MannKind's CEO Presents at Goldman Sachs 36th Annual Global Healthcare Conference (Transcript)
by SA TRANSCRIPTS | JUNE 11, 2015
MannKind Corp. (NASDAQ:MNKD)
Goldman Sachs 36th Annual Global Healthcare Conference Transcript
June 10, 2015 11:40 AM ET
Executives
Hakan Edstrom - Chief Executive Officer
Matt Pfeffer - Chief Financial Officer
Analysts
Jay Olson - Goldman Sachs
Jay Olson
We will get started. It’s my pleasure to welcome Hakan Edstrom, CEO of MannKind; and Matt Pfeffer, CFO of MannKind. And I want to thank you for joining us here today.
Hakan Edstrom
Thank you.
Matt Pfeffer
Thanks.
Jay Olson
So I thought we could start off by talking about ADA, you’ve just come from meeting in Boston. Can you give us some idea of the abstract, I think, there were two AFREZZA abstracts that were presented? What kind of things you are hearing, feedback from doctors about AFREZZA and just sort of overall how did ADA go for MannKind?
Matt Pfeffer
I think we were pleased by the reaction of ADA. I think it was a great opportunity for us. It was obviously very prominently featured in the Sanofi booth, which we are pleased to see. So as it has been commented and I was thrilled because I was coming into the entry hall down the escalator for the first time into the exhibit floor to be met with the 10 by 20 foot AFREZZA sign at the opening of the Sanofi booth. It was pretty encouraging.
But, I think, they track the data and they talked a little bit about it and their diabetes they call which they do traditionally after every ADA, they kind of talk about the data that have been presented. There wasn’t that kind of data on AFREZZA, but they did mentioned a little bit and talked about the reception it was getting and traffic in the booth.
And all I said half of it was traffic in the booth, which was very heavy and up substantially over the prior year was in fact associated with AFREZZA. And I know, Hakan and I both could resist occasionally, hey, you are around and listening in our conversations, and it was very eye opening and very encouraging for both of us.
So their reception was great. The educational session was extremely well-attainted. The semi session, I can only stay for the first two main speakers, as many of you know Al Mann was honored at the banquet that night, so everybody talk to that.
But I think its fine and I could tell, there was not a single open session in whole place and this is a couple thousands seat ball room. So, a lot of interest, a lot of enthusiasm and words clearly getting out there.
Jay Olson
All right. Very good. Now the two abstracts that were presented seem to have been a little bit more safety-oriented? Do you have the impression that some doctors are waiting for additional safety information before prescribing AFREZZA?
Matt Pfeffer
I think it’s more reflective, because there is not a lot of new data available for AFREZZA. So there are some -- some of the data have been announces this. I am not sure who exactly that was. I don’t think that’s associated with that.
But it was pretty much a repeat of things we have done in past. There wasn’t a lot of new news. It did again repeat some of the advantages we have seen in the clinical trials as far as lack of hypoglycemia, weight gain and that sort of thing.
Things that didn’t ultimately make it inflatable but it’s nice to see it revalidate it from the clinical data and as was mentioned by the [indiscernible] at Sanofi and we hope we could get that into print in some preview journals shortly, which will help, because it gets the word there a little better, something that’s medical liaisons can refer to and be more data oriented in their presentation of the product and its advantages.
Jay Olson
Okay. Now just moving on to the script performing, I think that’s the key issue top of mind for most investors? I know that I personally lowered my forecast a couple of times based on lower than expected scripts. They have been running around 300 per week. We look at them every Friday. They are -- again they are lower than what I have forecasted? Can you help us understand what’s going on with the script performance? What kind of things are in place to help turn that around? I know you talked about the spirometry? Are there other steps that can be taken to overcome some of the key hurdles towards getting an AFREZZA script?
Hakan Edstrom
Yeah. I think that initially also the expectations probably looks at the adoption would be say much more rapidly. When it comes to insulin, insulin is a very important drug. So even from, say, patient and doctor point of view education is very critical component.
So that’s why we have focused, one most exclusively and an iconologist in the beginning, because they tend to be the reference point for the practitioner in terms of putting their patient on that.
We also know that iconologists are not necessarily the big prescribers in terms of drug and they tend to have the type 1 patients. And what we see in the data are actually so far if you go to social media that’s a lot of type 1 patient. So very enthusiastic about what they see in terms of their data, particularly they are postprandial because they are may be on continues glucose monitoring so and so forth.
So we knew that an educational process is very important. We need to invest in that one today we want to reach the piece of piece and majority of all target audience which is type 2 patients.
