Post by liane on Dec 4, 2013 18:14:31 GMT -5
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MannKind's Management Presents at The Piper Jaffray 25th Annual Healthcare Conference (Transcript)
Dec 4 2013, 13:48
Executives
Matt Pfeffer - Chief Financial Officer
Hakan Edstrom - President and COO
Analysts
Josh Schimmer - Piper Jaffray
MannKind Corp. (MNKD) The Piper Jaffray 25th Annual Healthcare Conference Transcript December 4, 2013 10:00 AM ET
Josh Schimmer - Piper Jaffray
We are all set. Okay. Good morning, everyone. Thanks for joining. My name is Josh Schimmer. I am one of the new Senior Biotech Analysts at Piper Jaffray. I am pleased to joining a terrific team and be able to host our conference today.
I am quite happy as well to introduce MannKind. Before I begin, I must draw your attention to certain disclosures regarding the relationship between Piper Jaffray and MannKind posted in the back of the room and at the registration desk. And so, with that, please welcome Matt Pfeffer, the [Chief Executive Officer] (sic) Chief Financial Officer; and Hakan Edstrom, President and Chief Operating Officer.
MannKind recently resubmitted the NDA application for AFREZZA, the inhaled insulin program after completing two new Phase 3 studies with the Dreamboat inhaler, issued date is now April 15th, so an exciting 2014 ahead.
And maybe we can start, Matt, if you can give us a little bit of background and put this application into context and how these new trials address the concerns that the FDA had with the original application?
Matt Pfeffer - Chief Financial Officer
I’ll try and I’ll ask Hakan to join me in most of the decision. By the way thank you for promotion, I’m actually Chief Financial Officer.
Josh Schimmer - Piper Jaffray
I am sorry.
Matt Pfeffer - Chief Financial Officer
All right.
Josh Schimmer - Piper Jaffray
I’d moved you to CEO, it just a matter of time. I was just kidding, just kidding.
Matt Pfeffer - Chief Financial Officer
I hope Al is not listening to this.
Josh Schimmer - Piper Jaffray
Al, yeah, yeah, Al knows that well.
Matt Pfeffer - Chief Financial Officer
So, yeah, good question. As most of you probably know, we have submitted to the FDA before and most recent submission would be for this one. They did ask us to two new trials because we have changed the inhalation device to a new much better device in many ways.
We submitted that device with a lot of data supporting that it was bioequivalent to the previous device. That said, at the end of the day, the FDA decided they would like to see some studies using this device in long-term efficacy studies and asked for two new studies to be done, one in type 1 and one in type 2 with this impact, exactly what we did.
We did invest a lot of time which equates to a lot of money. Meeting with the FDA to get their full agreement on what our approach was and help and review the protocols and so forth in multiple meetings with them, during the course of that same year we got the response letter before beginning the trail.
The trails were successful. They hit the primary endpoints very nicely. And so with that data we resubmitted to the FDA. That filing has been accepted now and we have a PDUFA date, as you mentioned of April 15th. So we are pretty confident as much as is ever possible to be as suppose with the FDA but we’ve given them what they would like and we are moving forward.
Josh Schimmer - Piper Jaffray
Okay. So, I guess, though, maybe just give us a little bit of more context on the dialogue with the FDA, because you did have one resubmission that that didn’t run clinical trails and so, when did you really have the opportunity to sit down and truly appreciate what the agencies concerns were and then get the confident that these are right trails to satisfy them?
Matt Pfeffer - Chief Financial Officer
Well, really, following the second year, we internally decided that we would not proceed until we felt that we complete down [still what] the FDA was looking for and they knew what we were doing. So, I, actually participated in a couple of the meetings with the FDA in regards to what we are discussing even the trail design.
And actually the type 2 design that we had was upon suggested by the FDA because initially we came in with two [base bone trials] both in type 1 and type 2 patients. And the statement from one of the, the members that they were, why are you doing kind of the same type of study in both types, saying, once you got approved for type 1s in [base bones] that wasn’t applicable for type 2.
The reason we did that originally was the fact we felt that FDA might be a little bit conservative in regards to who patients would be included in the clinical trials for a new insulation type product. But upon the discussions with them, we came up with the placebo-controlled study for type 2 patients.
So actually the statement before we started the trial, we heard them was that next time we expect to see you in the pre-submission meeting and we felt that going forward, and we still have a comfort factor that we will address what they were looking for and the studies certainly did meet that probably end points.
Josh Schimmer - Piper Jaffray
All right. Are you expecting an FDA advisory committee review and if so what might topics of that review be?
Matt Pfeffer - Chief Financial Officer
We don’t know at this point in time. Probably earliest, we would know would be in conjunction with the 74-day letter. We know that the application has been accepted by the FDA and the 74-day letter is somewhere in between December 28 and the 30th of this month. So again, it has not being addressed by the FDA. There has been a change in the leadership from Mary Parks to Dr. Guettier, whether that will change the projection for a potential advisory board or not, we don’t know at this point in time.
Josh Schimmer - Piper Jaffray
When does that leadership change?
Matt Pfeffer - Chief Financial Officer
Mary Parks was promoted probably back in the August-September timeframe. I don’t remember exactly. We know that she is still somewhat enrolled with application but we know that the leadership role has been taken over.
Josh Schimmer - Piper Jaffray
Maybe you can help us understand where AFREZZA peaked in, because there is an existing insulin treatment paradigm with long-acting and short-acting and now you are coming in with two different kinds of messages right at the different root of delivery and it’s a different PK profile. And so how does this work its way into the existing treatment paradigm?
Matt Pfeffer - Chief Financial Officer
Right. There is probably three different ways you could see this would benefit to patients. Certainly, we have today over I think 3 million patients there are on prandial insulins in conjunction with -- you also did a long-acting insulin then if you want to really enhance compliances simplify the procedure at meal-time avoiding injections that certainly run group of patients that would benefits from this product.
The other one is what’s called insulin intensification. Maybe you are on a long-acting insulin alone and you see it progressing over time and you need to add another product to that. I mean, this would be at a time for AFREZZA at meal-time.
And thirdly, it’s what we call the insulin naïve patients, i.e. type 2 patients on the glycemic drugs that again, needs intensification of their therapy and that’s really what we did demonstrate in the Phase 3 trial that we just concluded with superiority in terms of the A1C outcome.
Josh Schimmer - Piper Jaffray
And, so I guess in terms of moving from injectable to inhaled, if you can give us a description of the Dreamboat and how easy is it to use, how easy it is to load and I know it’s a pretty nifty elegant device?
Matt Pfeffer - Chief Financial Officer
Well, I’m sure I bought one out in my bag, but I met some people on the website, it is very simple. And I think the key thing here is that in our minds with a compliance. And we know there is a large body of people out there, frankly -- probably ought to be on insulin that are not because they are resistant to taking that leap into an injectable products.
It has stigma associated with this, kind of like you really have a serious disease now when you get that stage. And people don’t want to do it, giving them something that sort of whistle-sized and you can easily hide it in the palm of your hand, if you wish to or have large hands like me, you can.
It’s relatively small. It’s quite easy to use. I generally have one in my pocket but I don’t today. So it’s easy to carry around with you. It isn’t large that I have to carry this upper case or anything like that. I usually check my pockets. I’m not sure which one it’s in. And this is just little, very tiny cartridges, carrying the pattern and then you change those, one for each meal probably it depends on how much insulin you need. Now, if you can quote me next question.
Josh Schimmer - Piper Jaffray
And maybe the start time to load, unload, dispose, it maybe just kind of a mechanics?
Matt Pfeffer - Chief Financial Officer
You could easily do it within a minute. Actually, we’ve done qualitative discoveries where we’ve had, say, diabetes patient where we actually replaced the inhaler and the cartridges in the middle of the table as they come into the room. And within a couple of minutes, they can figure out without any guidance, how to use the product, how to know the product.
So it’s very simple and that’s also why it’s been very attractive to particularly GPs because they usually don’t have the diabetes education. They don’t have the infrastructure to support the patients with an intensive educational programs. So from that point of view, it’s -- patient like it because you could sit down to a meal, you can take it inhalation. Nobody really knew what you did because you could do it very, very conspicuously. You don’t have to look for restroom or something like that in an environment where you can have more privacy.
Josh Schimmer - Piper Jaffray
Is this -- to what extent, is this a GP market versus an endocrine specialist market. And I guess, in diabetes, the gap between those two practices has always seemed challenging to bridge. So how do you -- when you start with the endocrine group and move into GPs, do you find a partner…?
Matt Pfeffer - Chief Financial Officer
Usually, what you see is that GPs, I mean are following what’s going in the marketplace and certainly from that point of view, we think that having kind of the endocrine and the specialist understand the product, kind of being dosed the therapy itself is an important part and certainly on the introduction marked on the product.
And we also very much see the GPs being enthusiastic about this product from the point of view the fact that with significantly less risk of hypoglycemic events for the patients, weight neutrality and mostly all the time initially even weight loss and good AC control.
It is an opportunity for the GPs to be paying the patient inside that practice because normally otherwise as the patient transition from say oral drugs into injectable drugs and insulin, GP tend to lose those patient to the specialist. This is an opportunity for them to repaying the patient to actually repaying the revenue from the patients and that’s where the simplicity of our system is very attractive.
Josh Schimmer - Piper Jaffray
And Matt, you had mentioned that your plan is to find a commercial partner, would there be a scenario in which you undertake a limited focus when the crew launch? Are you not even thinking of that pack because you are also constant that you have a very strong partner always with you?
Matt Pfeffer - Chief Financial Officer
Yeah. We really thinking we are going to have a partner and much more pretty confident that we will ultimately have that timings open to question, but ultimately we think we will be successful on getting the right partner.
Josh Schimmer - Piper Jaffray
What is the gaining steps to identifying the partners and as a you recall that there were some partnership discussions going on a couple of years ago and maybe you can give us some color on what the partners were looking to see and incrementally then what the interest level was that point and where you are in terms of re-engaging and re-sparking that interest?
