Logo of jester cap with thought bubble.

Image source: The Motley Fool.

MannKind Corporation (NASDAQ:MNKD)
Q1 2021 Earnings Call
May 12, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good afternoon, and welcome to MannKind Corporation first-quarter 2021 earnings call. As a reminder this call is being recorded on May 12th, 2021, and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call until May 26, 2021. This call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainties 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 morning, the earnings release and the slides prepared for this presentation. Joining us today from Mannkind are 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 -- Chief Executive Officer

Thank you and good afternoon everybody and welcome to our Q1 2021 quarterly earnings. First, I want to highlight our total revenues for the quarter were 17.4 million, or 7% versus 2020, and as you may or may not recall, we had a tough comparison in 2020 because of a portfolio of COVID demand whether it was a wholesale or patients stocking, which made it, as we'll talk about in a second, look slightly not has increased as much as we would expect quarter to quarter, year over year. On the orphan lung disease and partnerships, things has progressed. Our United Therapeutics collaboration with Tyvaso DPI was submitted to the FDA by United Therapeutics for both the pulmonary arterial hypertension indication as well as ILD.

And we're looking forward to hopefully having an acceptance from the FDA with ILD later this quarter in approval by year end. On the pipeline side, we completed our first toxicology studies for clofazimine, which is MNKD-101. We are now just finished dosing the dogs study, which is a large animal for tox. That will be wrapped up very shortly, and we're now currently making API supplies and identifying the site here for the Phase 1 by year end.

We started several new formulations for new collaborations. We are quite busy there in Denver. We increased our staff on R&D, as you see, and excited to continue to move the pipeline and new collaborations forward as we continue to progress 2021. As we look at the endocrine area, Afrezza grew 8.1 million or 1% percent versus Q1 2020.

But what's really important to look at its true demand growth in the marketplace. And what I mean is when you strip away inventory shifts from wholesalers, pull forward a patient's prescriptions here and there, volume mix and price, you really show a true demand group from 7.3 million to 8.8 million, or 21% year over year. As many of you may notice in our earnings we did expand our investments behind Afrezza, but that $3 million increased expense is not 100% related to Afrezza. There's a lot of moving parts to that number.

No. 1, we did expand our sales force in Q2 of 2020. You're just seeing them get out the door here in Q1 of 2021 and Q2. We increased our medical liaisons, which are just happening here in Q1 of '21.

So several things related to Afrezza that really took effect either late in 2020 or early '21 that we're just going to start to see the impact of those extra hires and extra expense here as we progress the rest of this year. Pediatric trial is another area we've increased our investments and getting ready for that trial, and the FDA recently will be providing those final comments that gave us the green light to move forward. The IRB just approved the protocol with some minor changes, and we're on track to start this trial in the second half and extremely excited with all the work that the team has done in getting this trial off the ground. We've also clearly co-promote here in late in Q1, and we'll continue to see progress in Q2 as the team gets additional marketing materials and getting out there across the targets as COVID opens up the world.

And on the balance sheet, Steve and the team has done a very nice job, as you look at our cash balance at the end of March was $278 million, mainly due to the convertible debt issuance of 230 million. And we've also completed our debt restructuring, where now, the majority of our debt is due in 2026, and we would do some sort of the legacy that we had in the company in April. On a further -- when you look at the moving parts here, was the bridge program which was a free goods program that showed up in the Symphony and IQVIA prescription that ended January 1st. And so it's hard for the market to see the gives and takes in the prescriptions.

We're trying to show you, if you look at TRx plus our free goods that you see/cash pay, and you look Q4 to Q1, generally flat. And if you recall we typically see a Q1 decline versus Q4 because patients generate for one extra scrip at the end of the year to max out their benefits. So I think you see this, looks pretty good relative to what you're seeing in the marketplace of scripts dropping. But just know a lot of scripts dropped about 15%.

But traditionally, we called it the bridge program, and that's now gone in our history. When you look at some of the work we did here in Q1, we had a sales meeting that was virtual. We got the sales reps new materials with a new message focused on speed. We've launched a nationwide CME focused on pulse rapid insulins with PCYD.