So we are basically invested in that one. We facilitated some of the primary function testing the prior the sessions and if I need that, having established together with Sanofi. What I would call [indiscernible] service, where the reps, the doctors and the nurses can go to say, hey, if I need the primary function that in the area where can I go, where can I find that. So also in terms of [indiscernible] what do we need to do.
So we really try to facilitate the process, because it’s more an administrative challenge than it is a product challenge, because physicians we speak, to the patient we speak to are very, very enthusiastic in regards to the product.
We are now in the process and I now actually met with the Sanofi leadership last week in the process of reallocating some of the efforts to more towards [piece of piece] [ph]. We are increasing the sales force coverage and we are increasing the investment to almost kind of taking to the next level of the threshold, which then will coincide as always also with the direct-to-consumer advertising.
Jay Olson
Great.
Matt Pfeffer
Now Sanofi has been pretty open but initially it was going to be a very focused and targeted much and it has been.
Hakan Edstrom
Yeah.
Matt Pfeffer
But now that you have been equally opened, this is the time to after their respectful interval as they call it. [Indiscernible] had a lot more with the doctors. I mean we still see a lot of surveys, let say, frankly to me because I have been living and breeding AFREZZA for so long. There is an off a lot of doctors who still don’t know about it. But that’s the focus now to change that. I think direct-to-consumer advertising will be a big factor and that which has been now said, we said -- we’ve been saying early third quarter, I think Mr. [indiscernible] had in a few weeks. So I think we tipped his hand and we are talking July and probably early July at that. So we’re right on the brink. I think that will help. This is a product that was made itself to that kind of advertising I believe.
Jay Olson
Can you talk about just in terms of the AFREZZA JV P&L. Where do scripts need to be in order for that JV P&L great season? What kind of run rate are you looking for?
Matt Pfeffer
Yeah. That’s a little further value. It’s becoming very comfortable going in the disclosure because it touches on so many areas. Certainly, they need to be higher than this. That should be surprise to nobody.
But this is a product that’s very sensitive to volume. So these full volumes make a people because markets are not there. But they decrease dramatically rapidly. We view it from our side since we are the manufacturer particularly because we have a big beautiful manufacturing facility ready to produce all types of the product and we need to get some of the fixed cost covered a little more. So we’re clearly not there yet. I had some forecast to say we didn’t get there pretty quickly but beyond that I’m not sure I want to be too open at this point.
Jay Olson
Okay. And then how can you mention sort of a concierge service to get patients into doctor’s offices who can perform spirometry. I think on the last earnings call, you mentioned idea of a low cost effective spirometry test that could potentially be more broadly used. Can you update us on any of those plans in terms of overcoming that initial hurdle to getting the AFREZZA script?
Matt Pfeffer
Yeah. We’ve gotten a few samples from the manufacturing of the device. We basically provided it to Sanofi as an option just to look at. Sanofi also has really a product division, more of a capillary equipment division. So they are working also together with them in terms of looking at what is the doctor looking for because they should hear it’s probably more just with endocrinologist. When you look at the PCPs because they are dealing with people with asthma and other kind of respiratory diseases, they tend to have this piece of equipment. And it is reimbursable. So it’s not like it’s -- you basically have to pay back that was within a couple of months since we have a recent patient population to deal with.
Jay Olson
Okay.
Matt Pfeffer
It was mentioned by at least one of the doctors in one of the educational session where I talked a couple of them as well. It could potentially be an advantage because there is a reimbursement code for spirometry testing. The payback period could potentially be relatively short. The issue is do you have the machine available to you. And then this person that I most recently spoke to, happen to be an endocrinologist. He said yes, he bought one for that reason. I think he said he has paid between $500 and $600. For the pricing of these things, it’s all at the math, depending on whether you really intended to be doing full pulmonary work-ups or if you really just needed to do an FEV1 which is a pretty simple test.
In fact, he said one of the reasons he bought it was because he didn’t want to have to refer his patients out to pulmonology lab where they would probably do a lot more than it’s necessary. They can keep it quite simple and easy for the patient. So we hope to see more and more of that.
Jay Olson
Okay. And you mentioned shifting the physician promotional strategy from focus on endocrinologist, moving out more broadly to PCPs. Are you still focusing on high -- very high subscribers or are you going to go to doctors who haven’t prescribed a lot of insulin and with regard to the patient type, are you targeting type 2 diabetics who are already on insulin or those who are controlled by or not controlled by oral diabetes products who might benefit from insulin with the strategy in terms of the patient?
Matt Pfeffer
The simple answer is kind of all the above. I mean the primary focus is and I think what the greatest benefit will ultimately be is to focus on those who ought to be on insulin because they are failing orals for whatever reason their A1Cs are climbing that are resistant to doing that. And that’s a very right area for we could make a big impact on the patient base.