Matt Pfeffer - Chief Financial Officer
We are very much involved in the process right now and we have retained an advisor (inaudible) with the process to manage it more effectively. So it’s very active and underway. I am not going to talk about too much detail there because it gets a little bit risky to do so. But we are managing the process and moving forward.
I characterize it as similar people are interested before [there], but there are some new people that were not as interested before that are more interested now. And I think we attribute that mostly to the potentially much greater label that we have with this earlier type 2 indication coming out of those studies we just did. I think that maybe part of what’s behind that. So its kind of spark some new interest though.
Josh Schimmer - Piper Jaffray
Are there certain aspects of the label that partners are particularly interested in and focused on, is the label go into expectation going to be gating step for the partner because I like, guess what, would one might thing, could inform the ultimate commercial opportunity?
Matt Pfeffer - Chief Financial Officer
I haven’t heard that’s the kind of issue yet. So I have to say, I don’t know of a specific issue they are concerned about. I know that we talked about pretty broadly that when we embarked upon these studies with the kind of different direction in the type 2 market that we took with the study in early stage potentially insulin naïve patients, so first in front-end, that potentially opened the label to potentially the entire diabetes market.
So that was pretty exciting to us and I think it was likely exciting to potential partners as well. That said, nobody has raised particular concern label will be driven by the studies in this stage are pretty well known at this point.
Josh Schimmer - Piper Jaffray
And how do we think about how one might construct a partnership because targeting the primary care market, obviously significant upfront investments just from the infrastructure, the commercial, I mean some companies already have some of that built up? But as you structure a collaboration, does that kind of push economics to MannKind more towards the backend and once these franchises become profitable or…
Matt Pfeffer - Chief Financial Officer
Not necessarily, but I think philosophically that would likely be our preference. I think we found from past experience taking big upfront payments tend to cost you a lot at the backend, if you push for that. And I think we are very confident the ultimate market success of the market, so we would like to take a bigger piece of that as we can once that finally occurs.
That said, I mean, you would expect some sort of an upfront, we have invested pretty significant monies into those products at this point, roughly $2 billion is going to start if you think of, so we would like to see something there.
Josh Schimmer - Piper Jaffray
You might not get a $2 billion upfront?
Matt Pfeffer - Chief Financial Officer
No. I would assume, no, we are really happy to take however longer period of time. But we do expect to get significant return from this investment and a good portion of money was put in place, Al, personally, so I know he is interested in that as well.
Josh Schimmer - Piper Jaffray
Okay. Okay.
Matt Pfeffer - Chief Financial Officer
So the elements of the deal are likely to be fairly traditional with a couple of twist, so I am sure you will see something probably upfront, but I think the real profitability that the deal is going to come from markets to test the products and most likely a royalty arrangement and so they are easier -- easiest to do but not necessarily.
You will see some other things. Now remember we will manufacture these ourselves, so you would anticipate some sort of transfer pricing in margin on manufacturing as well. So you’ll see different elements and how they might all come out at the end of the day, it’s too difficult to predict at this point.
Josh Schimmer - Piper Jaffray
How do we think about margins and specifically on the manufacturing side, I thought you had inventory built up or API built up, I am not sure where it is on the balance sheet or?
Matt Pfeffer - Chief Financial Officer
It is on the balance sheet. So, having told finally if that would by why? Anything related to inventory or raw materials is expensed at this point and that’s really typical practice for a product prior to approval. So, it is on the balance sheet but we do we have -- you are right, we have significant amounts of API, which is the insulin somewhere in excess of 5 metric tons which is quite a lot.
So that’s a good thing. It should help the cost of goods little bit, because that is the single largest individual component of the product but there are obviously a lot of others. And we haven’t really just goes to right around pricing of margins, probably because pricing ultimately, as they are known at this point we anticipate, as our standard we would price similarly to pent delivered rapid-acting analogs.
Josh Schimmer - Piper Jaffray
Is that per unit or per…?
Matt Pfeffer - Chief Financial Officer
No, it seems to be priced on our, kind of a per day use and the total cost. Okay, so it’s not per unit. So, we look to essentially have the cost the same as existing rapid-acting analogs in [Panfor]. So that’s how we would anticipate pricing. But of course, the commercial partner, once that person or that company has identified, we will have a lot to say about that because we anticipate. So that will drive the margins to some extent. Beyond that we haven’t said too much.
Obviously, it does take us a little more insulin to have the same effects, not as much as prior examples by dramatic difference but we are getting better. But we are not perfect by any means in that sense. So, yes, the margins are going to be good and better than I think most people are expecting. I think the close that they would come disclosing where our margins are, I’d say that’s probably not the margins you would expect from our pill, but it's not the margins you would expect from the device either or kind of a drug-device combination. And I usually say, we are more like a drug than a device.
Josh Schimmer - Piper Jaffray
I guess, when we layer in our royalty obligation, how do you still make it attractive for a partner to really invest, heavily in this, I mean can you use your inventory? I mean, is the expectation for new returns for the inventory or can you give the inventory in way an initial incentive in return for the royalty to make those margins attractive early on?
Matt Pfeffer - Chief Financial Officer
I think the margins will be very attractive for all of us, and I think we have debated to support that. Like, as you would expect for any manufactured product, the cost goes down as the manufacturing quantities go up. So, I think having that inventory essentially at no cost in the early days will help offset the higher cost of manufacturing and ramp up. So, I think that will aid us and keep it more constantly at profitability for us as opposed to something we necessarily pass on to the partner of the world to see it. I mean, it will all be negotiated at the end of the day.
Josh Schimmer - Piper Jaffray
And we will just pause there and see if anyone's got some questions.
Question-and-Answer Session
Unidentified Analyst
I have a quick question, how many injections does a typical patient takes day and after the products approved, how many will they still take or not take?
Matt Pfeffer - Chief Financial Officer
Normally, what you would expect today is that the patient takes either one or two injections of long-acting. And with the prandial insulins today, there would be one per meal, so there could be in between four and five injections a day. With our products, you could then basically eliminate certainly three injections in conjunction with the meal. You may have one long-acting or possibly two injections of the long-acting insulin.
Unidentified Analyst
In terms of the inventory, is that really (inaudible)
Matt Pfeffer - Chief Financial Officer
No, no, that’s what we talked about earlier so. No, we do have somewhere in north of 5 metric tons of insulin. This is the raw regular human insulin. It’s kept 20 below zero in dry powder form. So that’s the active ingredient of the product. So it’s one of the raw materials. It’s now worth a billion dollars. The replacement cost would be probably several hundred million now. It’s not trivial.
Unidentified Analyst
Okay. And the other thing is that regarding the pricing, what is the (inaudible)
Matt Pfeffer - Chief Financial Officer
I don’t remember all of the date, if I recall on the monthly basis and it’s usually about a 20% premium over just injectable insulin. And it’s in the $360 to $370 a range a month in cost. And then of course, you have a different type of discounts levels on that base book, who you’re dealing with from a managed care over essentially.
Unidentified Analyst
(Inaudible)
Matt Pfeffer - Chief Financial Officer
Actually it’s less than that when it comes to it. I would say, at the time we get out, you probably would assume after discount that somewhere in the, let’s say -- I would say, $6.50 to $7 a day.
Josh Schimmer - Piper Jaffray
I got questions for investors, who kind of say, if you look at the type 1 data, the short acting subcutaneous insulin, may be how the better hemoglobin A1C benefit than AFREZZA. It certainly didn’t stop Bydureon from getting approved when they were strong as we’re glue tied in one of their studies, but maybe you can talk a little bit about that difference in hemoglobin A1C. Is it a reflection of the PK profiles, why do we see it and is it something that you see as a commercial obstacle or even a regulatory obstacle?
Matt Pfeffer - Chief Financial Officer
Well, remember the difference is relatively minor. I mean, it’s within the balance of non-inferiority as established by FDA with us, in corporation with the FDA. And that was the most recent study and other studies. We have at least one or two with me. Remember (inaudible) we were numerically superior. So I can go both ways. But I think -- I don’t think it’s going to be an obstacle because there’s a lot -- from a regulatory standpoint, there’s a lot of history there and precedence that would show that and discussions with the FDA that would support that as well.
From market standpoint, if I were selling rapid acting analog, I would probably try to use that to my advantage in detailing the product. But at the end of the day, I think, the other benefits given the relatively small difference we’re talking about are coupled with the benefits in hypoglycemia, weight gain things like that. I think -- and just the form factor and ease of use and likely better compliance. I think we’re all aided in the market a great deal and will easily overcome that.
That said, we think we know what’s causing that difference. We probably don’t think it thus. I think our (inaudible) profile does very nicely mimic naturally in physiology in healthy person which is good in most respects but we do see fasting levels rising through out the day because frankly it’s hard to control your insulin properly and to some extent that key masked by lot of persistence of the existing rapid acting analog.
We don’t have that which we think is an advantage, which is one of the advantages that leads to the hypoglycemic benefit but it’s an issue how to address impact. So it’s going to take not just while what we’re used to. This being a fundamentally different insulin, different than it was used to it at least. So to use it properly, it’s going to take little more training I think. But along the way, I think the patients were benefiting at each step. So I think it will ultimately be successful in the market.
Josh Schimmer - Piper Jaffray
And maybe just a last question on your cost structure, how much of the cost that you are incurring now will be offloaded once you have AFREZZA on the market and a commercial partner?
Matt Pfeffer - Chief Financial Officer
Yeah, I’m glad you asked that question because I guess -- maybe just because I’m basically a qualified accountant, I’m often surprised by these things. But we are spending a lot of money and people moderately think down, they show these expense -- they hold these expenses continuing. They don’t fully appreciate that.
Most of the cost today are manufacturing organization and gearing up for commercial manufacturing. Ultimately once we have a commercial product being sold, those cost will -- they are not going to away with those, certainly be transferred into inventory or cost of goods. So the markets appear in the same way.
[But same] token even some of the remaining costs, we would expect the likely partner agreement with they would assume a lot of the cost for ongoing studies and those sorts of things. So I think it’s going to dramatically change our cost structure.
Josh Schimmer - Piper Jaffray
We’re very excited for April 15 and there are few guys and best of luck and hope that you will comeback with Al next year to join us at the conference. Thank you so much
Matt Pfeffer - Chief Financial Officer
Thank you.
