivery. Study MKC253 002 was completed as planned in June and data is currently in the preparation for analysis. The results of study 001 was to be presented at a de novo session at the American Diabetes Associated meeting in June. In addition, abstracts and formulation, non-clinical and 001 clinical data have been submitted to the annual meeting of the American Association of Pharmaceutical Scientists and two poster presentations have been accepted for the upcoming meeting at the European Association for the Study of Diabetes.

Our next proposed candidate for development is MKC180 [ph], a novel Technosphere formulation of a natural hormone to control satiety suggesting [ph] obesity using pulmonary delivery. The toxicology studies are underway in order to support a quarter two 2009 CTA filing in Europe. Preclinical animal studies have shown significant reductions in food intake. Our immunotherapy programs also continue to progress satisfactorily. Our trial with MKC1106-PP is now recruiting patients since the high-dose cohort and should be complete by the end of the year. Review of the early low-dose to immune responses confirms that we have seen positive effects from the appropriate T-cell populations. The trial of our second batch [ph] team, MKC1106-MT, a melanoma product has had an excellent start with the low-dose cohort being fully enrolled in the study and the FDA allowing us to start high-dose testing earlier than anticipated. This will allow us to look at response data from the entire Phase I group around the end of the year in order to decide whether this (inaudible) is ready to move on to the Phase II section of the protocol.

Overall, we are very pleased with the ongoing execution of our plans and progress of our pipeline led by Technosphere Insulin and built on a platform of technical excellence. Now, let me hand the microphone over to Al.

Alfred Mann

Thank you, Peter. Over the past few weeks, our stock had begun to recover from the nature [ph] of last spring. Then last Thursday, the stock plunged 22%. It was a bad stock day generally but that could not be the explanation. We then learned of a report that Alfred Mann had died, “Oh my God”, I said to my wife, "What, is it really true?” I assert that the role of death was greatly exaggerated, although it turns out that Alfred Mann had indeed passed away, but it was a different Alfred Mann. I think you can all recognize that Alfred Mann is still alive and is still committed to MannKind and Technosphere Insulin. Of course, we have no idea if that rumor had anything to do with the sell up but in any case MannKind's leadership is very strong, so that my departure would hardly be as catastrophic, except for me.

On the other hand, on the more serious note, I’d like to take a moment to address the growing anxiety about regulatory scrutiny and the aversion to risk and the potential impact on approval of Technosphere Insulin. There is certainly widespread belief that the regulatory pendulum is one very far. Many observers asset much too far, but what drives the process of the FDA is data. The agency does not speculate and the staff pays no attention to such speculation. The FDA will base its decisions on the facts they derive from the extensive data that we have generated. Indeed, I doubt all the speculation about pulmonary insulin generally will affect the regulatory process of TI at all. But let me nevertheless comment on some of the speculations and the approval processes that might apply to Technosphere Insulin.

Among the concerns that some of you have raised is that the agency may require additional pre-approval studies of cardiovascular risk from the TI and even long and extensive studies that would significantly delay approval. Some of you have also cited concerns about the effects on pulmonary functions and the risks of lung cancer. And what will be the impact for TI of the new FDA draft guidelines for diabetes drugs? First, I want to say that the MannKind team has conducted a very robust clinical and preclinical program for TI, far more comprehensive than those conducted by Pfizer, Lilly, or Novo for their pulmonary insulins. In fact, we believe we have more than satisfied the proposed guideline requirements for inhaled insulin. Peter has described for you the impressions of our team about the pre-NDA meeting with the FDA on July 14. We prepared thoroughly for that meeting, submitted a comprehensive summary and a list of questions to guide our submittal. The FDA carefully evaluated our document and responded on July 11 with some comments and additional questions of theirs.

During the meeting, we reviewed the program and the material that will be submitted in the NDA and we resolved our questions and also those of the FDA. Most importantly, as Peter said, the agency focused on matters of clinical significance and also embraced our CMC proposals.

