Earnings Call Transcript - MNKD Q2 2021

Operator, Operator

Good afternoon and welcome to the MannKind Corporation Second Quarter 2021 Earnings Call. As a reminder, this call is being recorded on August 11, 2021, and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call until August 25, 2021. This call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainty, which could cause actual results to differ materially from these stated expectations. For further information on the company's risk factors, please see their 10-Q report filed with the Securities and Exchange Commission this afternoon, the earnings release and the slides prepared for this presentation. Joining us today from MannKind, our Chief Executive Officer, Michael Castagna; and Chief Financial Officer, Steven Binder. I would now like to turn the conference over to Mr. Castagna. Please, go ahead, sir.

Michael Castagna, CEO

Hello, and thank you everybody for listening in today and thank you for the introduction. Today, Steve and I will give you an update on Q2 financial overview, along with some insights on how the United Therapeutics collaboration will come together in future quarters. I'll close out with a quick update on the pipeline and the Q&A. So in Q2, I'm really excited. I want to thank everyone at MannKind. We're very excited about the quarter and all the work we've done during Q2 and third quarter year-to-date. Let me start by highlighting our total revenue was up 54% year-over-year and our Afrezza revenue jumped 43% year-over-year from pre-COVID levels back into the second quarter of 2020. Our orphan lung disease and partnerships are growing rapidly, as we all know about our United Therapeutics collaboration, the end date was submitted in April, accepted by the FDA in June, and we're on track for an October PDUFA date. Our on-site pre-approval inspection was completed as of last Friday and we expect their report within 30 days. On the pipeline, we signed an NCE, a New Chemical Entity, for IPF for the company from Thirona, where we plan to do some development work over the next 15 months, which can result in license collaboration. We also made a small investment in Sirona because we need them to be successful in the dermatology indication. A lot of the work they're doing on the API and the drug-drug interaction studies, etc., will pave the way for this asset in terms of an inhaled version. Second, we've been working on several formulations with new collaborations that are currently moving forward from our facility, some are working through the process, including the one announced last week with NRF. On the endocrine disease front, Afrezza had strong growth quarter-over-quarter, with 6% TRx. One of the things we're going to share with you today is some clarity and transparency around the pre-drug program we created, some of the changes we made back in Q1. Now that we have six months of data, we can start to show you what cash free goods program looks like, because when you add that in, we had 9% growth quarter-over-quarter and that's our early indicator of future growth. As we announced, CMS made a policy change on the use of Afrezza and CGM. Let me clarify for a second, because I know there's some confusion on this one. It's separate from Medicare coverage of Afrezza and it's really specific to patients on Afrezza being able to get CGM. Previously, to get CGM, you had to be on injectable insulin. Now, patients on Afrezza on Medicare can get access to CGM. We don’t want patients to feel like they have to stay on injectable insulin in order to get CGM or be afraid to switch off of their injectable to get Afrezza. So that's now clear, and it's a great change. We continue to work with CMS and Medicare insurance providers to ensure coverage for Medicare recipients. Our pediatric trial is on track to launch here in Q3. We filed it with clinicaltrial.gov and our investigator meeting is over the next few weeks. We presented new data at ADA and ACE. We continue to want to drive the science behind mealtime control as one of the big initiatives you're going to start to see from MannKind is really starting to drive the information gap that exists in terms of what we see as an unmet need and the science behind mealtime control in diabetes. We also modified our insulin supply agreement with Amphastar, which has been a great partner. We were able to eliminate $10.5 million in purchases over the near term and try to