Josh Schimmer - Piper Jaffray
And thank you every one for joining.
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Matt Pfeffer - Chief Financial Officer
Hakan Edstrom - President and COO
Analysts
Josh Schimmer - Piper Jaffray
MannKind Corp. (MNKD) The Piper Jaffray 25th Annual Healthcare Conference Transcript December 4, 2013 10:00 AM ET
Josh Schimmer - Piper Jaffray
We are all set. Okay. Good morning, everyone. Thanks for joining. My name is Josh Schimmer. I am one of the new Senior Biotech Analysts at Piper Jaffray. I am pleased to joining a terrific team and be able to host our conference today.
I am quite happy as well to introduce MannKind. Before I begin, I must draw your attention to certain disclosures regarding the relationship between Piper Jaffray and MannKind posted in the back of the room and at the registration desk. And so, with that, please welcome Matt Pfeffer, the [Chief Executive Officer] (sic) Chief Financial Officer; and Hakan Edstrom, President and Chief Operating Officer.
MannKind recently resubmitted the NDA application for AFREZZA, the inhaled insulin program after completing two new Phase 3 studies with the Dreamboat inhaler, issued date is now April 15th, so an exciting 2014 ahead.
And maybe we can start, Matt, if you can give us a little bit of background and put this application into context and how these new trials address the concerns that the FDA had with the original application?
Matt Pfeffer - Chief Financial Officer
I’ll try and I’ll ask Hakan to join me in most of the decision. By the way thank you for promotion, I’m actually Chief Financial Officer.
Josh Schimmer - Piper Jaffray
I am sorry.
Matt Pfeffer - Chief Financial Officer
All right.
Josh Schimmer - Piper Jaffray
I’d moved you to CEO, it just a matter of time. I was just kidding, just kidding.
Matt Pfeffer - Chief Financial Officer
I hope Al is not listening to this.
Josh Schimmer - Piper Jaffray
Al, yeah, yeah, Al knows that well.
Matt Pfeffer - Chief Financial Officer
So, yeah, good question. As most of you probably know, we have submitted to the FDA before and most recent submission would be for this one. They did ask us to two new trials because we have changed the inhalation device to a new much better device in many ways.
We submitted that device with a lot of data supporting that it was bioequivalent to the previous device. That said, at the end of the day, the FDA decided they would like to see some studies using this device in long-term efficacy studies and asked for two new studies to be done, one in type 1 and one in type 2 with this impact, exactly what we did.
We did invest a lot of time which equates to a lot of money. Meeting with the FDA to get their full agreement on what our approach was and help and review the protocols and so forth in multiple meetings with them, during the course of that same year we got the response letter before beginning the trail.
The trails were successful. They hit the primary endpoints very nicely. And so with that data we resubmitted to the FDA. That filing has been accepted now and we have a PDUFA date, as you mentioned of April 15th. So we are pretty confident as much as is ever possible to be as suppose with the FDA but we’ve given them what they would like and we are moving forward.
Josh Schimmer - Piper Jaffray
Okay. So, I guess, though, maybe just give us a little bit of more context on the dialogue with the FDA, because you did have one resubmission that that didn’t run clinical trails and so, when did you really have the opportunity to sit down and truly appreciate what the agencies concerns were and then get the confident that these are right trails to satisfy them?
Matt Pfeffer - Chief Financial Officer
Well, really, following the second year, we internally decided that we would not proceed until we felt that we complete down [still what] the FDA was looking for and they knew what we were doing. So, I, actually participated in a couple of the meetings with the FDA in regards to what we are discussing even the trail design.
And actually the type 2 design that we had was upon suggested by the FDA because initially we came in with two [base bone trials] both in type 1 and type 2 patients. And the statement from one of the, the members that they were, why are you doing kind of the same type of study in both types, saying, once you got approved for type 1s in [base bones] that wasn’t applicable for type 2.
The reason we did that originally was the fact we felt that FDA might be a little bit conservative in regards to who patients would be included in the clinical trials for a new insulation type product. But upon the discussions with them, we came up with the placebo-controlled study for type 2 patients.
So actually the statement before we started the trial, we heard them was that next time we expect to see you in the pre-submission meeting and we felt that going forward, and we still have a comfort factor that we will address what they were looking for and the studies certainly did meet that probably end points.
Josh Schimmer - Piper Jaffray
All right. Are you expecting an FDA advisory committee review and if so what might topics of that review be?
Matt Pfeffer - Chief Financial Officer
We don’t know at this point in time. Probably earliest, we would know would be in conjunction with the 74-day letter. We know that the application has been accepted by the FDA and the 74-day letter is somewhere in between December 28 and the 30th of this month. So again, it has not being addressed by the FDA. There has been a change in the leadership from Mary Parks to Dr. Guettier, whether that will change the projection for a potential advisory board or not, we don’t know at this point in time.
Josh Schimmer - Piper Jaffray
When does that leadership change?
Matt Pfeffer - Chief Financial Officer
Mary Parks was promoted probably back in the August-September timeframe. I don’t remember exactly. We know that she is still somewhat enrolled with application but we know that the leadership role has been taken over.
Josh Schimmer - Piper Jaffray
Maybe you can help us understand where AFREZZA peaked in, because there is an existing insulin treatment paradigm with long-acting and short-acting and now you are coming in with two different kinds of messages right at the different root of delivery and it’s a different PK profile. And so how does this work its way into the existing treatment paradigm?
Matt Pfeffer - Chief Financial Officer
Right. There is probably three different ways you could see this would benefit to patients. Certainly, we have today over I think 3 million patients there are on prandial insulins in conjunction with -- you also did a long-acting insulin then if you want to really enhance compliances simplify the procedure at meal-time avoiding injections that certainly run group of patients that would benefits from this product.
The other one is what’s called insulin intensification. Maybe you are on a long-acting insulin alone and you see it progressing over time and you need to add another product to that. I mean, this would be at a time for AFREZZA at meal-time.
And thirdly, it’s what we call the insulin naïve patients, i.e. type 2 patients on the glycemic drugs that again, needs intensification of their therapy and that’s really what we did demonstrate in the Phase 3 trial that we just concluded with superiority in terms of the A1C outcome.
Josh Schimmer - Piper Jaffray
And, so I guess in terms of moving from injectable to inhaled, if you can give us a description of the Dreamboat and how easy is it to use, how easy it is to load and I know it’s a pretty nifty elegant device?
Matt Pfeffer - Chief Financial Officer
Well, I’m sure I bought one out in my bag, but I met some people on the website, it is very simple. And I think the key thing here is that in our minds with a compliance. And we know there is a large body of people out there, frankly -- probably ought to be on insulin that are not because they are resistant to taking that leap into an injectable products.
It has stigma associated with this, kind of like you really have a serious disease now when you get that stage. And people don’t want to do it, giving them something that sort of whistle-sized and you can easily hide it in the palm of your hand, if you wish to or have large hands like me, you can.
It’s relatively small. It’s quite easy to use. I generally have one in my pocket but I don’t today. So it’s easy to carry around with you. It isn’t large that I have to carry this upper case or anything like that. I usually check my pockets. I’m not sure which one it’s in. And this is just little, very tiny cartridges, carrying the pattern and then you change those, one for each meal probably it depends on how much insulin you need. Now, if you can quote me next question.
Josh Schimmer - Piper Jaffray
And maybe the start time to load, unload, dispose, it maybe just kind of a mechanics?
Matt Pfeffer - Chief Financial Officer
You could easily do it within a minute. Actually, we’ve done qualitative discoveries where we’ve had, say, diabetes patient where we actually replaced the inhaler and the cartridges in the middle of the table as they come into the room. And within a couple of minutes, they can figure out without any guidance, how to use the product, how to know the product.
So it’s very simple and that’s also why it’s been very attractive to particularly GPs because they usually don’t have the diabetes education. They don’t have the infrastructure to support the patients with an intensive educational programs. So from that point of view, it’s -- patient like it because you could sit down to a meal, you can take it inhalation. Nobody really knew what you did because you could do it very, very conspicuously. You don’t have to look for restroom or something like that in an environment where you can have more privacy.
Josh Schimmer - Piper Jaffray
Is this -- to what extent, is this a GP market versus an endocrine specialist market. And I guess, in diabetes, the gap between those two practices has always seemed challenging to bridge. So how do you -- when you start with the endocrine group and move into GPs, do you find a partner…?
Matt Pfeffer - Chief Financial Officer
Usually, what you see is that GPs, I mean are following what’s going in the marketplace and certainly from that point of view, we think that having kind of the endocrine and the specialist understand the product, kind of being dosed the therapy itself is an important part and certainly on the introduction marked on the product.
And we also very much see the GPs being enthusiastic about this product from the point of view the fact that with significantly less risk of hypoglycemic events for the patients, weight neutrality and mostly all the time initially even weight loss and good AC control.
It is an opportunity for the GPs to be paying the patient inside that practice because normally otherwise as the patient transition from say oral drugs into injectable drugs and insulin, GP tend to lose those patient to the specialist. This is an opportunity for them to repaying the patient to actually repaying the revenue from the patients and that’s where the simplicity of our system is very attractive.
Josh Schimmer - Piper Jaffray
And Matt, you had mentioned that your plan is to find a commercial partner, would there be a scenario in which you undertake a limited focus when the crew launch? Are you not even thinking of that pack because you are also constant that you have a very strong partner always with you?
Matt Pfeffer - Chief Financial Officer
Yeah. We really thinking we are going to have a partner and much more pretty confident that we will ultimately have that timings open to question, but ultimately we think we will be successful on getting the right partner.
Josh Schimmer - Piper Jaffray
What is the gaining steps to identifying the partners and as a you recall that there were some partnership discussions going on a couple of years ago and maybe you can give us some color on what the partners were looking to see and incrementally then what the interest level was that point and where you are in terms of re-engaging and re-sparking that interest?
Matt Pfeffer - Chief Financial Officer
We are very much involved in the process right now and we have retained an advisor (inaudible) with the process to manage it more effectively. So it’s very active and underway. I am not going to talk about too much detail there because it gets a little bit risky to do so. But we are managing the process and moving forward.