We've done more surround sound amplification that increased the awareness and reminder around the Afrezza and inhaled insulin. You'll see more journals, digital EMR advertising. And AfrezzaAssist, our new reimbursement hub, got 25% of our anorexics in Q1 and continues to progress here in Q2. On the patient side, you'll see expanded digital marketing we piloted in a couple of states which has increased here in late March, early April to all of our covered states.

We've seen the 40,000 clicks in increase in traffic and our daily website. And we've also increased our support of third-party advocacy groups. And here, you can see a little car. We're running a pilot in one of the key markets here of rep cars to see that helps to increase awareness of inhaled insulin.

So currently we are finalizing our plans to invest to get Afrezza growing faster now that COVID looks like it's behind us. We believe 85% of our field employees are roughly vaccinated. And so we're basically back to where we were pre COVID last year as we expect to get this back up and running here in Q2. On the Tyvaso timeline, we've completed everything we've stated here in Q1 and Q2 and Q4.

We're just waiting upon acceptance. But as you look on our job board, we are hiring quite a number of employees to gear up here for Q3 manufacturing of Tyvaso, and the buildout which is an expansion opportunity support the future growth for additional indications Of Tyvaso. So a lot of work going on in Danbury, and I just want to thank everyone there for listening to the call. It's been a tremendous amount of work under really tough circumstances just given all the extra equipment to get to where -- during COVID and making a high-potency molecule.

And we hope we will be on track for a PDUFA date at the end of this year. Steve, I'll turn it over to you.

Steve Binder -- Chief Financial Officer

Thanks, Mike, and good afternoon. Very pleased to review the first-quarter 2021 financial results and a number of favorable changes we've made to debt change with our numbers. Please supplement this call against consolidated financial statements and MD&A containing our 10-Q which was filed with the SEC this afternoon. Let's start out by looking at revenues for the first quarter of 2021.

Afrezza net avenue was 8.1 million vs 8 million in 2020, a growth rate of 1%. As Mike said you may recall that in the first quarter of 2020, was favorable impacted by approximately a half million dollars due to shipments to wholesalers related to patients stockpiling as the COVID-19 pandemic started to heat up. Excluding the impact of the first-quarter 2020 stockpiling, non-GAAP as a growth was approximately 8%, mainly due to favorable price including gross to net. Also, Mike spoke about a further demand sales increase of 21% for the first quarter of 2021 versus first quarter of 2020.

Demand sales are reported by Symphony and adjusted by Mannkind's gross to net. The most significant reason we don't see a similar increase in Afrezza net revenue is because of wholesaler buying patterns. Specifically, the increase in the first quarter 2020 inventory levels for patients stockpiling that I just mentioned, plus as we expected, wholesalers lowered their inventory levels in the first quarter 2021, primarily related to the termination of their free goods program as well as seasonality, which impacted Afrezza net revenues by approximately $1 million. Moving to collaborations and services, revenue for the first quarter was 9.3 million versus 8.2 million by 2020, representing a 13% increase.

The increase was mainly due to higher revenue related to our United Therapeutics collaboration as we prepare for the commercial manufacturing launch of Tyvaso DPI, as well as revenue from the Thyquidity co-promotion agreement. Thyquidity was launched approximately midway through the first quarter. In addition to the Thyquidity collaboration revenue, we expect new business development deals would further add to our collaboration revenues this year. We've been quite busy raising capital and restructuring our balance sheet to make the company financially stronger.

In early March we raised $230 million by issuing 2.5% senior convertible debt, taking advantage of strong market conditions and demand for Mannkind convertible debt reflected in a substantially oversubscribed offering. The cash received from the convertible debt offering has resolved its significant risks and uncertainties regarding sources of liquidity which previously raised substantial doubt about the company's ability to continue as a going concern. Our 10-Q filed today with the SEC reflects the absence of a going concern disclosure. In April, with our improved financial condition, we used some of the proceeds from the convertible debt issuance to pay down some of our higher-cost debt and negotiated more favorable terms with our lenders.

Specifically, we paid down $10 million of mid-cap debt with an interest rate of 8.75%, which reduced the outstanding balance to $40 million. We also paid off the Mann Group term loan with an interest rate of 7% in the amount of $35.1 million, and outstanding accrued interest to the Mann Group in the amount of $4.9 million. Overall, in April, we decreased higher interest rate debt by almost $50 million. In addition to reducing debt, we also renegotiated terms on the MidCap and Mann debt.