The agency seemed quite pleased with the extent and sophistication of our scientific preclinical and clinical program. As Peter noted, the only additional trial that was indicated to be needed is a very small bioequivalent study to show that the ruggedized commercial version of the inhaler is the equivalent of the clinical version. This trial will be completed in the fall and will be included in our NDA filing. No concerns were expressed by the FDA about cardiovascular or cancer risks and the agency has only asked for a routine cardiovascular and neoplastic risk assessment, as would be customary.

Our very experienced regulatory leader described the meeting as the best of the 18 pre-NDA meetings he had experienced in his career. Of course, all of the guidance from the FDA meeting is based on assuming positive results from our trial, especially the pivotal trial. We are just now completing the data entry for the 009 study and it will still be about three weeks before last patient last visit for both the 102 and 030 trials. With larger trials, even small differences can be statistically significant. While we have already completed such as a substantial body of trial to date, all together we will be submitting 42, all with very consistent results so that we are not expecting any substantive surprises. The FDA seemed comfortable with the comprehensive approach we have taken to our study designs and implementation. Understandably, the FDA can come to different conclusions upon review of the data. However, our team was very pleased with the reception during the meeting and remained confident that our submission will be timely and will support a label that differentiates our product and its unique clinical benefits.

Some of you doubted that a relatively small company like MannKind can complete such as a complex program and bring such a product to market, insisting that only a major pharmaceutical company could pull this of. To be sure, the job is not yet done. Consider with MannKind has already accomplished. One, we have developed a safe and effective therapy to reduce mealtime glucose incursions with an insulin that truly addresses the problem seen with early prandial insulins resulting in unique benefits for patients with diabetes. We have conducted a comprehensive and robust clinical trial program to demonstrate the properties of TI compared against the present gold standards of insulin regimens in both type 1 and type 2 diabetes. Three, our long-term safety study 030 was recognized by the American Association of Respiratory Care for setting new quality standards in the conduct of clinical studies. Four, we have constructed a manufacturing plant under budget and ahead of schedule that has already been equipped with the first of the modular equipment installations. Formal dedication of the facility will be on September 17. Five, we have demonstrated a capability to scale up powder manufacturing from clinical batches to 10 full larger commercial batches with success on the very first batch. Six, we prepared for and held a very successful pre-NDA meeting with the FDA that our very experienced regulatory leadership described as the most positive they had ever experienced. Our five NDA sub-teams are on course in preparing a submission scheduled to be completed about year-end.

What we have demonstrated in our extensive program is that TI is the first and only insulin today that really mimics the kinetics of a healthy pancreas in reacting to meals. With so called rapid-acting insulin, about 60% of the glucose lowering activity occurs after the meal is already digested. Day-long snacking is used to compensate for the lack of synchronization adding to the problems of a person with diabetes.

Interestingly, a key opinion leader recently commented that he had learned from continuous glucose monitoring that the current rapid-acting analogs are not nearly fast enough. Indeed TI will fill a very poorly med need controlling ingested glucose better than it has ever been done before. But to achieve normal glucose control and good A1cs, the person must control fasting glucose levels as well as mealtime glucose. Unfortunately, the risk of hypos is conditioned to medical – on patient communities to manage fasting glucose at very high levels, even dangerous levels and at those high-fasting levels, the prandial benefits of TI for A1c have been masked. We expect that our 117 study that is now underway will help to differentiate TI from other prandial listings, showing superiority in A1c and/or hypoglycemia.

Today, the basal insulin of choice is Lantus and we recommend that drug as a companion to TI. While Lantus is the best basal insulin today, it is not perfect. There are a number of other programs directed to creating an improved basal insulin. MannKind remains vigilant and committed to creating the most natural, most effective, and safest diabetes therapy to control the escalating epidemic. So we will continue to pursue and improve basal insulin. Delivery of insulin through pulmonary inhalation has many advantages. While questions have been raised about potential adverse risks, we have so far seen no ill effects. In all our trials, we have so far seen no pulmonary function impact and only one case of primary lung cancer in a patient after only 622 days and a smoker, surely not related to TI. We have conducted a very extensive scientific preclinical and clinical program to establish the safety and efficacy of TI.