get that purchase in line with our demand, and that's moved to 2027. We need a long-term supply and Amphastar has been a great partner. Another key topic is we plan to finalize the debt restructuring. We paid off the legacy debt and we have no major obligations in front of us. Our PPP loan was 100% forgiven in July as we did the right thing by keeping people employed during the worst pandemic we've seen, and we're really happy because that set MannKind to come out of the pandemic and continue to maintain our business continuity and keep our teams focused on what's doing right and helping patients. As I bridge over to Tyvaso, we're right here on the adjusted box for Q3. As I said, we completed our pre-approval inspection and now Danbury is starting to begin commercialization efforts in terms of product launch. We are in the process of hiring about 100 people in Danbury, which is on track despite the difficult job market. The FDA inspection is complete. We are focused on building commercial supply in anticipation of the October launch and also staffing up Danbury to go 24/7 as we get into 2022. We need that staff ready to train them here in Q4. Steve will give an update on the financials related specifically to the supply agreement. Now, let me talk a little more about Afrezza. In Q2, we had 9% overall TRx growth. This is due to a lot of efforts of the team. We're trying to increase education, awareness, and really increase sales force effectiveness and execution. We made a fundamental business change regarding our free goods program based on what we heard from doctors about access to Afrezza. We created a co-pay card program that goes directly to the pharmacy, and there was no friction in the process. With that, we saw that the program cost MannKind a lot of money in our shareholders, but the doctors just weren't doing the PAs. In order to get formulary coverage, you need demand showing up to the payers. We made a fundamental shift; we built the reimbursement hub at the end of last year, launched it in Q1, it's called Afrezza Assist. In Q1, we had 641 claims that came into our pharmacy, which do not show up in Symphony. We’re combining the two because in the grand scheme, some patients pay cash for $100, $200 a month, but some patients get free drug. We want to show transparency of what's happening in this channel because Q1 to Q2 that grew 50%. Although overall sales grew 6%, we are seeing significant early indicators of new patients coming in and getting started on the product. This increased from about 49 scripts a week in Q1 to 74 scripts a week in Q2. That base will continue to build as we increase demand as patients transition to paid prescriptions. We see the magenta on the left as a refill-based business, and on the right as new patients coming into the future. We are really excited about that. Some early indicators here is that in Q1, we had six of nine districts having positive quarter-over-quarter growth, and now in Q2, we had eight out of nine going quarter-over-quarter. We look at this in totality as early indicators are there, and this will propel our future demand. We are fully focused on accelerating Afrezza growth. You’ll see that in these investments as we look year-over-year. Our free goods are now starting to show up in our hub. We’ve streamlined the process and brought transparency. We can see over 1000 new prescriptions coming in and how the doctors are writing them and what types of justification they're using. We’d love to get rid of PA completely, but we know that's more difficult given the current PBM model. We can see almost two or three patients getting approved for Afrezza when they come in our hub; the remaining 30 are either going through the process or they pay cash. If we continue to cover them hopefully until we can get through the system and they either see their effectiveness and satisfaction or not. In the quarter, we ramped up our digital advertising and our retargeting on YouTube and social video platforms. We sponsor Conor Daly and IndyCar races, and he's also on two regional carding events with kids. We're preparing ourselves for pediatrics in the future. We had a product deal or virtual booth at ADA and ATTD, and we have various webinars as we progress throughout the quarter, and we're looking to see how we can accelerate here in Q3 and beyond. I'll turn it over to Steve to talk about the financials and I'll close out on the pipeline.