For our senior secured credit facility with MidCap, we increased Tranche 3 from $25 million to $60 million, which is available to us between December 2021 and June 2022 if Tyvaso DPI is approved by the FDA. The interest rate on the loan is lowered by 1.5%, the LIBOR interest rate floor was lower by 1%, and we added an interest rate cap of 8.25%. We also extended the interest-only period by one year to August 2023. In addition, financial covenants were relaxed.

Specifically, our minimum cash balance was lowered from $30 million to $10 million, and upon FDA approval of Tyvaso DPI, the minimum cash balance requirement is eliminated entirely. And as long as we maintain at least $90 million in unrestricted cash equivalents, the Afrezza 12-month trailing net revenue covenant is suspended. For the remaining Mann Group debt of $18.4 million, the interest rate was lowered from 7% to 2.5% to match the raise obtained on the March convertible note issuance, and the maturity was changed from November 2024 to December 2025. The impact of the changes just discussed results in an annual interest expense reduction of $5 million.

To conclude the finance section of today's call, we have strengthened our financial position by adding a substantial amount of cash to the balance sheet, reduced our cost of debt, as well as lowered the hurdles associated with our debt covenants, which allows us to better fund pipeline opportunities, including the Afrezza pediatric clinical trial, Afrezza growth opportunities and allows us to focus on the preparation from manufacturing Tyvaso DPI for a collaboration part with United Therapeutics, which should begin in the third quarter of 2021. Thank you. And now, I'll turn it back over to Mike for additional comments.

Michael Castagna -- Chief Executive Officer

Thank you, Steve. Let me start as we think about the future of the company and the pipeline of Technosphere opportunities. As Steve pointed out on the collaboration revenue line, I encourage our shareholders and analysts to continue to watch that line because that is where additional revenues are going to start to show up, whether it's the Thyquidity fees that come in or additional formulation work we're doing or formulation work that we're making for the pipeline for partners such as Receptor Life Sciences. These -- all these extra revenue streams are going to start to fall in their collaboration.

And I think that's important for people to continue to focus on. As we look down here in our pipeline, you can see Afrezza and Thyquidity are the two Phase 3 marketed products we have. Pediatrics is going quickly into Phase 3, will be dosed here in the second half. And international expansion is not just focused on Cipla here in India as well in Australia, we're also now looking at Europe and Canada as next milestones to file Afrezza.

On the Tyvaso DPI side, that's on track to be filed here and approved by the end of the year, if all goes well, and Mannkind 101, as I mentioned earlier, we are making additional supplies to run the Phase 1 study, and we are just finishing up the large animal tox study, which will be wrapped up here in Q2/Q3, and set us up for Q1 opening of that opportunity. The next three assets, I won't go into details on any one of them, but I will just say they all continue in terms of formulation optimization, PK dosing in rodents to get us ready to move these, at least hopefully, two of these programs in the tox studies later this year. And then we have Receptor Life Sciences, and we'll start to see more activity from them as we look to be the CMC manufacturer for the [Inaudible] franchise with RLS. On the 2021 milestones, we have several items that are new that weren't here in the last quarter.

In particular, the Levin Type 2 study just got published, and that was an important study as it showed you how to dose Afrezza in a fixed-dose way in insulin real-time naive patients. To remind you, if you don't recall, that study had a 1.6 log reduction in A1c in 12 weeks with no significant material hypoglycemic increasing. So we find this as a really important study as we're looking to use as a basis in our Indian trial as well as some future trial designs we're looking at. Additionally, there's a trial we did here in Q2.

It's almost done here in a couple of weeks, where we are looking at a higher conversion dose than what's in our label as we want to set that up for our PIP study and future studies, potentially looking at a label change where we can get patients started on the right dose at the right time to increase patient retention. And then finally, as Steve mentioned, the $60 million debt tranche was increased from 25 million. And otherwise, all these milestones continue to remain on track for this year as we look forward to continuing to execute against our plans. One exciting thing to announce.