That Exubera failed should have been expected and both Ara and AERx created no advantages compared to rapid analog and with much poor economics. All those problems have been terminated; that should not have been a surprise. TI is truly different and fills a poorly met need. It is the most effective drug for control of prandial glucose incursions. And as for pulmonary delivery of insulin, we are now alone and will surely be so for the next four or five years or more. All (inaudible) have created a great opportunity for MannKind.

I do not minimize the obstacles raised by unfounded perceptions of potential problems. Yet as I noted in the last quarterly call, I faced a similar problem with MiniMed. In the early days of insulin pump therapy, MiniMed was selling insulin pumps along with Lilly, Novo, and Baxter. When a very serious problem arose in the trial of an insulin pump from a new entrant, Wall Street projected doom. All the others quit, leaving MiniMed alone for about five years. And we succeeded; MiniMed stock price rose from $1.75 to a split-adjusted $192 when it was acquired by Medtronic. Net sales from Medtronic diabetes last year were over $1 billion and it is the fastest growing business unit in Medtronic.

We do not belittle the enormous task ahead but our team has demonstrated that it can achieve even where others have failed. All that said, MannKind continues towards the goal of having TI approved by early 2010. And as to specific launch plans, we will resume partnership discussion once we have evaluated the data from the pivotal trial and we are additionally studying a variety of launch strategies.

Given the enormity of the opportunity and the task for TI, people in the investment community have not yet focused on a rather robust pipeline of other products. All over this early stage, we have created a Technosphere GLP-1 formulation and have conducted two Phase 1 trials that have shown glucose lowering without any of the rather significant side effects of other GLP products. We have formulated an anti-obesity peptide that has shown efficacy in animal trials and we have several promising cancer products with two in Phase 1, two clinical trials where we are seeing excellent immune responses. While we certainly face challenges, MannKind has demonstrated that it can perform at the level of a major pharmaceutical company. We look forward to completion of the other remaining pivotal trials and filing of our NDA. There are still risks but our team has demonstrated over and over again that we can manage risk and deliver on major objectives.

Now I would like to finish this and ask for you to submit any questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Our first question today comes from Thomas Wie with Piper Jaffray. Sir, you may ask your question.

Thomas Wie – Piper Jaffray

Thanks very much. I want to ask about – a little bit about the pre-NDA meeting, when you sat down with the FDA, did you talk about any post-approval commitments or any plans for post-approval studies that you will need to submit along with the NDA?

Peter Richardson

No. The discussion with the agency centered around what would be in the package. We didn’t address future risk management plans at that meeting, as would be normal. So as far as we are concerned, the discussion centered around what we had already completed and that comprehensive package that we are about to submit too.

Thomas Wie – Piper Jaffray

Did you have a very specific discussion with them around Exubera and the lung cancer signal that had been seen? What exactly was their commentary in relation to that?

Peter Richardson

There was no discussion around Exubera with us.

Thomas Wie – Piper Jaffray

Okay. And then just lastly, I know a lot of the focus is right now on the clinical data and the regulatory risks with the drug. I wanted to find out what else you have done in terms of market research around. The commercial adoption and overcoming the perception correct or incorrect that inhaled insulins are associated with lung cancer risk. What do you think is the right strategy to convince doctors that the drug is safe?

Peter Richardson

First let me say that there is no lung cancer risk even with Exubera for that matter, but certainly not with us.