I characterize it as similar people are interested before [there], but there are some new people that were not as interested before that are more interested now. And I think we attribute that mostly to the potentially much greater label that we have with this earlier type 2 indication coming out of those studies we just did. I think that maybe part of what’s behind that. So its kind of spark some new interest though.
Josh Schimmer - Piper Jaffray
Are there certain aspects of the label that partners are particularly interested in and focused on, is the label go into expectation going to be gating step for the partner because I like, guess what, would one might thing, could inform the ultimate commercial opportunity?
Matt Pfeffer - Chief Financial Officer
I haven’t heard that’s the kind of issue yet. So I have to say, I don’t know of a specific issue they are concerned about. I know that we talked about pretty broadly that when we embarked upon these studies with the kind of different direction in the type 2 market that we took with the study in early stage potentially insulin naïve patients, so first in front-end, that potentially opened the label to potentially the entire diabetes market.
So that was pretty exciting to us and I think it was likely exciting to potential partners as well. That said, nobody has raised particular concern label will be driven by the studies in this stage are pretty well known at this point.
Josh Schimmer - Piper Jaffray
And how do we think about how one might construct a partnership because targeting the primary care market, obviously significant upfront investments just from the infrastructure, the commercial, I mean some companies already have some of that built up? But as you structure a collaboration, does that kind of push economics to MannKind more towards the backend and once these franchises become profitable or…
Matt Pfeffer - Chief Financial Officer
Not necessarily, but I think philosophically that would likely be our preference. I think we found from past experience taking big upfront payments tend to cost you a lot at the backend, if you push for that. And I think we are very confident the ultimate market success of the market, so we would like to take a bigger piece of that as we can once that finally occurs.
That said, I mean, you would expect some sort of an upfront, we have invested pretty significant monies into those products at this point, roughly $2 billion is going to start if you think of, so we would like to see something there.
Josh Schimmer - Piper Jaffray
You might not get a $2 billion upfront?
Matt Pfeffer - Chief Financial Officer
No. I would assume, no, we are really happy to take however longer period of time. But we do expect to get significant return from this investment and a good portion of money was put in place, Al, personally, so I know he is interested in that as well.
Josh Schimmer - Piper Jaffray
Okay. Okay.
Matt Pfeffer - Chief Financial Officer
So the elements of the deal are likely to be fairly traditional with a couple of twist, so I am sure you will see something probably upfront, but I think the real profitability that the deal is going to come from markets to test the products and most likely a royalty arrangement and so they are easier -- easiest to do but not necessarily.
You will see some other things. Now remember we will manufacture these ourselves, so you would anticipate some sort of transfer pricing in margin on manufacturing as well. So you’ll see different elements and how they might all come out at the end of the day, it’s too difficult to predict at this point.
Josh Schimmer - Piper Jaffray
How do we think about margins and specifically on the manufacturing side, I thought you had inventory built up or API built up, I am not sure where it is on the balance sheet or?
Matt Pfeffer - Chief Financial Officer
It is on the balance sheet. So, having told finally if that would by why? Anything related to inventory or raw materials is expensed at this point and that’s really typical practice for a product prior to approval. So, it is on the balance sheet but we do we have -- you are right, we have significant amounts of API, which is the insulin somewhere in excess of 5 metric tons which is quite a lot.
So that’s a good thing. It should help the cost of goods little bit, because that is the single largest individual component of the product but there are obviously a lot of others. And we haven’t really just goes to right around pricing of margins, probably because pricing ultimately, as they are known at this point we anticipate, as our standard we would price similarly to pent delivered rapid-acting analogs.
Josh Schimmer - Piper Jaffray
Is that per unit or per…?
Matt Pfeffer - Chief Financial Officer
No, it seems to be priced on our, kind of a per day use and the total cost. Okay, so it’s not per unit. So, we look to essentially have the cost the same as existing rapid-acting analogs in [Panfor]. So that’s how we would anticipate pricing. But of course, the commercial partner, once that person or that company has identified, we will have a lot to say about that because we anticipate. So that will drive the margins to some extent. Beyond that we haven’t said too much.
Obviously, it does take us a little more insulin to have the same effects, not as much as prior examples by dramatic difference but we are getting better. But we are not perfect by any means in that sense. So, yes, the margins are going to be good and better than I think most people are expecting. I think the close that they would come disclosing where our margins are, I’d say that’s probably not the margins you would expect from our pill, but it's not the margins you would expect from the device either or kind of a drug-device combination. And I usually say, we are more like a drug than a device.
Josh Schimmer - Piper Jaffray
I guess, when we layer in our royalty obligation, how do you still make it attractive for a partner to really invest, heavily in this, I mean can you use your inventory? I mean, is the expectation for new returns for the inventory or can you give the inventory in way an initial incentive in return for the royalty to make those margins attractive early on?
Matt Pfeffer - Chief Financial Officer
I think the margins will be very attractive for all of us, and I think we have debated to support that. Like, as you would expect for any manufactured product, the cost goes down as the manufacturing quantities go up. So, I think having that inventory essentially at no cost in the early days will help offset the higher cost of manufacturing and ramp up. So, I think that will aid us and keep it more constantly at profitability for us as opposed to something we necessarily pass on to the partner of the world to see it. I mean, it will all be negotiated at the end of the day.
Josh Schimmer - Piper Jaffray
And we will just pause there and see if anyone's got some questions.
Question-and-Answer Session
Unidentified Analyst
I have a quick question, how many injections does a typical patient takes day and after the products approved, how many will they still take or not take?
Matt Pfeffer - Chief Financial Officer
Normally, what you would expect today is that the patient takes either one or two injections of long-acting. And with the prandial insulins today, there would be one per meal, so there could be in between four and five injections a day. With our products, you could then basically eliminate certainly three injections in conjunction with the meal. You may have one long-acting or possibly two injections of the long-acting insulin.
Unidentified Analyst
In terms of the inventory, is that really (inaudible)
Matt Pfeffer - Chief Financial Officer
No, no, that’s what we talked about earlier so. No, we do have somewhere in north of 5 metric tons of insulin. This is the raw regular human insulin. It’s kept 20 below zero in dry powder form. So that’s the active ingredient of the product. So it’s one of the raw materials. It’s now worth a billion dollars. The replacement cost would be probably several hundred million now. It’s not trivial.
Unidentified Analyst
Okay. And the other thing is that regarding the pricing, what is the (inaudible)
Matt Pfeffer - Chief Financial Officer
I don’t remember all of the date, if I recall on the monthly basis and it’s usually about a 20% premium over just injectable insulin. And it’s in the $360 to $370 a range a month in cost. And then of course, you have a different type of discounts levels on that base book, who you’re dealing with from a managed care over essentially.
Unidentified Analyst
(Inaudible)
Matt Pfeffer - Chief Financial Officer
Actually it’s less than that when it comes to it. I would say, at the time we get out, you probably would assume after discount that somewhere in the, let’s say -- I would say, $6.50 to $7 a day.
Josh Schimmer - Piper Jaffray
I got questions for investors, who kind of say, if you look at the type 1 data, the short acting subcutaneous insulin, may be how the better hemoglobin A1C benefit than AFREZZA. It certainly didn’t stop Bydureon from getting approved when they were strong as we’re glue tied in one of their studies, but maybe you can talk a little bit about that difference in hemoglobin A1C. Is it a reflection of the PK profiles, why do we see it and is it something that you see as a commercial obstacle or even a regulatory obstacle?
Matt Pfeffer - Chief Financial Officer
Well, remember the difference is relatively minor. I mean, it’s within the balance of non-inferiority as established by FDA with us, in corporation with the FDA. And that was the most recent study and other studies. We have at least one or two with me. Remember (inaudible) we were numerically superior. So I can go both ways. But I think -- I don’t think it’s going to be an obstacle because there’s a lot -- from a regulatory standpoint, there’s a lot of history there and precedence that would show that and discussions with the FDA that would support that as well.
From market standpoint, if I were selling rapid acting analog, I would probably try to use that to my advantage in detailing the product. But at the end of the day, I think, the other benefits given the relatively small difference we’re talking about are coupled with the benefits in hypoglycemia, weight gain things like that. I think -- and just the form factor and ease of use and likely better compliance. I think we’re all aided in the market a great deal and will easily overcome that.
That said, we think we know what’s causing that difference. We probably don’t think it thus. I think our (inaudible) profile does very nicely mimic naturally in physiology in healthy person which is good in most respects but we do see fasting levels rising through out the day because frankly it’s hard to control your insulin properly and to some extent that key masked by lot of persistence of the existing rapid acting analog.
We don’t have that which we think is an advantage, which is one of the advantages that leads to the hypoglycemic benefit but it’s an issue how to address impact. So it’s going to take not just while what we’re used to. This being a fundamentally different insulin, different than it was used to it at least. So to use it properly, it’s going to take little more training I think. But along the way, I think the patients were benefiting at each step. So I think it will ultimately be successful in the market.
Josh Schimmer - Piper Jaffray
And maybe just a last question on your cost structure, how much of the cost that you are incurring now will be offloaded once you have AFREZZA on the market and a commercial partner?
Matt Pfeffer - Chief Financial Officer
Yeah, I’m glad you asked that question because I guess -- maybe just because I’m basically a qualified accountant, I’m often surprised by these things. But we are spending a lot of money and people moderately think down, they show these expense -- they hold these expenses continuing. They don’t fully appreciate that.
Most of the cost today are manufacturing organization and gearing up for commercial manufacturing. Ultimately once we have a commercial product being sold, those cost will -- they are not going to away with those, certainly be transferred into inventory or cost of goods. So the markets appear in the same way.
[But same] token even some of the remaining costs, we would expect the likely partner agreement with they would assume a lot of the cost for ongoing studies and those sorts of things. So I think it’s going to dramatically change our cost structure.
Josh Schimmer - Piper Jaffray
We’re very excited for April 15 and there are few guys and best of luck and hope that you will comeback with Al next year to join us at the conference. Thank you so much
Matt Pfeffer - Chief Financial Officer
Thank you.