Steven Binder, CFO

Thanks Mike, and good afternoon. I'm very pleased to review select second quarter and year-to-date 2021 financial results. We supplement this call by referring to the consolidated financial statements and MD&A contained in our 10-Q, which was filed with the SEC this afternoon. Let's start by looking at revenues for the second quarter 2021. Our present net revenue was $10 million versus $7 million in 2020, a growth rate of 43%. The components of growth included a demand increase consistent with Symphony reported TRx growth of 14%, as well as wholesalers increasing inventory levels in the second quarter, which favorably impacted net revenue by approximately $0.5 million. A more favorable mix of Afrezza at cartridges price, including a more favorable gross to net percentage at 40% versus 41% in 2020, and the negative impact of the onset of the COVID-19 pandemic in the prior year period when patients and wholesalers stocked up in the first quarter of 2020, only to reduce demand by about $0.5 million in the second quarter. A more normalized view of Afrezza growth is demonstrated by looking at the year-to-date growth of 21%, normalizing the prior year COVID stocking issue. Symphony shows strong demand growth reported TRx up 9% and a more favorable mix of Afrezza cartridges and price, including a 2% more favorable gross to net percentage. The change we made to our free goods program as of January 1, 2021, is paying off and helping lower our gross to net as we do not pay wholesale fees and discounts on free products which are now distributed directly from MannKind instead of going through the wholesale and retail channels. This will also have a beneficial impact on future product returns as less product is sold into the distribution channel that can be returned as unused. Moving to collaboration and services, revenue for the second quarter was $13.3 million versus $8.1 million for 2020, representing a 64% increase. The increase was mainly due to a change in the period for recognition of the license agreement revenue, which is now estimated to end in October of this year, the expected PDUFA date, as well as additional Tyvaso DPI pre-commercialization activities agreed to with United Therapeutics in both the fourth quarter of 2020 and the second quarter of 2021. Additionally, when comparing to the prior year, we are recognizing revenue from our co-promotion agreement for liquidity, as well as new collaborations for Technosphere formulation work. The table on our next slide shows the first and second quarters of 2021 plus June year-to-date Afrezza gross profit and gross margin on a GAAP basis and on a non-GAAP basis, adjusted for the expense recorded in the second quarter for the insulin supply agreement amendment fee of $2 million. As Mike mentioned earlier, we amended our insulin supply agreement during the second quarter of 2021 by moving approximately $10.5 million of insulin purchases out of the 2021 timeframe to 2027 when it's better aligned with demand. Unfortunately, we had to pay a fee to accomplish this. Focusing on the second quarter, the first column on the left shows that Afrezza GAAP gross margin was 56%, but when adjusted to exclude the one-time MSP of $2 million, the non-GAAP Afrezza gross margin was 76%. During our first quarter earnings call, I mentioned that the first quarter GAAP Afrezza gross margin of 47% seen in the second column was lower than the previous quarter in 2020 because of the low amount of Afrezza manufacturing activities in that quarter, which negatively impacted the expense recognition, meaning that there was less manufacturing cost capitalized inventory on the balance sheet and more that were recognized as cost of goods sold in the income statement. With a pickup in manufacturing activity in the second quarter, which was expected, the non-GAAP Afrezza gross margin improved to 76%. It may be best to look at the last column of the table, which shows the year-to-date non-GAAP gross margin of 63% to see a more normalized representation of current Afrezza gross margin as this adjusts for the one-time amendment fee and for fluctuations in the level of manufacturing. Looking to the future, as we start to manufacture Tyvaso DPI at commercial scale, we expect the Afrezza gross margin to be positively impacted. Revealing select second quarter expenses, let’s start with R&D expense, which increased by $0.9 million or 59% in the second quarter of 2020, attributable to increased development activity related to the product pipeline, including MNKD-101 clofazimine, increased formulation activities with collaboration partners, the Afrezza dosing study completed in the second quarter, and increased Afrezza medical science's headcount. The analysis of the increase year-over-year included in SG&A was broken out into two buckets as depicted in the pie chart on the right side of the slide. One bucket includes the impact on spending in 2020 and the onset of the COVID-19 pandemic. For example, we implemented reductions in compensation, and there were lower T&E expenses due to the inability of the field force to visit physician offices. There's also increased non-cash stock compensation expense and increased bonus expense for expected payment of 2021 corporate objectives. The other