Additionally, we know that those -- I mean, quite often today when you start insulin, you start with a basal insulin. And it’s hard to keep control. You can see as you arise, your A1C is what proportion is related to basal insulin versus prandial insulin or prandial rises and you see that it kind of shifts to prandial overtime and use can increase the base of those very much anymore or you start risking hypoxia. So you are really intervening with a prandial insulin. Again patients are very resistant to doing that but we think they will be much less resistant to AFREZZA. And I think that’s a lot other strategy Sanofi is working on.
That said, if you go out there and check the social media, the people who are most focal are type 1s because they are finding that they are having dramatic success with the product and they are able to control their glucose excursions much more than they’ve ever been able to do before. And I think the reason you’re seeing that and it makes it appear that it’s more focused on type 1s because they typically have the advantage of having continuous glucose monitoring. So they can see the effects immediately in the first week of using it or first couple of weeks versus a type 2 will typically have to wait a few months and watch their A1Cs slowly decrease.
So type 1s are getting all the play but ultimately we think type 2s for intensification or earlier initiation of insulin is where focus ought to be in and will be.
Jay Olson
Okay.
Matt Pfeffer
And I think we missed a part of your question, you said are we focusing on higher prescription?
Jay Olson
Just going back to sort of it types and numbers of doctors that you are reaching at to?
Matt Pfeffer
Ultimately, obviously, it’s not a rationale thing to do as you go to people who tender right scripts the most and then you expand outwards from there. So right now as Hakan said, mostly focused on entreprenologists and now we are moving more and more into high prescribing PCP as well. So, we are kind of broadening out now.
Once you get, you can’t possibly expect to hit every primary care physician of the country. There is just too many, hundreds of thousands of them and nobody has a sales force that can do that. But you start learning about who has the interest and you can also cover them a great deal with what we keep on direct-to-consumer advertising, but in many cases it is directed doctors as well because where you will often see things, at least, especially in issuing is in the diabetes magazines and those kinds of things where you have the benefit of all the patients but also the doctors.
Jay Olson
So with regard to the number of doctors and number of details that you are calling on through the JV, do you have a specific target in mind and do you have a way of sort of auditing back the number of details?
Hakan Edstrom
Yes. Sanofi is very closely following with a number of metrics in terms of who are the key doctors, how often do they get visited in terms of the reps, also how many visit they expect over the reps during the month. So that gets report to us actually on a weekly basis in conjunction with the sales numbers. So, definitely, we see them keeping us well informed.
Jay Olson
Okay.
Hakan Edstrom
In conjunction to that and that is on what we call the joint AFREZZA committee with Sanofi, which basically at this point is meeting on a monthly basis.
Jay Olson
Okay. And then are the sales reps who are doing these details -- because there is some questions about this. Are they Sanofi sales reps, are they contract sales reps who -- what sort of mix do you have involving AFREZZA?
Matt Pfeffer
You will find a little bit of both. Sanofi, I think is very good at figuring out how do this and they will do a mixture of contract people and their own people for all their products, not just AFREZZA. But it gives them a little more flexibility for kind of redirecting and being responsive quickly. It’s easier to do with reps and have some contract people and frankly the contract organizations are a right source for new recruits, their own sales people. So, yeah, it’s -- they have both and they are normal sales people and some contract people and AFREZZA likely do really, I think all their permits.
Jay Olson
Okay. Let’s talk about the DTC campaign. So, I think there has been a few questions about just in terms of kind of the different components of the campaign, the timing. We’ve heard that initially, it’s going to be focus. It’s going to be print and online. Are we correct to understand that there is no television, or what should we sort of expect to see when the DTC campaign moves on?
Matt Pfeffer
I’m glad you ask that because I have seen dramatically contradictory information being circulated sometimes from the very same source. So not sure how that happens exactly. Yes, initially, we will be print and web-based for the most part. But the key thing there is initially, we are not moving our TV by any means. In fact, we budget it mainly to gruesome things for TV this year. But it’s not expensive to produce a TV spot. It’s expensive to air the TV spot and I think, Sanofi is wisely leaving options open and seeing how the impacts shakeout for the things they’ve planned initially before they decide how big they go into something like TV or you missed that all, so definitely not ruling out.
It’s not true that it’s not being considered because there is a budget mainly allocated for -- one of the advantages of having something like the Joint Afrezza Committee that Hakan talked about is we both have to approve where all the money is being spent. It’s is a joint budget and likewise, it has to come to us for approval of variations in that spend and so forth. So, we are able to keep a close eye on it. I should expect because ultimately, 35% of royalty expense is paid full by us. So, we have a good reason to follow that very closely.