Josh Schimmer - Piper Jaffray
MannKind's Management Presents at The Piper Jaffray 25th Annual Healthcare Conference (Transcript)
Dec 4 2013, 13:48
Executives
Matt Pfeffer - Chief Financial Officer
Hakan Edstrom - President and COO
Analysts
Josh Schimmer - Piper Jaffray
MannKind Corp. (MNKD) The Piper Jaffray 25th Annual Healthcare Conference Transcript December 4, 2013 10:00 AM ET
Josh Schimmer - Piper Jaffray
We are all set. Okay. Good morning, everyone. Thanks for joining. My name is Josh Schimmer. I am one of the new Senior Biotech Analysts at Piper Jaffray. I am pleased to joining a terrific team and be able to host our conference today.
I am quite happy as well to introduce MannKind. Before I begin, I must draw your attention to certain disclosures regarding the relationship between Piper Jaffray and MannKind posted in the back of the room and at the registration desk. And so, with that, please welcome Matt Pfeffer, the [Chief Executive Officer] (sic) Chief Financial Officer; and Hakan Edstrom, President and Chief Operating Officer.
MannKind recently resubmitted the NDA application for AFREZZA, the inhaled insulin program after completing two new Phase 3 studies with the Dreamboat inhaler, issued date is now April 15th, so an exciting 2014 ahead.
And maybe we can start, Matt, if you can give us a little bit of background and put this application into context and how these new trials address the concerns that the FDA had with the original application?
Matt Pfeffer - Chief Financial Officer
I’ll try and I’ll ask Hakan to join me in most of the decision. By the way thank you for promotion, I’m actually Chief Financial Officer.
Josh Schimmer - Piper Jaffray
I am sorry.
Matt Pfeffer - Chief Financial Officer
All right.
Josh Schimmer - Piper Jaffray
I’d moved you to CEO, it just a matter of time. I was just kidding, just kidding.
Matt Pfeffer - Chief Financial Officer
I hope Al is not listening to this.
Josh Schimmer - Piper Jaffray
Al, yeah, yeah, Al knows that well.
Matt Pfeffer - Chief Financial Officer
So, yeah, good question. As most of you probably know, we have submitted to the FDA before and most recent submission would be for this one. They did ask us to two new trials because we have changed the inhalation device to a new much better device in many ways.
We submitted that device with a lot of data supporting that it was bioequivalent to the previous device. That said, at the end of the day, the FDA decided they would like to see some studies using this device in long-term efficacy studies and asked for two new studies to be done, one in type 1 and one in type 2 with this impact, exactly what we did.
We did invest a lot of time which equates to a lot of money. Meeting with the FDA to get their full agreement on what our approach was and help and review the protocols and so forth in multiple meetings with them, during the course of that same year we got the response letter before beginning the trail.
The trails were successful. They hit the primary endpoints very nicely. And so with that data we resubmitted to the FDA. That filing has been accepted now and we have a PDUFA date, as you mentioned of April 15th. So we are pretty confident as much as is ever possible to be as suppose with the FDA but we’ve given them what they would like and we are moving forward.
Josh Schimmer - Piper Jaffray
Okay. So, I guess, though, maybe just give us a little bit of more context on the dialogue with the FDA, because you did have one resubmission that that didn’t run clinical trails and so, when did you really have the opportunity to sit down and truly appreciate what the agencies concerns were and then get the confident that these are right trails to satisfy them?
Matt Pfeffer - Chief Financial Officer
Well, really, following the second year, we internally decided that we would not proceed until we felt that we complete down [still what] the FDA was looking for and they knew what we were doing. So, I, actually participated in a couple of the meetings with the FDA in regards to what we are discussing even the trail design.
And actually the type 2 design that we had was upon suggested by the FDA because initially we came in with two [base bone trials] both in type 1 and type 2 patients. And the statement from one of the, the members that they were, why are you doing kind of the same type of study in both types, saying, once you got approved for type 1s in [base bones] that wasn’t applicable for type 2.
The reason we did that originally was the fact we felt that FDA might be a little bit conservative in regards to who patients would be included in the clinical trials for a new insulation type product. But upon the discussions with them, we came up with the placebo-controlled study for type 2 patients.
So actually the statement before we started the trial, we heard them was that next time we expect to see you in the pre-submission meeting and we felt that going forward, and we still have a comfort factor that we will address what they were looking for and the studies certainly did meet that probably end points.
Josh Schimmer - Piper Jaffray
All right. Are you expecting an FDA advisory committee review and if so what might topics of that review be?
Matt Pfeffer - Chief Financial Officer
We don’t know at this point in time. Probably earliest, we would know would be in conjunction with the 74-day letter. We know that the application has been accepted by the FDA and the 74-day letter is somewhere in between December 28 and the 30th of this month. So again, it has not being addressed by the FDA. There has been a change in the leadership from Mary Parks to Dr. Guettier, whether that will change the projection for a potential advisory board or not, we don’t know at this point in time.
Josh Schimmer - Piper Jaffray
When does that leadership change?
Matt Pfeffer - Chief Financial Officer
Mary Parks was promoted probably back in the August-September timeframe. I don’t remember exactly. We know that she is still somewhat enrolled with application but we know that the leadership role has been taken over.
Josh Schimmer - Piper Jaffray
Maybe you can help us understand where AFREZZA peaked in, because there is an existing insulin treatment paradigm with long-acting and short-acting and now you are coming in with two different kinds of messages right at the different root of delivery and it’s a different PK profile. And so how does this work its way into the existing treatment paradigm?
Matt Pfeffer - Chief Financial Officer
Right. There is probably three different ways you could see this would benefit to patients. Certainly, we have today over I think 3 million patients there are on prandial insulins in conjunction with -- you also did a long-acting insulin then if you want to really enhance compliances simplify the procedure at meal-time avoiding injections that certainly run group of patients that would benefits from this product.
The other one is what’s called insulin intensification. Maybe you are on a long-acting insulin alone and you see it progressing over time and you need to add another product to that. I mean, this would be at a time for AFREZZA at meal-time.
And thirdly, it’s what we call the insulin naïve patients, i.e. type 2 patients on the glycemic drugs that again, needs intensification of their therapy and that’s really what we did demonstrate in the Phase 3 trial that we just concluded with superiority in terms of the A1C outcome.
Josh Schimmer - Piper Jaffray
And, so I guess in terms of moving from injectable to inhaled, if you can give us a description of the Dreamboat and how easy is it to use, how easy it is to load and I know it’s a pretty nifty elegant device?
Matt Pfeffer - Chief Financial Officer
Well, I’m sure I bought one out in my bag, but I met some people on the website, it is very simple. And I think the key thing here is that in our minds with a compliance. And we know there is a large body of people out there, frankly -- probably ought to be on insulin that are not because they are resistant to taking that leap into an injectable products.
It has stigma associated with this, kind of like you really have a serious disease now when you get that stage. And people don’t want to do it, giving them something that sort of whistle-sized and you can easily hide it in the palm of your hand, if you wish to or have large hands like me, you can.
It’s relatively small. It’s quite easy to use. I generally have one in my pocket but I don’t today. So it’s easy to carry around with you. It isn’t large that I have to carry this upper case or anything like that. I usually check my pockets. I’m not sure which one it’s in. And this is just little, very tiny cartridges, carrying the pattern and then you change those, one for each meal probably it depends on how much insulin you need. Now, if you can quote me next question.
Josh Schimmer - Piper Jaffray
And maybe the start time to load, unload, dispose, it maybe just kind of a mechanics?
Matt Pfeffer - Chief Financial Officer
You could easily do it within a minute. Actually, we’ve done qualitative discoveries where we’ve had, say, diabetes patient where we actually replaced the inhaler and the cartridges in the middle of the table as they come into the room. And within a couple of minutes, they can figure out without any guidance, how to use the product, how to know the product.
So it’s very simple and that’s also why it’s been very attractive to particularly GPs because they usually don’t have the diabetes education. They don’t have the infrastructure to support the patients with an intensive educational programs. So from that point of view, it’s -- patient like it because you could sit down to a meal, you can take it inhalation. Nobody really knew what you did because you could do it very, very conspicuously. You don’t have to look for restroom or something like that in an environment where you can have more privacy.
Josh Schimmer - Piper Jaffray
Is this -- to what extent, is this a GP market versus an endocrine specialist market. And I guess, in diabetes, the gap between those two practices has always seemed challenging to bridge. So how do you -- when you start with the endocrine group and move into GPs, do you find a partner…?
Matt Pfeffer - Chief Financial Officer
Usually, what you see is that GPs, I mean are following what’s going in the marketplace and certainly from that point of view, we think that having kind of the endocrine and the specialist understand the product, kind of being dosed the therapy itself is an important part and certainly on the introduction marked on the product.
And we also very much see the GPs being enthusiastic about this product from the point of view the fact that with significantly less risk of hypoglycemic events for the patients, weight neutrality and mostly all the time initially even weight loss and good AC control.
It is an opportunity for the GPs to be paying the patient inside that practice because normally otherwise as the patient transition from say oral drugs into injectable drugs and insulin, GP tend to lose those patient to the specialist. This is an opportunity for them to repaying the patient to actually repaying the revenue from the patients and that’s where the simplicity of our system is very attractive.
Josh Schimmer - Piper Jaffray
And Matt, you had mentioned that your plan is to find a commercial partner, would there be a scenario in which you undertake a limited focus when the crew launch? Are you not even thinking of that pack because you are also constant that you have a very strong partner always with you?
Matt Pfeffer - Chief Financial Officer
Yeah. We really thinking we are going to have a partner and much more pretty confident that we will ultimately have that timings open to question, but ultimately we think we will be successful on getting the right partner.
Josh Schimmer - Piper Jaffray
What is the gaining steps to identifying the partners and as a you recall that there were some partnership discussions going on a couple of years ago and maybe you can give us some color on what the partners were looking to see and incrementally then what the interest level was that point and where you are in terms of re-engaging and re-sparking that interest?
Matt Pfeffer - Chief Financial Officer
We are very much involved in the process right now and we have retained an advisor (inaudible) with the process to manage it more effectively. So it’s very active and underway. I am not going to talk about too much detail there because it gets a little bit risky to do so. But we are managing the process and moving forward.