bucket includes our increased investment behind our Afrezza commercial efforts, such as marketing spend with an accelerated digital focus and our new patient reimbursement hub. During the second quarter of 2021, we restructured our debt, including renegotiating more favorable terms on the mid-cap and Mann convertible debt. When terms are amended, the accounting literature makes you determine whether there has been a debt modification or debt extinguishment. The outcome of this exercise showed that the changes to the mid-cap debt were modifications, while the changes for the Mann convertible notes were considered a debt extinguishment for accounting purposes only. You may recall that we amended the Mann convertible notes to lower the interest rate from 7% to 2.5%, saving the company over $800,000 annually. When debt is extinguished for accounting purposes, it still exists as demand convertible note. The accounting literature says that we have to record the new debt at fair value, which was significantly higher than the face value of $80.4 million, as the conversion feature of the note was in the money. This is very complicated, and I hope that I haven't lost anybody at this point; but I’ll keep going. The fair value of the debt was approximately $40 million at the time of the extinguishment in April, which means that MannKind recorded a non-cash loss on extinguishment of debt of $22.1 million and recognized additional paid-in capital on the balance sheet for the debt premium in the same amount. The non-cash charge significantly impacted our net loss and net loss per share for the second quarter. On the bottom half of the slide, we have adjusted our net loss and net loss per share to show what these would have looked like without this non-cash charge. Our GAAP net loss of $35.5 million for the second quarter of 2021 became $13.4 million on a non-GAAP basis, and our non-GAAP loss was $0.05 per share. Now that I've confused everybody, let's get deeper into GAAP accounting. Last quarter, I promised to shed some light on how we would account for the expected manufacturing and royalty revenues associated with Tyvaso DPI. This slide outlines the different revenue streams from our collaboration with United Therapeutics. Starting with the license agreement, we have been recognizing revenue on a ratable basis over the expected clinical development timeline, which started at contract signing in 2018 and went through the date of the expected FDA approval, which estimated date was changed from December 2021 to October 2021 this past quarter with the acceptance of the Tyvaso DPI NDA filing by the FDA under an expedited review process. In May, we updated the development plan associated with the license agreement, and there is approximately $13 million of deferred revenue remaining as of June 30 that will be recognized as collaboration revenue in the period July through October 2021. Next on the slide, it also includes in the original license premium, a royalty revenue which we expect to recognize on net sales of Tyvaso DPI, once approved by the FDA and sold by United Therapeutics. As previously disclosed, the royalty rate is in the low double digits. In May of this year, we agreed with United Therapeutics on an updated development plan, which included additional pre-commercialization activities and an expansion of our manufacturing capacity. Revenue for the pre-commercial activities will be recognized as costs are incurred between May 2021 and 2023. The revenue associated with the manufacturing expansion, which is a pass-through of cost with United Therapeutics, will be recognized once commercial product manufacturing begins and we sell products to United Therapeutics. Additionally on the research agreement side in 2018, revenues associated were fully recognized as of the second quarter of 2020. Lastly, the commercial supply agreement which is expected to be signed shortly will allow MannKind to recognize revenue under two different revenue streams for product produced by United Therapeutics. We'll recognize revenue on a cost-plus basis as products are released by quality assurance to United Therapeutics, and there are expected to be certain other costs which will be incurred by MannKind and allows the invoicing of United Therapeutics as a pass-through cost with no additional margin. I understand that this was a lot to digest for the quarter with unusual accounting for the loss on extinguishment of debt, the insulin supply agreement amendment being included in COGS, and the different revenue streams associated with the United Therapeutics collaboration agreement. Focusing on the drivers of our business in the first half of 2021, we grew Afrezza net revenue 21%, revenue from collaboration and services by 38%, and total revenue by 30%, all while executing during the continuing pandemic. Our non-GAAP net loss and loss per share adjusting for the loss on extinguishment of debt was $13.4 million, or $0.05 per share, which were pretty much in alignment with analyst expectations. In summary, we're executing our plan, preparing for the commercial manufacturing of Tyvaso DPI, investing in and moving our pipeline forward, and accelerating Afrezza growth. Thank you, and I'll turn it back over to Mike for additional comments.