Hakan Edstrom

What we have done, we have met in actually qualitative market research and in meetings with endocrinologists, with PCPs, and also with major managed care managers in terms of addressing what is the perception and I’m actually encouraged by the feedback that we have seen and heard from these people in regards to the fact that again, what we have seen are only the impact in previous long-term smokers and that the reception is certainly not one of panic but one of understanding that, yes, if you do include these types of patients in your studies and the site of the studies, you would eventually certainly run into these types of events. But none of them, I would say is of the opinion that this is caused by say the Exubera or any other products because the timing is such that you would not have seen that. They would not have been on the medication long enough to be able to draw any type of conclusions on the carcinogenicity of these products.

Peter Richardson

Remember that we had completed two extensive carcinogenicity studies where we’ve actually studied tissue and histology; that is a far more sensitive way to detect any carcinogenicity. We have seen nothing.

Hakan Edstrom

And also what I want to say is that we actually did follow up with a quantitative study in, I think, over 400 PCPs, endocrinologists and GPs and the results are still very comforting in regards to intention to prescribe the product for the appropriate patients.

Thomas Wie – Piper Jaffray

And so just to paraphrase here, your understanding from those conversations that you’ve had, those market research discussions, is that if you present a data package that does not contain a lung cancer signal that you are under – your belief is that the endocrinologists, the GP community is going to be comfortable with the safety profile?

Hakan Edstrom

I think that is correct in terms of an understanding that is very clear when we got that there is differentiation from Exubera and Technosphere Insulin in the terms of some of the very basics. We've got a series of studies which where ongoing looking at the (inaudible) time in lung and looking to fully explain potential differences and where it’s got potential signal, but indeed Technosphere Insulin is indeed different. And I think you see that in terms of the pharmacokinetics. You see that to date in terms of the lack of other pulmonary signals and in terms of what we will then do in terms of moving on with our risk management plan is something that I look forward to in terms of attesting that this is an important time of establishing the real difference of Technosphere Insulin and the Technosphere platform in the way that it delivers peptide to the lungs.

Thomas Wie – Piper Jaffray

All right. I will get back in the queue.

Alfred Mann

In five trials now, we have seen absolutely no impact on pulmonary function.

Thomas Wie – Piper Jaffray

Thank you.

Operator

Our next question comes from Michael Tong with Wachovia Capital Market. You may ask your question.

Michael Tong – Wachovia Capital Market

Hi good afternoon, just two quick ones. The first one is for – actually the first one has to do with cash flow and cash burn. I thought that in previous commentary, you’ve talked about cash burn peaking around mid-'08 and now I am hearing that it may go up in a short term, so just trying to understand what has changed in terms of your thought process regarding cash burn?

Matthew Pfeffer

It has not really changed. It is really more a matter of timing. I think the actual expenditures or the commitments of cash will have peaked by then. However, any good cash manager will put off paying the bills as long as possible and our payment of the cash out the door is trailing a bit of our commitment, so we expect that some of the costs of the plant and the phase III clinical trials have yet to be paid for, so it is going to continue to stay level or rise even a little bit over the next couple of quarters but that will be over by the end of the year

Alfred Mann

But not significantly.

Michael Tong – Wachovia Capital Markets

Okay. And then secondly, I thought I heard Peter say in study 103 that there was no change in pulmonary function in the TI group and the metformin group monotherapy. Is there any change when TI combines with metformin?

Peter Richardson

No. There is no change in any of the groups.

Michael Tong – Wachovia Capital Markets

Okay, great. Thank you.

Operator

Thank you. Our next question comes from Jon LeCroy with Natixis. You may ask your question.

Jon LeCroy – Natixis

Thanks for taking my call. I just had a question – actually I have a couple, and then I’ll start with one. The bioequivalent study that you’re doing, when would you expect that to wrap up?

Peter Richardson

It is going to be tight around the bioequivalent study and we haven’t started [ph] looking at it exactly on how to combat that. We anticipate that we will be able to complete it in quarter four.