We'll technically not in this morning, but we think since we're having an earnings call today, we didn't want to surprise you, we are engaging Connor Daly, who is a patient living with diabetes, the only full-time Type 1 racer in the series here. And he'll be -- you'll see a Mannkind car in the race this weekend, if you can dial in and watch, at the GMR Grand Prix in Indianapolis, May 15th, from two to five, we will have a Mannkind car, hopefully doing very well with Connor at the helm. So looking forward to this, but this is part of our unbranded campaign around raising awareness of inhaled insulin, and you can see the ties on here [Inaudible]. So we are wanting to grow farther a lot faster, and we see no reason as we look at all the noise with CGM and what's happening in the marketplace around Needlefree, moving needle pricks, Afrezza has to capitalize on this opportunity and drive faster demand as we grow out there.

So hopefully, you have a chance to watch the car, and hopefully, you have a good race. And then just wrapping up here next week, we're also getting ready for the annual shareholder meeting. I want to thank everybody who has voted their shares already. We know over 50% have been voted.

Please sign in 10 of 15 minutes for the start. There are three proposals, nothing major here, but making sure we elect our nine directors, ratifying our auditors, and advisory approval of our compensation for our named executive officers. If you have questions you want us to be prepared remarks for, please feel free to send them in. I've already gotten at least 10 or 15 from various shareholders.

So stick that on the IR. We'll be collecting those and trying to organize our answers in a way that we can go to questions and provide the feedback that you're all looking for. So I'm going to stop there, and I think we'll take questions.

Questions & Answers:


Operator

Thank you. [Operator Instructions] Your first question comes from the line of Oren Livnat from H.C. Wainwright. Your line is open.

Oren Livnat -- H. C. Wainwright & Co. -- Analyst

Thanks. I got a couple on to Tyvaso DPI, and then one big picture. On the DPI program, you mentioned manufacturing is moving forward quickly. And I'm just curious, since you're expecting December approval, what sort of manufacturing revenue and how material could that be actually this year ahead of approval, potentially? And do you book that? And then also, I guess, as we try to figure out, assuming that's going to be a big product, how do we gauge manufacturing revenue as a percentage of end sales, so to speak? And what sort of margin is there on that? And then I have a question on BREEZE.

Thanks.

Michael Castagna -- Chief Executive Officer

So I think we're in a couple of things. One, we're just finalizing our commercial supply agreement here with you. So I think we'll have further guidance as we get to Q3, when we have this up in Q2 when some of the margins in percent of sales. In terms of booking revenue, what we can expect, I'm going to get this to Steve here.

Steve Binder -- Chief Financial Officer

I'm going to say we're going to do the same thing, we'll provide some perspective once we get the manufacturing agreement completed. So we know there are a few different ways that the revenues can possibly be reported, and we want to make sure we get it right. So once we get that done, which will be in the second quarter, we'll provide that feedback to you.

Michael Castagna -- Chief Executive Officer

The short answer to your question, Oren, is there will be impact this year on a positive way that we'll be booking -- we're just finalizing that right now.

Oren Livnat -- H. C. Wainwright & Co. -- Analyst

All right. So I guess I'll cross that bridge later. I think I've asked you about this before, and I don't know if you could talk about it or not, so you could shut me down if not. But obviously, they filed with the BREEZE results, which I think was just like a dose-for-dose switching study from Tyvaso, the old formulation.

I'm just curious, was there or is there ongoing extension to that study, perhaps studying at higher tolerable or max tolerable doses using the DPI such that maybe we can learn that, in fact, you can go a lot higher with your product? And maybe you can give even superior efficacy even if it's not a statistically controlled head-to-head study?

Michael Castagna -- Chief Executive Officer

Yes. Oren, great question. So you're right. The first, I think, was the three-week switch was a dose-to-dose conversion, making sure we were no worse then and didn't have any supply safety signals from those patients.

If you recall, they enrolled 51 patients. I believe, 49 enrolled into an optional extension phase. And in that optional extension phase, we have patients going on over a year. I think by the time we get approval, it should be almost two years in many of these patients.

So we are going to have good, long-term followup on efficacy and safety. And in that optional extension phase, people could titrate up to higher doses. And so we do know what that looks like, and we do know the average dose from where they started to where they end up over one or two years. And I think that will be important data, right, from overall given they're in label to also demonstrating the safety.