Michael Castagna, CEO

Thank you Steve. I hope everyone is still keeping up with us; it’s been a bit of a complex quarter with some of these one-time issues, but hopefully, they're mostly behind us as we go into Q3 and beyond outside of execution. Today, MannKind has a very strong foundation. We've never been in a better position between the pipeline, Afrezza growth, and the near-term reference filing with the FDA. When I look at Afrezza, it's really going to start to become an improved growth driver when we think about the US adult population moving forward, the pediatrics, which I'll talk about in a second, as well as continued international expansion. Secondly, Tyvaso DPI is on track. I want to commend the team that in three years, from the time we got our results, we signed the agreement with UT to open the filing. This has been a team effort, and I’m truly excited to start helping patients; all is well, and we expect here hopefully in Q4. The pipeline and partnerships are robust, and we really can't take on much more work than we have, and I want to thank our partners for their confidence in us. You'll start to see the pipeline really unfold next year; a lot more will evolve on the pipeline, but we've been very excited about many aspects of it. Regarding Afrezza, we're scheduled for two investigator meetings but they'll be planned here in August and we'll have about 15 sites up and running very quickly with slight initiations in October, hoping for our first patient no later than October. The team has done a great job. This study has been less intensive as FIRB, and we're excited to get this started as we progress forward here in August. Secondly, clofazimine: we continue to work really hard with the team. We have completed the inhaled GLP tox study with two species. This involves 28-day dosing in each species with a 56-day recovery due to a very long half-life on clofazimine; hence, the need to follow this up and ensure washout. There were no drug-associated clinical signs observed. We are well on our way towards the protocol for the Phase 1 healthy volunteers. The study is expected to start by year-end; it will be a 4-arm study featuring a combination of single ascending dose and multiple seven-day ending dose design for the tolerability and pharmacokinetics endpoints. We've also finalized some of the formulation work on the dry powder version in addition to nebulized, and all these studies are progressing nicely. If you look at our 2021 milestones, we are on track to meet or beat all of them and a couple of unpredicted milestones we started our objectives for the year. Everything is on track, and we’re very excited. I want to thank the shareholders, our employees, and everybody's families for dealing with the stress in our organization. Many people are pulling double duty over the summer, getting ready for the PAI inspection, and manufacturing and hiring of 100-plus people. For a company of our size, about 250 people, hiring 100-plus is quite a lot, and the team has done a great job. I want to stop there and take questions and look forward to the discussion.

Operator, Operator

Thank you. Your first question comes from the line of Brandon Folkes of Cantor Fitzgerald.

Brandon Folkes, Analyst

Hi, thanks for taking my questions, and congratulations on all the progress. Firstly, just on Afrezza, I appreciate the additional color around the Free Goods Program, but do you have any color on the profitability of a cash script versus those showing up in Symphony? And could you provide any indication of the split between cash and free goods in that MANN-54 characters you showed there? Secondly, I appreciate the color, Steve; I think I followed, but could you share how to think about company gross margins going forward with the price of manufacturing expansion? Is that running to COGS? Just any color there? Lastly, regarding hiring of 100 additional people, how quickly do you need to bring them on board? How many do you need to meet the initial demand around Afrezza? Thank you.

Michael Castagna, CEO

Brandon, I got the cash profitability per script, and I’ll talk about that; Steve will take the gross margin on the company and the manufacturing and how that flows through. Regarding the cash program, my first objective is to ensure that a doctor and a patient do not get offered Afrezza because of cost. The healthcare system isn't fair to patients. Patients are paying a 20% cost share, and insurance companies want high double-digit rebates on injectable insulin. Our model is very different; we take care of people who have failed injectables. But for the most part, we’re not getting 100% market share for those rebates that our competitors give them. The cash program is a means that we're not looking to lose money; we're not looking to make money; we just want to ensure that patients have access. So that’s why we don’t report it as a significant contributor to earnings. Now, if we get thousands of scripts in a single quarter, then yes, that would be a different story. I think the split between paid scripts and free goods is likely 40%/60%. We want to make sure that is all flowing through in our COGS, and that’s really the key point here. We cut out all middlemen, and you can see online our price per box at $99 and $199 per cash script, which is feasible because we cut out the wholesalers and CBS and other return issues. That’s our inventory, our cost, and we do our best to ensure we are not losing money. Now on hiring 100 people, we’ve got about 50% of the way there by July, which was our goal because that’s what we needed to have hired in order to continue to hit our timelines for production, training, and quality systems, etc. So we were on track for that. The hiring will continue, but we can only train a certain number of physical people at a time. It's much more about onboarding and preparing for the overnight shifts. So we can find extra talent sooner. Our Head of HR and the team have done a great job of recruiting. The next phase of training will be getting people ready for the overnight shifts. Training them during the day and then transitioning them to overnight. So, Stuart, did I miss anything?

Steven Binder, CFO

I think specifically on that question regarding sales force growth: we grew TRx 14% year-over-year, and we had a favorable cartridge mix, which continues to help our net sales gain. I’d put together and tie the sales force improvements, as I mentioned earlier.