Jon LeCroy – Natixis

And so, are you still on track for a fourth quarter filing or has that been pushed lately into 2009?

Peter Richardson

We haven’t pushed it, and we haven’t change that; our organization it still gearing for that fourth quarter filing.

Jon LeCroy – Natixis

Okay. And then on the cancer because I think last time you’ve said there were two cases, one may have been metastatic, and I was just wondering are those or at least the lung cancer, is that considered drug related or is that decision not made by the investigator?

Peter Richardson

In terms of the investigator, I’m sorry I can’t remember the exact causology assessment but I believe that the cancer was not related.

Jon LeCroy – Natixis

Okay. And then finally on the 118 obesity molecule, is that Vepsin [ph] or is that some other hormone?

Peter Richardson

It is a peptide.

Jon LeCroy – Natixis

Okay. But you are not going release what peptide.

Peter Richardson

Yes.

Jon LeCroy – Natixis

Okay. Thanks.

Operator

Our next question comes from Thomas Russo with Baird. You may ask your question.

Thomas Russo – Baird

Hi, thanks for taking the question. I just wanted to be clear, was the transgenic mouse histology data and the one instance of cancer available and part of the FDA meeting?

Alfred Mann

Certainly, the clinical data was fully available and the agency has been fully informed of those through the ongoing study process and it’s well aware of those cases. Actually, the read outs of the histology data came just about the time that we were with the agency that was chance to briefly update them beforehand that they had a short period of time to hear the reassuring data that we have seen.

Thomas Russo – Baird

Okay. And then on the bioequivalent study, can you give any additional color, I know with some companies in this space that has become an important issue and just in terms of how you might be able to satisfy that, and what some of the options that are in play?

Peter Richardson

Yes, that was one of the major things that we wanted to discuss with the agency because in terms, we had questions on what the design should look like. I think we were successful in achieving, because the changes in the design are – they make no difference to the flow path at all. They were really quite cosmetic, superficial changes which were about the ruggedness of the device, etc., and we have been very careful not to change that. We need to discuss at length with the agency, since they could fully understand that the two devices technically perform exactly the same. So that allowed us to do a much simpler bioequivalent design than we may have feared and that is under review and we will be conducting that as I said fourth quarter.

Thomas Russo – Baird

Okay, and then last question. I know the facility, you guys are taking a modular approach which makes perfect sense and I was wondering if you could comment at all about what capacity you will have available at the time of launch?

Alfred Mann

We have said in the past that at launch, we would have the capability of treating, assuming a person uses three capsules a day, about 400,000 people.

Thomas Russo – Baird

Okay, thank you very much.

Operator

(Operator instructions) Thomas Wie with Piper Jaffray, you may ask your question.

Thomas Wie – Piper Jaffray

Thanks for taking the follow-up. In the 103 study, can you share with us any information on weight gain or differences between the arms on weight gain?

Alfred Mann

Yes. As I said, I think the surprising thing from our point of view is that really despite significant falls in HbA1c again, we again saw weight gain in this group and that they had minimal severe hypoglycemia. So it’s very consistent what we have seen previously. No expectations. The weight profile and MTI because of this ultra rapid onset and short tail leads to a difference in terms of the effect on weight.

Thomas Wie – Piper Jaffray

Thank you.

Operator

At this time, we have no further questions.

Alfred Mann

Thank you for joining us this afternoon. We are very pleased with our progress and we appreciate that we have a rare opportunity in the next few years. We thank our loyal stockholders for your patience and your support. We also appreciate those others who recognize the significance of TI and the need for such a super-fast insulin in minimizing the risk of serious complications for people suffering from the diabetes epidemic. Thank you all and we will see you again, some of you hopefully on September 16 and 17 and then on a quarterly meeting. Thank you all for joining us today.

Operator

Thank you. This does conclude today’s conference. You may disconnect at this time.

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Source: MannKind Corporation Q2 2008 Earnings Call Transcript
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