Jay Olson
And can you talk about the strategy behind the DTC campaign? Who were the patients you are targeting and just going back again to, are they type 1 or type 2 diabetics and what sort of is the message that you want to reach out to these patients with?
Hakan Edstrom
Hakan again, certainly it’s type 2 patients. Type 1 patients and based on all those patients type 2, they almost come into the table themselves because of their circumstances. So the focus is certainly, again on intensification or if we have patients that are naïve, are not controlled on the oral, I mean, that could be an initiation of therapy. So those are totally focused but it covers really the entire diabetes universe. And I would say as well as the physicians because we have phone calls everyday from physicians that are coming and saying, I have not being yet visited by a Sanofi whereby I had a patient coming, could you please let us know, or we basically then send on a Sanofi rep to inform the physician? So it’s way to make sure that they were expressing and the understanding of the product availability and how it works.
Jay Olson
Okay. Maybe just going on to reimbursement, can you talk about the -- I guess it’s called the Afrezza COACH program on the AFREZZA website where patients can enroll and they get, I guess their first co-pays covered and maybe some part of their subsequent co-pays? How is that going, how many patients are you getting signed up for this program and just any color you can provide on that?
Matt Pfeffer
Yeah. So just to clear, there is the COACH program, there is the co-pay program, there are discrete programs. The patient co-pay cards or the discount card has been in place since day one essentially and it allows the patient to go online and sign up for the card. They get their first month free and then they are assured even though by and large, AFREZZA is mostly in tier 3, not with every plan but for mostly these days. That that’s no penalty so the patient for that being the case so limit their copay to at least $30 which is not atypical for our Tier 2 product.
In addition, they’ve just recently started the AFREZZA Coach program, which is really a -- much like it sounds it’s in a patient assistance program, so it helps them understand how to use the product, how to get the most out of it, and to give them some nice little freebies to go with the - there is a carrying case and nice and things like that. But it’s really to make very well informed people available essentially 24/7 to the patients to help them to get the most out of the products and how to use and answer questions they might have and so forth.
They have done very successfully with their other products and we have a AFREZZA Coach program, I am not sure, excuse me, they have a Coach program for [indiscernible], I should call the AFREZZA Coach program, which -- and for their other products as well and they’ve had a lot of success with it. So I am really gratified they have now rolled it out. But it’s just been within last few weeks, that’s come online. So we’ve not seen any metrics for the coach program yet, but we have obviously higher hopes.
Jay Olson
I guess it was on their first quarter earnings call, there was talk about how the Tier 3 status did present an obstacle for certain patients and the prior auth. Can you talk about what steps are being taken to overcome the prior auth? And eventually, is there a chance that AFREZZA could move from Tier 3 to Tier 2 on some certain formularies? Can you walk us through that?
Hakan Edstrom
Yes. As I mentioned, look they call the [indiscernible] service is one of the activities that they put in place to help the physicians, the practice management, and even the sales reps in terms of coming over there and also provide the opportunity to get the paperwork filled out, because there are as many forms as there are different cannibalization structures for to get the prior authorization to minimize the burden for the physicians and the offices and eventually also for the patients, so the patient doesn’t have to go to the pharmacy get rejected and then have to go back to the physician and trying to work that out. And it’s been in place now for probably four, five weeks something like that.
So hopefully that’s starting to pay off in terms to facilitate. And eventually you should within six to nine months, the product is coming up for review by the insurance companies and at that time you get your carrying and by that time we certainly expect that the majority on prior authorizations will disappear in terms of requirements. Or if there is anything in place that maybe once a year or whatever that you have to reapply, but should not be then an obstacle to be put on the…
Matt Pfeffer
That’s an important distinction which occasionally is overlooked. I mean this prior authorization with Tier 3 is something that this become much, much more prevalent in recent months than it used to be and it’s certainly been and it delay for prescribing and we have experienced. But to a great extent that will naturally disappear as the insurance companies do their reviews which they as Hakan mentioned usually tends to be six to nine months out post launch and go on to put more permanent formulary placement and supposed to be in run through the prior authorization.
There is a huge difference between Tier 3 and Tier 3 to prior authorization from a patient and doctor standpoint. And it was mentioned I guess day or two ago by Sanofi, they have already had a fair amount of success getting out of the prior authorization requirements with some of the plans and industry Tier 3. So they went nicely, they have that we don’t is a big reimburse organization. We often talk to these people and negotiate formulary placement. So I think a lot of this is actually itself. In the interim, as Hakan mentioned they put in some mechanisms to ease the burden for the patient and doctor. So we hopefully start seeing the benefits of that in the coming weeks.