Michael Castagna, CEO

That’s important, Daniel, because as you titrate appropriately, patients will move to 8-12 unit cartridges from 40 cartridges, so there is a benefit there as well.

Daniel Busby, Analyst

I've got a couple more on Afrezza. First, with respect to the pickup in Afrezza sales, I realize there are a lot of moving parts. Are you able to tease out how much incremental contribution in the second quarter can be attributed to your salesforce expansion and other recent commercial initiatives? Secondly, can you talk a little bit about progress in growing the Afrezza prescriber base? I think the last time we spoke you were at about 3,000 physicians. Have you made any progress growing that number? Looking out over the next one, two, three years, do you have any specific targets in place with respect to prescriber growth?

Michael Castagna, CEO

Great question, Daniel. Regarding the prescriber base, we actually just engaged in a conversation this week on whether we should focus on deepening our relationships with the 3,000 prescribers or trying to get to 4,000; what would be more impactful. I think there's a lot more we can achieve by getting doctors who already write the product to write more. That's our short-term focus. Especially with COVID access, it's still difficult; about 40% in-person and 20-30% virtual, which differs by area in the country. Until we get fully open, let’s continue to help those who understand the product and have them help more patients. We see tons of upside within our 3000 prescribers. In terms of what’s driving some of the improvement, it’s consistency across the districts and across the territories we work in. Some of this is due to the stealth force expansion, but generally, it takes six to nine months for a rep to come in, train, feel confident and see results. Some of the newer hires have come in and hit the ground running; I think it was two or three from the top 10 who started in the last few months, so we do see new people coming in making an impact. Nevertheless, I believe consistency across all districts is crucial. As we grow, one-third will grow a lot, one-third may shrink and one-third will stay flat. Now we're looking for some stability across four territories, and that's what we're starting to see. Furthermore, the increased marketing investments, such as Outcome Health with the in-office TV advertising, nurse outreach programs on Facebook, and recruiting patients through doctors about Afrezza are crucial approaches. The number one takeaway is we must ensure doctors are comfortable prescribing it and that they've tried it with several patients. We have seen some doctors express reluctance to start switching patients off injectables without clear understanding; we just need to educate them better. Also, we conducted an advisory board on Friday and one doctor said, 'I feel embarrassed not to offer it to my patients now because it’s been available for five years.' That said, the information they see is moving doctors to think about how to integrate Afrezza into patient regimens. We shared some new data from the DOC trial, showing positive results, and that has certainly started to resonate. We’re continually investing in our sales force advance.

Daniel Busby, Analyst

Great. Appreciate all the color.

Operator, Operator

Next question comes from the line of Steve Lichtman of Oppenheimer.

Steve Lichtman, Analyst

Thank you. Hi, guys. On the Free Goods program, what are you seeing in terms of conversion to paid prescriptions? And what do you think is a reasonable goal on that metric?

Michael Castagna, CEO

Yes. We look at some of them that come in and don’t have a prior authorization; some do have one. The overall number, if 100 scripts came in, 65 will go through, whether it’s a PA or no PA. That leaves us with 35 patients that would move to free goods or cash. We limit the free goods for a limited time to show the drug's merits and benefits, safety, and side effects. It gives doctors the evidence to appeal to insurance companies and get coverage approvals. My expectation is that we can improve the conversion rate to over 80% moving forward. We’ve received feedback suggesting that some doctors don’t fully understand what 'failure' means in terms of control. Patients maintaining a 7.5 A1c are often considered acceptable. Our goal is to help doctors understand how best to properly document to ensure appropriate insurance coverage and reimbursement. We're gathering insights from the hub to help make this dialogue effective. For example, on Express Scripts, we’re seeing 85-90% approval rates; on CBS, the approvals are also strong. However, approvals on some regional insurers can be lower, so we need to focus improvement efforts strategically in their markets. This data is invaluable for us.

Steve Lichtman, Analyst

Great. Yeah. Thanks, Mike. Regarding CMS, can you provide insight on the headwinds you experienced prior to CMS recently listing the restrictions relative to CGM? Just to get a sense of how things changed in the field? Was this an issue on the private pay side or just Medicare?