I characterize it as similar people are interested before [there], but there are some new people that were not as interested before that are more interested now. And I think we attribute that mostly to the potentially much greater label that we have with this earlier type 2 indication coming out of those studies we just did. I think that maybe part of what’s behind that. So its kind of spark some new interest though.
Josh Schimmer - Piper Jaffray
Are there certain aspects of the label that partners are particularly interested in and focused on, is the label go into expectation going to be gating step for the partner because I like, guess what, would one might thing, could inform the ultimate commercial opportunity?
Matt Pfeffer - Chief Financial Officer
I haven’t heard that’s the kind of issue yet. So I have to say, I don’t know of a specific issue they are concerned about. I know that we talked about pretty broadly that when we embarked upon these studies with the kind of different direction in the type 2 market that we took with the study in early stage potentially insulin naïve patients, so first in front-end, that potentially opened the label to potentially the entire diabetes market.
So that was pretty exciting to us and I think it was likely exciting to potential partners as well. That said, nobody has raised particular concern label will be driven by the studies in this stage are pretty well known at this point.
Josh Schimmer - Piper Jaffray
And how do we think about how one might construct a partnership because targeting the primary care market, obviously significant upfront investments just from the infrastructure, the commercial, I mean some companies already have some of that built up? But as you structure a collaboration, does that kind of push economics to MannKind more towards the backend and once these franchises become profitable or…
Matt Pfeffer - Chief Financial Officer
Not necessarily, but I think philosophically that would likely be our preference. I think we found from past experience taking big upfront payments tend to cost you a lot at the backend, if you push for that. And I think we are very confident the ultimate market success of the market, so we would like to take a bigger piece of that as we can once that finally occurs.
That said, I mean, you would expect some sort of an upfront, we have invested pretty significant monies into those products at this point, roughly $2 billion is going to start if you think of, so we would like to see something there.
Josh Schimmer - Piper Jaffray
You might not get a $2 billion upfront?
Matt Pfeffer - Chief Financial Officer
No. I would assume, no, we are really happy to take however longer period of time. But we do expect to get significant return from this investment and a good portion of money was put in place, Al, personally, so I know he is interested in that as well.
Josh Schimmer - Piper Jaffray
Okay. Okay.
Matt Pfeffer - Chief Financial Officer
So the elements of the deal are likely to be fairly traditional with a couple of twist, so I am sure you will see something probably upfront, but I think the real profitability that the deal is going to come from markets to test the products and most likely a royalty arrangement and so they are easier -- easiest to do but not necessarily.
You will see some other things. Now remember we will manufacture these ourselves, so you would anticipate some sort of transfer pricing in margin on manufacturing as well. So you’ll see different elements and how they might all come out at the end of the day, it’s too difficult to predict at this point.
Josh Schimmer - Piper Jaffray
How do we think about margins and specifically on the manufacturing side, I thought you had inventory built up or API built up, I am not sure where it is on the balance sheet or?
Matt Pfeffer - Chief Financial Officer
It is on the balance sheet. So, having told finally if that would by why? Anything related to inventory or raw materials is expensed at this point and that’s really typical practice for a product prior to approval. So, it is on the balance sheet but we do we have -- you are right, we have significant amounts of API, which is the insulin somewhere in excess of 5 metric tons which is quite a lot.
So that’s a good thing. It should help the cost of goods little bit, because that is the single largest individual component of the product but there are obviously a lot of others. And we haven’t really just goes to right around pricing of margins, probably because pricing ultimately, as they are known at this point we anticipate, as our standard we would price similarly to pent delivered rapid-acting analogs.
Josh Schimmer - Piper Jaffray
Is that per unit or per…?
Matt Pfeffer - Chief Financial Officer
No, it seems to be priced on our, kind of a per day use and the total cost. Okay, so it’s not per unit. So, we look to essentially have the cost the same as existing rapid-acting analogs in [Panfor]. So that’s how we would anticipate pricing. But of course, the commercial partner, once that person or that company has identified, we will have a lot to say about that because we anticipate. So that will drive the margins to some extent. Beyond that we haven’t said too much.
Obviously, it does take us a little more insulin to have the same effects, not as much as prior examples by dramatic difference but we are getting better. But we are not perfect by any means in that sense. So, yes, the margins are going to be good and better than I think most people are expecting. I think the close that they would come disclosing where our margins are, I’d say that’s probably not the margins you would expect from our pill, but it's not the margins you would expect from the device either or kind of a drug-device combination. And I usually say, we are more like a drug than a device.
Josh Schimmer - Piper Jaffray
I guess, when we layer in our royalty obligation, how do you still make it attractive for a partner to really invest, heavily in this, I mean can you use your inventory? I mean, is the expectation for new returns for the inventory or can you give the inventory in way an initial incentive in return for the royalty to make those margins attractive early on?
Matt Pfeffer - Chief Financial Officer
I think the margins will be very attractive for all of us, and I think we have debated to support that. Like, as you would expect for any manufactured product, the cost goes down as the manufacturing quantities go up. So, I think having that inventory essentially at no cost in the early days will help offset the higher cost of manufacturing and ramp up. So, I think that will aid us and keep it more constantly at profitability for us as opposed to something we necessarily pass on to the partner of the world to see it. I mean, it will all be negotiated at the end of the day.
Josh Schimmer - Piper Jaffray
And we will just pause there and see if anyone's got some questions.
Question-and-Answer Session
Unidentified Analyst
I have a quick question, how many injections does a typical patient takes day and after the products approved, how many will they still take or not take?
Matt Pfeffer - Chief Financial Officer
Normally, what you would expect today is that the patient takes either one or two injections of long-acting. And with the prandial insulins today, there would be one per meal, so there could be in between four and five injections a day. With our products, you could then basically eliminate certainly three injections in conjunction with the meal. You may have one long-acting or possibly two injections of the long-acting insulin.
Unidentified Analyst
In terms of the inventory, is that really (inaudible)
Matt Pfeffer - Chief Financial Officer
No, no, that’s what we talked about earlier so. No, we do have somewhere in north of 5 metric tons of insulin. This is the raw regular human insulin. It’s kept 20 below zero in dry powder form. So that’s the active ingredient of the product. So it’s one of the raw materials. It’s now worth a billion dollars. The replacement cost would be probably several hundred million now. It’s not trivial.
Unidentified Analyst
Okay. And the other thing is that regarding the pricing, what is the (inaudible)
Matt Pfeffer - Chief Financial Officer
I don’t remember all of the date, if I recall on the monthly basis and it’s usually about a 20% premium over just injectable insulin. And it’s in the $360 to $370 a range a month in cost. And then of course, you have a different type of discounts levels on that base book, who you’re dealing with from a managed care over essentially.
Unidentified Analyst
(Inaudible)
Matt Pfeffer - Chief Financial Officer
Actually it’s less than that when it comes to it. I would say, at the time we get out, you probably would assume after discount that somewhere in the, let’s say -- I would say, $6.50 to $7 a day.
Josh Schimmer - Piper Jaffray
I got questions for investors, who kind of say, if you look at the type 1 data, the short acting subcutaneous insulin, may be how the better hemoglobin A1C benefit than AFREZZA. It certainly didn’t stop Bydureon from getting approved when they were strong as we’re glue tied in one of their studies, but maybe you can talk a little bit about that difference in hemoglobin A1C. Is it a reflection of the PK profiles, why do we see it and is it something that you see as a commercial obstacle or even a regulatory obstacle?
Matt Pfeffer - Chief Financial Officer
Well, remember the difference is relatively minor. I mean, it’s within the balance of non-inferiority as established by FDA with us, in corporation with the FDA. And that was the most recent study and other studies. We have at least one or two with me. Remember (inaudible) we were numerically superior. So I can go both ways. But I think -- I don’t think it’s going to be an obstacle because there’s a lot -- from a regulatory standpoint, there’s a lot of history there and precedence that would show that and discussions with the FDA that would support that as well.
From market standpoint, if I were selling rapid acting analog, I would probably try to use that to my advantage in detailing the product. But at the end of the day, I think, the other benefits given the relatively small difference we’re talking about are coupled with the benefits in hypoglycemia, weight gain things like that. I think -- and just the form factor and ease of use and likely better compliance. I think we’re all aided in the market a great deal and will easily overcome that.
That said, we think we know what’s causing that difference. We probably don’t think it thus. I think our (inaudible) profile does very nicely mimic naturally in physiology in healthy person which is good in most respects but we do see fasting levels rising through out the day because frankly it’s hard to control your insulin properly and to some extent that key masked by lot of persistence of the existing rapid acting analog.
We don’t have that which we think is an advantage, which is one of the advantages that leads to the hypoglycemic benefit but it’s an issue how to address impact. So it’s going to take not just while what we’re used to. This being a fundamentally different insulin, different than it was used to it at least. So to use it properly, it’s going to take little more training I think. But along the way, I think the patients were benefiting at each step. So I think it will ultimately be successful in the market.
Josh Schimmer - Piper Jaffray
And maybe just a last question on your cost structure, how much of the cost that you are incurring now will be offloaded once you have AFREZZA on the market and a commercial partner?
Matt Pfeffer - Chief Financial Officer
Yeah, I’m glad you asked that question because I guess -- maybe just because I’m basically a qualified accountant, I’m often surprised by these things. But we are spending a lot of money and people moderately think down, they show these expense -- they hold these expenses continuing. They don’t fully appreciate that.
Most of the cost today are manufacturing organization and gearing up for commercial manufacturing. Ultimately once we have a commercial product being sold, those cost will -- they are not going to away with those, certainly be transferred into inventory or cost of goods. So the markets appear in the same way.
[But same] token even some of the remaining costs, we would expect the likely partner agreement with they would assume a lot of the cost for ongoing studies and those sorts of things. So I think it’s going to dramatically change our cost structure.
Josh Schimmer - Piper Jaffray
We’re very excited for April 15 and there are few guys and best of luck and hope that you will comeback with Al next year to join us at the conference. Thank you so much
Matt Pfeffer - Chief Financial Officer
Thank you.