And as you recall, we were able to get to a max tolerated dose of 150 micrograms. And so we allowing people -- or I guess United Therapeutics is allowing people to go up that high in the extension phase. And so I can tell you the majority of people don't need incrementally more, but there is a subset of people that do dose higher.

Oren Livnat -- H. C. Wainwright & Co. -- Analyst

OK. And maybe -- I apologize, if I just missed. Going forward also, are they using your device for additional extension -- label expansion studies that they're talking about now, COPD, etc.? Or are they using Tyvaso, the old formulation, and then plan to maybe wait for approval of the DPI to then try to expand that label after approval? Or are they using your device going forward, even pre-approval, for clinical trials?

Michael Castagna -- Chief Executive Officer

I think in fairness, everything they're doing outside of the extension study, and so all the other indications are on their Tyvaso nebulizer. And whether or not they switch over to the DPI formulation, I think, would be TBD post approval. So I wouldn't expect you to look at it until we've seen an approval.

Oren Livnat -- H. C. Wainwright & Co. -- Analyst

Got it. Thanks.

Michael Castagna -- Chief Executive Officer

Thank you.

Operator

The next question comes from the line of Thomas Smith from SVB Leerink. Your line is open.

Thomas Smith -- SVB Leerink

Hey, guys. Thanks for taking my question, and congrats on the progress. Just a couple on my end. First, I guess, now that the NDA has been submitted for Tyvaso DPI, can you talk about your expectations for pre-approval inspection? And I guess, how are you preparing for this? And do you have any expectations on timing?

Michael Castagna -- Chief Executive Officer

Yes. I mean, we'll be prepared for pre-approval inspection. Whether or not we need one, I think, is a question we don't know the answer to. That's up to the FDA.

The factory has just been inspected. I want to say in '19 -- mid '19 if ever call it mid '18, but we had no 43. Everything was really clean. And so the FDA was there recently since we got approval.

That was the first time they were there five years. So we feel pretty good about the rightness of the factory. We're not too worried. We always prepare for those things.

And if the FDA wants to come in, we do expect that, and we'll be ready for that when that happens. The good news is they want to go international. Everything is here in the U.S., the packagings here in a pretty well-established place and the Boston office, the FDA is only outside Danbury. So it could be an issue, but I mean, I know some other companies that had issues on this, but we don't expect that to be one of our issues with them.

Thomas Smith -- SVB Leerink

OK. Got it. Got it. And then some of Steve's comments suggested that you're looking into new business development deals.

Maybe you could just speak to some of the types of deals you're evaluating? And any sense when we could expect to hear your next steps here?

Michael Castagna -- Chief Executive Officer

Yes. So one of the things we started doing recently with a few partners is lowering the, I'll say, the cost upfront to do some formulation work so that we can look at feasibility studies and kind of share that risk with our partners to show that we can take our technology and someone else's product and really make this an opportunity to scale up other BD opportunities and manufacturing deals and royalties, ultimately, right? So I think that's what you're working on right now. We've had several come in over the last few months. We're working on those.

We're already formulating things coming up on stability. And then there's new entities we're looking at that could be NCDs that we're thinking about creating. So that's -- there's a combination of other people's products, maybe in terms of life cycle management. And then there is opportunity to look at earlier stage innovation that we think our technology and someone else's molecule collect really well together, and that either one by far doesn't make sense, but together, that be really powerful in treating some of these orphan lung areas.

So that's our main focus for those types of collaborations. But the collaborations with our partners are likely to be non-orphan lung areas, where we would partner -- they're not going to directly compete with the pipeline. And then something where -- still something with COVID bubbling up that people are working on, that they want us to explore our powder development formulations force. So we'll continue to explore those.

But we're not directly going to focus on COVID personally as we speak. But if they want molecules or things that we can formulate with them, and we'd love to continue to look at those. We think we have a scalable technology that can deliver therapeutic deep in the lungs that provide clinical benefit in many diseases. And that's while we're looking to see is happening, to continue to help more patients as we go out there.

So hopefully, you'll see. So in times we're getting done. I think the first thing is giving the formulations done and showing they get the right PK in the rodents. And then once we know we have dosing, then I think those will turn into development deals and go forward.

Thomas Smith -- SVB Leerink

Got it. Got it. All right. Thanks, Mike.