Michael Castagna, CEO

Specifically, regarding CGM, CMS issued a coverage policy, and I believe it was in 2018. I might be slightly off, but they required patients to be on injectable insulin in order to qualify for CGM. As a result, we found some doctors hesitant to prescribe Afrezza or patients were unwilling to transition due to CGM barriers. Last year, we engaged with Medicare on this issue. They hesitated at first but eventually opened the policy to public comment, thanks to our efforts. The good news is Dexcom took a proactive stance to promote this alongside others, resulting in expanded coverage. Patients benefited from the change as CMS eliminated the 'injection-only' coverage for CGM. It sparked further dialogue with CMS around our clinical data and why they need to cover Afrezza, given the potential complications patients face. Our goal here is to engage openly and help streamline how Medicare supports Afrezza. We're advocating for a 35-month pilot program around Afrezza inclusion to verify coverage improvements. Presently, we see that about 20% of our sales originate from Medicare, which is slightly below the average across the insulin market, but we continue striving to enhance that coverage over time.

Steve Lichtman, Analyst

Okay. Thanks. Lastly, regarding SG&A, can you comment on trends we're seeing in the back half of the year? How should we be thinking about that on a quarterly basis?

Steven Binder, CFO

We generally don’t disclose future P&L trends or any guidance, but I believe it’s reasonable to expect SG&A to stay in the same general realm without being very specific about it.

Michael Castagna, CEO

Some of the retiming on expenses could influence trends. Depending on velocity, it could affect R&D or SG&A line items, but generally, we are being prudent with our cash management.

Thomas Smith, Analyst

Hi, guys, good afternoon, thanks for taking the questions, and congrats on the progress. Just regarding the FDA pre-approval inspection, could you share more about the process? It appears we can expect a formal report in about 30 days, but were there issues cited during the inspection that were discussed on-site? Any insights would be beneficial.

Michael Castagna, CEO

Yes, Thomas. Thank you for the question. As for the PAI, the FDA completed both pre-approval inspections and GMP inspections; the latter is conducted every two years. We are proud of our work during the inspection. There was only one finding, and it was not product-related, but more related to the equipment application. This will not impact our timelines or other processes. We await the full report before making further comments, but so far, no significant issues were identified.

Thomas Smith, Analyst

I appreciate that. Also, could you elaborate on the pre-launch preparations for Tyvaso? The early indications regarding United's launch into the PH-ILD space looked strong. Any comments on manufacturing plans in light of that launch?

Michael Castagna, CEO

We have been working closely with UT on the manufacturing launch plan, considering the SKU mix and sequencing, which is quite complex given our large facility. We aim to ensure readiness for the ILD indication in October alongside the launch target dates. We're prepared from both a launch and quality supply....

Bert Hazlett, Analyst

Thanks for taking the question. Congrats on the progress. Mike, could you speak about the DOS trial? What were the goals of the study, and what achievements were made? Additionally, can you discuss wider potential applications of BlueHale?

Michael Castagna, CEO

Sure, thanks for the question, Bert. The DOS trial was significant as we highlighted our intended dosing guidance. We aimed to ensure careful administration of Afrezza to the patients. We designed the trial to assess if patients could be efficiently administered a specified dose following proper conversion. We successfully tested with 20 patients and observations were favorable. We are excited by the results which will inform future protocols and continue to fuel the pipeline. On the technologic front with BlueHale, we did have some hiccups with chip shortages impacting our progress. We’ve made strides through pilots confirming accuracy in dose detection. We’ve recently filed inquiries with FDA around this and we’re looking ahead to leverage the learnings effectively for both Tyvaso and Afrezza alongside building other digital infrastructure. Thank you again to everyone on the call, and we truly appreciate your support. MannKind is moving in the right direction. While it has been a long journey, we’re excited about the prospects ahead related to approvals from the FDA, pipeline advancement, and the successful scaling of Afrezza. Thank you to the team for all their hard work this year. We have four or five months left for strong quarter-end results, and we’re gearing up for a busy month in September with investor events. We look forward to sharing progress as we go ahead. Thank you.

Operator, Operator

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