Josh Schimmer - Piper Jaffray
And thank you every one for joining.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words oExecutives
Matt Pfeffer - Chief Financial Officer
Hakan Edstrom - President and COO
Analysts
Josh Schimmer - Piper Jaffray
MannKind Corp. (MNKD) The Piper Jaffray 25th Annual Healthcare Conference Transcript December 4, 2013 10:00 AM ET
Josh Schimmer - Piper Jaffray
We are all set. Okay. Good morning, everyone. Thanks for joining. My name is Josh Schimmer. I am one of the new Senior Biotech Analysts at Piper Jaffray. I am pleased to joining a terrific team and be able to host our conference today.
I am quite happy as well to introduce MannKind. Before I begin, I must draw your attention to certain disclosures regarding the relationship between Piper Jaffray and MannKind posted in the back of the room and at the registration desk. And so, with that, please welcome Matt Pfeffer, the [Chief Executive Officer] (sic) Chief Financial Officer; and Hakan Edstrom, President and Chief Operating Officer.
MannKind recently resubmitted the NDA application for AFREZZA, the inhaled insulin program after completing two new Phase 3 studies with the Dreamboat inhaler, issued date is now April 15th, so an exciting 2014 ahead.
And maybe we can start, Matt, if you can give us a little bit of background and put this application into context and how these new trials address the concerns that the FDA had with the original application?
Matt Pfeffer - Chief Financial Officer
I’ll try and I’ll ask Hakan to join me in most of the decision. By the way thank you for promotion, I’m actually Chief Financial Officer.
Josh Schimmer - Piper Jaffray
I am sorry.
Matt Pfeffer - Chief Financial Officer
All right.
Josh Schimmer - Piper Jaffray
I’d moved you to CEO, it just a matter of time. I was just kidding, just kidding.
Matt Pfeffer - Chief Financial Officer
I hope Al is not listening to this.
Josh Schimmer - Piper Jaffray
Al, yeah, yeah, Al knows that well.
Matt Pfeffer - Chief Financial Officer
So, yeah, good question. As most of you probably know, we have submitted to the FDA before and most recent submission would be for this one. They did ask us to two new trials because we have changed the inhalation device to a new much better device in many ways.
We submitted that device with a lot of data supporting that it was bioequivalent to the previous device. That said, at the end of the day, the FDA decided they would like to see some studies using this device in long-term efficacy studies and asked for two new studies to be done, one in type 1 and one in type 2 with this impact, exactly what we did.
We did invest a lot of time which equates to a lot of money. Meeting with the FDA to get their full agreement on what our approach was and help and review the protocols and so forth in multiple meetings with them, during the course of that same year we got the response letter before beginning the trail.
The trails were successful. They hit the primary endpoints very nicely. And so with that data we resubmitted to the FDA. That filing has been accepted now and we have a PDUFA date, as you mentioned of April 15th. So we are pretty confident as much as is ever possible to be as suppose with the FDA but we’ve given them what they would like and we are moving forward.
Josh Schimmer - Piper Jaffray
Okay. So, I guess, though, maybe just give us a little bit of more context on the dialogue with the FDA, because you did have one resubmission that that didn’t run clinical trails and so, when did you really have the opportunity to sit down and truly appreciate what the agencies concerns were and then get the confident that these are right trails to satisfy them?
Matt Pfeffer - Chief Financial Officer
Well, really, following the second year, we internally decided that we would not proceed until we felt that we complete down [still what] the FDA was looking for and they knew what we were doing. So, I, actually participated in a couple of the meetings with the FDA in regards to what we are discussing even the trail design.
And actually the type 2 design that we had was upon suggested by the FDA because initially we came in with two [base bone trials] both in type 1 and type 2 patients. And the statement from one of the, the members that they were, why are you doing kind of the same type of study in both types, saying, once you got approved for type 1s in [base bones] that wasn’t applicable for type 2.
The reason we did that originally was the fact we felt that FDA might be a little bit conservative in regards to who patients would be included in the clinical trials for a new insulation type product. But upon the discussions with them, we came up with the placebo-controlled study for type 2 patients.
So actually the statement before we started the trial, we heard them was that next time we expect to see you in the pre-submission meeting and we felt that going forward, and we still have a comfort factor that we will address what they were looking for and the studies certainly did meet that probably end points.
Josh Schimmer - Piper Jaffray
All right. Are you expecting an FDA advisory committee review and if so what might topics of that review be?
Matt Pfeffer - Chief Financial Officer
We don’t know at this point in time. Probably earliest, we would know would be in conjunction with the 74-day letter. We know that the application has been accepted by the FDA and the 74-day letter is somewhere in between December 28 and the 30th of this month. So again, it has not being addressed by the FDA. There has been a change in the leadership from Mary Parks to Dr. Guettier, whether that will change the projection for a potential advisory board or not, we don’t know at this point in time.
Josh Schimmer - Piper Jaffray
When does that leadership change?
Matt Pfeffer - Chief Financial Officer
Mary Parks was promoted probably back in the August-September timeframe. I don’t remember exactly. We know that she is still somewhat enrolled with application but we know that the leadership role has been taken over.
Josh Schimmer - Piper Jaffray
Maybe you can help us understand where AFREZZA peaked in, because there is an existing insulin treatment paradigm with long-acting and short-acting and now you are coming in with two different kinds of messages right at the different root of delivery and it’s a different PK profile. And so how does this work its way into the existing treatment paradigm?
Matt Pfeffer - Chief Financial Officer
Right. There is probably three different ways you could see this would benefit to patients. Certainly, we have today over I think 3 million patients there are on prandial insulins in conjunction with -- you also did a long-acting insulin then if you want to really enhance compliances simplify the procedure at meal-time avoiding injections that certainly run group of patients that would benefits from this product.
The other one is what’s called insulin intensification. Maybe you are on a long-acting insulin alone and you see it progressing over time and you need to add another product to that. I mean, this would be at a time for AFREZZA at meal-time.
And thirdly, it’s what we call the insulin naïve patients, i.e. type 2 patients on the glycemic drugs that again, needs intensification of their therapy and that’s really what we did demonstrate in the Phase 3 trial that we just concluded with superiority in terms of the A1C outcome.
Josh Schimmer - Piper Jaffray
And, so I guess in terms of moving from injectable to inhaled, if you can give us a description of the Dreamboat and how easy is it to use, how easy it is to load and I know it’s a pretty nifty elegant device?
Matt Pfeffer - Chief Financial Officer
Well, I’m sure I bought one out in my bag, but I met some people on the website, it is very simple. And I think the key thing here is that in our minds with a compliance. And we know there is a large body of people out there, frankly -- probably ought to be on insulin that are not because they are resistant to taking that leap into an injectable products.
It has stigma associated with this, kind of like you really have a serious disease now when you get that stage. And people don’t want to do it, giving them something that sort of whistle-sized and you can easily hide it in the palm of your hand, if you wish to or have large hands like me, you can.
It’s relatively small. It’s quite easy to use. I generally have one in my pocket but I don’t today. So it’s easy to carry around with you. It isn’t large that I have to carry this upper case or anything like that. I usually check my pockets. I’m not sure which one it’s in. And this is just little, very tiny cartridges, carrying the pattern and then you change those, one for each meal probably it depends on how much insulin you need. Now, if you can quote me next question.
Josh Schimmer - Piper Jaffray
And maybe the start time to load, unload, dispose, it maybe just kind of a mechanics?
Matt Pfeffer - Chief Financial Officer
You could easily do it within a minute. Actually, we’ve done qualitative discoveries where we’ve had, say, diabetes patient where we actually replaced the inhaler and the cartridges in the middle of the table as they come into the room. And within a couple of minutes, they can figure out without any guidance, how to use the product, how to know the product.
So it’s very simple and that’s also why it’s been very attractive to particularly GPs because they usually don’t have the diabetes education. They don’t have the infrastructure to support the patients with an intensive educational programs. So from that point of view, it’s -- patient like it because you could sit down to a meal, you can take it inhalation. Nobody really knew what you did because you could do it very, very conspicuously. You don’t have to look for restroom or something like that in an environment where you can have more privacy.
Josh Schimmer - Piper Jaffray
Is this -- to what extent, is this a GP market versus an endocrine specialist market. And I guess, in diabetes, the gap between those two practices has always seemed challenging to bridge. So how do you -- when you start with the endocrine group and move into GPs, do you find a partner…?
Matt Pfeffer - Chief Financial Officer
Usually, what you see is that GPs, I mean are following what’s going in the marketplace and certainly from that point of view, we think that having kind of the endocrine and the specialist understand the product, kind of being dosed the therapy itself is an important part and certainly on the introduction marked on the product.
And we also very much see the GPs being enthusiastic about this product from the point of view the fact that with significantly less risk of hypoglycemic events for the patients, weight neutrality and mostly all the time initially even weight loss and good AC control.
It is an opportunity for the GPs to be paying the patient inside that practice because normally otherwise as the patient transition from say oral drugs into injectable drugs and insulin, GP tend to lose those patient to the specialist. This is an opportunity for them to repaying the patient to actually repaying the revenue from the patients and that’s where the simplicity of our system is very attractive.
Josh Schimmer - Piper Jaffray
And Matt, you had mentioned that your plan is to find a commercial partner, would there be a scenario in which you undertake a limited focus when the crew launch? Are you not even thinking of that pack because you are also constant that you have a very strong partner always with you?
Matt Pfeffer - Chief Financial Officer
Yeah. We really thinking we are going to have a partner and much more pretty confident that we will ultimately have that timings open to question, but ultimately we think we will be successful on getting the right partner.
Josh Schimmer - Piper Jaffray
What is the gaining steps to identifying the partners and as a you recall that there were some partnership discussions going on a couple of years ago and maybe you can give us some color on what the partners were looking to see and incrementally then what the interest level was that point and where you are in terms of re-engaging and re-sparking that interest?
Matt Pfeffer - Chief Financial Officer
We are very much involved in the process right now and we have retained an advisor (inaudible) with the process to manage it more effectively. So it’s very active and underway. I am not going to talk about too much detail there because it gets a little bit risky to do so. But we are managing the process and moving forward.