That's helpful insight. And then maybe just a last question with ADA right around the corner. Maybe you could just talk to expectations for data we should be watching out for at the conference?

Michael Castagna -- Chief Executive Officer

Sure. There's two conferences. They're actually ATTD, which is coming up in, I think, two and a half weeks. We just reviewed our poster for that.

And so that one's going to nocturnal hypoglycemia with Afrezza from our STAT study is a new analysis that we've done. And then in ADA, we have two posters there. One is around daytime, time in range, and that's based on the Levin data that just got published. We were showing that Afrezza can improve daytime real-time control and give you better time of brain, and the other study that will be presented at ADA will be the PIP PK study.

I think that will be one of the first times I dealt, if I recall. And that will be to start as we start to prepare the market for pediatrics and understanding how it works, what it looks like and then feeding into some of that pre-market preparation that we'll build over the coming years. So that's where that second study is going to be.

Thomas Smith -- SVB Leerink

Got it. Great. Thanks a lot.

Michael Castagna -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Robert Hazlett from BTIG. Your line is open.

Unknown speaker -- BTIG -- Analyst

This is Terry on the line for Bert. Thanks for taking the question. I just have an additional question on potential development opportunities, specifically for Tyvaso DPI. Has there been any ongoing discussion with UT regarding additional indications, COPD, IPF, that they're currently investigating? And could we expect any future update regarding additional opportunities?

Michael Castagna -- Chief Executive Officer

Yes. I think it's been clear from us and UT that -- I think the good news in the FDA and when I listened to their earnings call last week, is that we have been writing from the FDA, and they have been writing that any additional indications that Tyvaso gets, our formulation will be eligible to fold into the label. And those may be protected with UT and orphan and patents and things like that. And so if COPD was to get approved to them, if IPF got approved, and those are indications that could expand for the Tyvaso DPI label.

So we're preparing for success in those markets and those opportunities. And as you saw, we just are planning to file with the ILD and PH right now so to speak. So I think they expect to read out on COPD next year, if I recall, and in the following year, the IPO. So we'll keep watching those, but we've got to get ahead of those and it comes to the manufacturing, we can't wait for the readout.

We got to be ready to go. Those are big markets.

Unknown speaker -- BTIG -- Analyst

Great. Yes, that makes sense. Thanks for taking the question.

Michael Castagna -- Chief Executive Officer

Thank you, Terry.

Operator

Your next question comes from the line of Stephen Lichtman from Oppenheimer and Company. Your line is open.

Stephen Lichtman -- Oppenheimer & Co. Inc. -- Analyst

Thank you. Hi, guys. On Afrezza, do you have an estimate of how much channel inventory is out there that might still get work down due to the end of the free goods program?

Steve Binder -- Chief Financial Officer

Yes, Steve. It's Steve. We don't -- we believe that the reduction in channel inventory was mainly Q1. What we've seen in April, we haven't seen further work down in the inventories that are expected.

It's all done by that.

Stephen Lichtman -- Oppenheimer & Co. Inc. -- Analyst

Great. Thanks, Steven. And then I was wondering guys if you could update on some of the initiatives. You highlighted some already.

Maybe if you could talk a little bit more about how AfrezzaAssist is performing for you guys? And then any update on BluHale? I didn't see anything on that. Thanks.

Michael Castagna -- Chief Executive Officer

Yes. Two great questions, Steve, and Thank you. On the AfrezzaAssist, as you saw, 25% of our volume went through there in terms of new prescriptions. We're seeing anywhere between 60 and 90 prescriptions a week come into Afrezza Assist.

Obviously, we have an incentive with our sales force to improve that. And the example there is we're looking at one large PBM and saying, what percent of claims are getting approved, and that helps us finalizing our contracting strategy. And so now we can see 90% of claims get approved on PBM 1 and 80% of PDM 2. So it's really given us really important insights.

And as we think about how do we best remove friction from the prescribing process. That's one of the things we continue to work on. Africas has given us a nice road map on here to improve. And certainly, we see Steve in that process, for example, is doctors just don't know how to write a prescription, right? They're new prescribers, and now we can go back and educate them and say, hey, this is how it should be written.