I characterize it as similar people are interested before [there], but there are some new people that were not as interested before that are more interested now. And I think we attribute that mostly to the potentially much greater label that we have with this earlier type 2 indication coming out of those studies we just did. I think that maybe part of what’s behind that. So its kind of spark some new interest though.
Josh Schimmer - Piper Jaffray
Are there certain aspects of the label that partners are particularly interested in and focused on, is the label go into expectation going to be gating step for the partner because I like, guess what, would one might thing, could inform the ultimate commercial opportunity?
Matt Pfeffer - Chief Financial Officer
I haven’t heard that’s the kind of issue yet. So I have to say, I don’t know of a specific issue they are concerned about. I know that we talked about pretty broadly that when we embarked upon these studies with the kind of different direction in the type 2 market that we took with the study in early stage potentially insulin naïve patients, so first in front-end, that potentially opened the label to potentially the entire diabetes market.
So that was pretty exciting to us and I think it was likely exciting to potential partners as well. That said, nobody has raised particular concern label will be driven by the studies in this stage are pretty well known at this point.
Josh Schimmer - Piper Jaffray
And how do we think about how one might construct a partnership because targeting the primary care market, obviously significant upfront investments just from the infrastructure, the commercial, I mean some companies already have some of that built up? But as you structure a collaboration, does that kind of push economics to MannKind more towards the backend and once these franchises become profitable or…
Matt Pfeffer - Chief Financial Officer
Not necessarily, but I think philosophically that would likely be our preference. I think we found from past experience taking big upfront payments tend to cost you a lot at the backend, if you push for that. And I think we are very confident the ultimate market success of the market, so we would like to take a bigger piece of that as we can once that finally occurs.
That said, I mean, you would expect some sort of an upfront, we have invested pretty significant monies into those products at this point, roughly $2 billion is going to start if you think of, so we would like to see something there.
Josh Schimmer - Piper Jaffray
You might not get a $2 billion upfront?
Matt Pfeffer - Chief Financial Officer
No. I would assume, no, we are really happy to take however longer period of time. But we do expect to get significant return from this investment and a good portion of money was put in place, Al, personally, so I know he is interested in that as well.
Josh Schimmer - Piper Jaffray
Okay. Okay.
Matt Pfeffer - Chief Financial Officer
So the elements of the deal are likely to be fairly traditional with a couple of twist, so I am sure you will see something probably upfront, but I think the real profitability that the deal is going to come from markets to test the products and most likely a royalty arrangement and so they are easier -- easiest to do but not necessarily.
You will see some other things. Now remember we will manufacture these ourselves, so you would anticipate some sort of transfer pricing in margin on manufacturing as well. So you’ll see different elements and how they might all come out at the end of the day, it’s too difficult to predict at this point.
Josh Schimmer - Piper Jaffray
How do we think about margins and specifically on the manufacturing side, I thought you had inventory built up or API built up, I am not sure where it is on the balance sheet or?
Matt Pfeffer - Chief Financial Officer
It is on the balance sheet. So, having told finally if that would by why? Anything related to inventory or raw materials is expensed at this point and that’s really typical practice for a product prior to approval. So, it is on the balance sheet but we do we have -- you are right, we have significant amounts of API, which is the insulin somewhere in excess of 5 metric tons which is quite a lot.
So that’s a good thing. It should help the cost of goods little bit, because that is the single largest individual component of the product but there are obviously a lot of others. And we haven’t really just goes to right around pricing of margins, probably because pricing ultimately, as they are known at this point we anticipate, as our standard we would price similarly to pent delivered rapid-acting analogs.
Josh Schimmer - Piper Jaffray
Is that per unit or per…?
Matt Pfeffer - Chief Financial Officer
No, it seems to be priced on our, kind of a per day use and the total cost. Okay, so it’s not per unit. So, we look to essentially have the cost the same as existing rapid-acting analogs in [Panfor]. So that’s how we would anticipate pricing. But of course, the commercial partner, once that person or that company has identified, we will have a lot to say about that because we anticipate. So that will drive the margins to some extent. Beyond that we haven’t said too much.
Obviously, it does take us a little more insulin to have the same effects, not as much as prior examples by dramatic difference but we are getting better. But we are not perfect by any means in that sense. So, yes, the margins are going to be good and better than I think most people are expecting. I think the close that they would come disclosing where our margins are, I’d say that’s probably not the margins you would expect from our pill, but it's not the margins you would expect from the device either or kind of a drug-device combination. And I usually say, we are more like a drug than a device.
Josh Schimmer - Piper Jaffray
I guess, when we layer in our royalty obligation, how do you still make it attractive for a partner to really invest, heavily in this, I mean can you use your inventory? I mean, is the expectation for new returns for the inventory or can you give the inventory in way an initial incentive in return for the royalty to make those margins attractive early on?
Matt Pfeffer - Chief Financial Officer
I think the margins will be very attractive for all of us, and I think we have debated to support that. Like, as you would expect for any manufactured product, the cost goes down as the manufacturing quantities go up. So, I think having that inventory essentially at no cost in the early days will help offset the higher cost of manufacturing and ramp up. So, I think that will aid us and keep it more constantly at profitability for us as opposed to something we necessarily pass on to the partner of the world to see it. I mean, it will all be negotiated at the end of the day.
Josh Schimmer - Piper Jaffray
And we will just pause there and see if anyone's got some questions.
Question-and-Answer Session
Unidentified Analyst
I have a quick question, how many injections does a typical patient takes day and after the products approved, how many will they still take or not take?
Matt Pfeffer - Chief Financial Officer
Normally, what you would expect today is that the patient takes either one or two injections of long-acting. And with the prandial insulins today, there would be one per meal, so there could be in between four and five injections a day. With our products, you could then basically eliminate certainly three injections in conjunction with the meal. You may have one long-acting or possibly two injections of the long-acting insulin.
Unidentified Analyst
In terms of the inventory, is that really (inaudible)
Matt Pfeffer - Chief Financial Officer
No, no, that’s what we talked about earlier so. No, we do have somewhere in north of 5 metric tons of insulin. This is the raw regular human insulin. It’s kept 20 below zero in dry powder form. So that’s the active ingredient of the product. So it’s one of the raw materials. It’s now worth a billion dollars. The replacement cost would be probably several hundred million now. It’s not trivial.
Unidentified Analyst
Okay. And the other thing is that regarding the pricing, what is the (inaudible)
Matt Pfeffer - Chief Financial Officer
I don’t remember all of the date, if I recall on the monthly basis and it’s usually about a 20% premium over just injectable insulin. And it’s in the $360 to $370 a range a month in cost. And then of course, you have a different type of discounts levels on that base book, who you’re dealing with from a managed care over essentially.
Unidentified Analyst
(Inaudible)
Matt Pfeffer - Chief Financial Officer
Actually it’s less than that when it comes to it. I would say, at the time we get out, you probably would assume after discount that somewhere in the, let’s say -- I would say, $6.50 to $7 a day.
Josh Schimmer - Piper Jaffray
I got questions for investors, who kind of say, if you look at the type 1 data, the short acting subcutaneous insulin, may be how the better hemoglobin A1C benefit than AFREZZA. It certainly didn’t stop Bydureon from getting approved when they were strong as we’re glue tied in one of their studies, but maybe you can talk a little bit about that difference in hemoglobin A1C. Is it a reflection of the PK profiles, why do we see it and is it something that you see as a commercial obstacle or even a regulatory obstacle?
Matt Pfeffer - Chief Financial Officer
Well, remember the difference is relatively minor. I mean, it’s within the balance of non-inferiority as established by FDA with us, in corporation with the FDA. And that was the most recent study and other studies. We have at least one or two with me. Remember (inaudible) we were numerically superior. So I can go both ways. But I think -- I don’t think it’s going to be an obstacle because there’s a lot -- from a regulatory standpoint, there’s a lot of history there and precedence that would show that and discussions with the FDA that would support that as well.
From market standpoint, if I were selling rapid acting analog, I would probably try to use that to my advantage in detailing the product. But at the end of the day, I think, the other benefits given the relatively small difference we’re talking about are coupled with the benefits in hypoglycemia, weight gain things like that. I think -- and just the form factor and ease of use and likely better compliance. I think we’re all aided in the market a great deal and will easily overcome that.
That said, we think we know what’s causing that difference. We probably don’t think it thus. I think our (inaudible) profile does very nicely mimic naturally in physiology in healthy person which is good in most respects but we do see fasting levels rising through out the day because frankly it’s hard to control your insulin properly and to some extent that key masked by lot of persistence of the existing rapid acting analog.
We don’t have that which we think is an advantage, which is one of the advantages that leads to the hypoglycemic benefit but it’s an issue how to address impact. So it’s going to take not just while what we’re used to. This being a fundamentally different insulin, different than it was used to it at least. So to use it properly, it’s going to take little more training I think. But along the way, I think the patients were benefiting at each step. So I think it will ultimately be successful in the market.
Josh Schimmer - Piper Jaffray
And maybe just a last question on your cost structure, how much of the cost that you are incurring now will be offloaded once you have AFREZZA on the market and a commercial partner?
Matt Pfeffer - Chief Financial Officer
Yeah, I’m glad you asked that question because I guess -- maybe just because I’m basically a qualified accountant, I’m often surprised by these things. But we are spending a lot of money and people moderately think down, they show these expense -- they hold these expenses continuing. They don’t fully appreciate that.
Most of the cost today are manufacturing organization and gearing up for commercial manufacturing. Ultimately once we have a commercial product being sold, those cost will -- they are not going to away with those, certainly be transferred into inventory or cost of goods. So the markets appear in the same way.
[But same] token even some of the remaining costs, we would expect the likely partner agreement with they would assume a lot of the cost for ongoing studies and those sorts of things. So I think it’s going to dramatically change our cost structure.
Josh Schimmer - Piper Jaffray
We’re very excited for April 15 and there are few guys and best of luck and hope that you will comeback with Al next year to join us at the conference. Thank you so much
Matt Pfeffer - Chief Financial Officer
Thank you.
Josh Schimmer - Piper Jaffray