Or we see they don't sell our PA out. Many times, the payer just says, hey, did you fail the competition or not? And as long as they try the competition, they will get approved. Now we see in AfrezzaAssist, a lot of times, the doctors just don't even document that basic premise, and that's causing a delay and from the time of prescription to the time a patient starts. So we're getting a lot of good insights that allow us to keep working out those things, keep on moving to friction and get those offices to be more efficient in the fees.

We have no problem with the prior offices. They're mostly PA label. In some cases, it's vetted through to the preferred agent, which, again, we're targeting the 3.5 million people on insulin already today. And so that's more than enough patients to grow a successful company around.

So that's the AfrezzaAssist. We've got about 200 patients, honestly, in the wings right now, just waiting for the PA, either for the doctor to complete it or PBM. And so that gives us some kind of perception of the load of patients that should come out over the next three months in a couple of hundreds there. On BluHale, we will fly this quarter mainly because we're waiting for the FDA to grant us meeting or give us feedback on how they're going to categorize a device.

We think it's an exempt device. We just want to make sure of that before we talk much more about it. But otherwise, we continue to invest in BluHale. It's an important partnership with UT.

It's an important partnership here on the hind side, and then really looking at how we integrate that, potentially building up the software to feed it with CGM and dosing. So all that's continuing to progress. We're spending a little bit of money here as we go forward on this one, and you'll continue to see that get elevated as we progress this year and into next year. So that's still front and center and an important part of our investments in the future for Afrezza.

Stephen Lichtman -- Oppenheimer & Co. Inc. -- Analyst

Got it. Thanks, Mike. Maybe just lastly, Steve. Gross margin ticked down here sequentially after being on a steady rise.

Anything unusual in product revenue COGs that you'd call out? Or anything else that you would highlight on the gross margin?

Steve Binder -- Chief Financial Officer

Yes, Steve, thanks for the question. It's related to the manufacturing activity for the first quarter for Afrezza. Since we didn't have a lot of Afrezza manufacturing in the first quarter, the excess manufacturing costs fell to the COGS line without getting capitalized as they would if there's actual manufacturing activity. The second quarter, we have a lot more manufacturing activities.

So you should expect the gross margin to be higher than the first quarter.

Stephen Lichtman -- Oppenheimer & Co. Inc. -- Analyst

Got it. Thanks, guys.

Operator

We are no further questions at this time. I turn the call back over to Michael Castagna for closing remarks.

Michael Castagna -- Chief Executive Officer

Great. Well, thank you, everyone. I think the good news for, hopefully, knock on wood, that COVID is fully getting us back to normal. I personally was out meeting customers the last week and very excited being able to meet large practices and understanding where we have and have not gone right and wrong with Afrezza.

And where we can kind of turn the corner. I think Alejandro is doing a great job in getting everyone focused on the right thing. We're currently looking at how do we get each of our district managers leading growth quarter to quarter. And I think we're on track probably this quarter for the first time of seven out of nine going double-digit positives as we close out Q2.

So we're excited to see the momentum. We've got a lot of great new salespeople out there, and a lot of our current reps had to work through the pretty good vending here in Q1. That was a little bit of friction they had to overcome. But I think a lot of that's now behind us.

And I'm expecting -- we've seen like a stabilization at this point. But the free good behind us and you may not have realized there were some formulary coverage changes here in April, which we mostly worked through. And so I think we're seeing the bottom here, and we should start to continue to see growth as we go forward. And that's what we're truing up for and that's what we're investing for.

So we look forward to everyone talking here in Q2, getting our new data sets out there and continue to move Tyvaso in our pipeline forward. Mannkind is really in the best position we've been in the last four years and looking forward to continuing to march along in 2021 and hopefully start to grow this company a little bit faster. So thank you for everyone's support, and look forward to talking to you soon.

Operator

[Operator signoff]

Duration: 36 minutes

Call participants:

Michael Castagna -- Chief Executive Officer

Steve Binder -- Chief Financial Officer

Oren Livnat -- H. C. Wainwright & Co. -- Analyst

Thomas Smith -- SVB Leerink

Unknown speaker -- BTIG -- Analyst

Stephen Lichtman -- Oppenheimer & Co. Inc. -- Analyst

More MNKD analysis

All earnings call transcripts

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.