Jay Olson
Okay. At ADA, there was some discussion about the price of new novel insulin products and I think AFREZZA was mentioned in that discussion. Can you talk about what sort of discounting have you seen, has been more aggressive than you expected sort of just how that kind of wind up with your expectation?
Hakan Edstrom
Well, good news, if there isn’t really any discounting and so you complete that negotiation process. So it’s too early to really comment on that and it really depends on what their strategy is. If you want to end up in Tier 2, you have to discount much more heavily. If you can accept the Tier 3, then you may need little to no discounting, but that’s something that plays out in this six to nine months post launch period. So it’s really kind of early to comment for sure.
Jay Olson
Okay. Great. Looking ahead, can you talk about when we should expect to see new clinical studies for AFREZZA, pediatric study, the long-term safety study?
Hakan Edstrom
Yes, very short that actually during the third quarter I expect that we will start the dosing studies, the pediatric studies. Those protocols have now been agreed with FDA, so they are basically in the process of plants execution, the discussion that’s still ongoing with FDA and actually it’s a little bit later than planned but not because of us actually.
It’s the final protocol for the five-year safety study that we expect that probably will get underway hopefully by the fourth quarter, but those studies are well planned and some of them are underway in terms of execution as well.
Matt Pfeffer
Which is good because people asked about those, and I think the people, the ones most interested in our pediatric study and some of the dosing studies. The safety study is going to be a very long study so that it hasn’t started yet doesn’t really matter. It’s probably going to take seven, eight years easily to complete given it’s a five-year study within the sizeable in the client to enroll and to report as pretty lengthy.
And now once we get past these and the protocols are due with the FDA, Sanofi continue their attention to other things they talked about and they’ve not been very specific yet, but except with us about what their expectations are as label expansion and other studies that could help in the marketing of the product that better show the advantage has been the approval studies did.
Jay Olson
Okay. And then I guess when should we expect to see any studies for ex-U.S. approval and which market are you looking at next outside U.S. to launch AFREZZA?
Hakan Edstrom
Well, probably in most jurisdictions there is probably no need for additional trial, Japan maybe an exception where you have to do some additional clinical trials.
Jay Olson
And probably China.
Hakan Edstrom
And yes, probably, China, that’s great. Sanofi is currently in the process of looking at the different kind of parts of the world. I would say initially it will probably be driven by where is the regulatory process, say mostly inline, more aligned to the U.S. or maybe by the U.S. FDA approval is a significant kind of advance in terms of getting to the market in that. So that is scheduled to be discussed in these, Jay, actually committed with it within the next two meetings. So that’s being approach right now.
Jay Olson
Okay.
Hakan Edstrom
It’s very active way of discussion. People asked about Europe a lot. I mean, we did design our Phase 3 studies with European mind and based on discussions we have with them. So there is some hope that we could file there fairly quickly. That said, I mean, we asked them years ago about that and we all know things change in the regulatory agencies, so about to be approached and talk to. And I think there are these discussions like that going on to see what if anything might still be required to file in those kinds of jurisdictions.
And I think Sanofi is clearly interested in taking this to a lot of different places, but they want to have that cohesive worldwide strategy before they embark. And I think that’s what they are working on now and it should be presented to us this summer while agree on what it is. And then hopefully we can get more forthcoming with some certainty.
Jay Olson
Okay. Let’s move on to some financial questions. You’ve got $925 million in total milestones. You captured $175 million of funds, $50 million earlier this year. Can you give us some idea of sort of when you expect to achieve some of the additional milestones and maybe just some color on your confidence in capturing all of the total milestone in there in entirety?
Matt Pfeffer
That’s a trick one to answer. But it’s good you asked it. So the remaining milestones which totaled some $725 million of milestone are mostly sales-oriented. There are a few that are not. There is a $25 million milestone. It’s more kind of production seems oriented or development based milestones. There is a couple that are based on launching in foreign restrictions. The rest are sales based milestones. And it’s a constant struggle between companies to sign these agreements in the parent for the -- for the big pharma they sign them with, what they can disclose about that and at the end of the day, you typically find them more redacted, which is the case of that, which leaves us with a little ability to talk about them very specifically.
I will say that based on our own projections internally and the once we developed subsequently with Sanofi, we do expect to get all those milestones. The question is how rapidly, because they are based on the claims of those sales levels and clearly, we’re not projecting sales at this point.
So it makes it sort of circular and impossible to stay with exactly when they are going to be earned. But, yes, we didn’t sign an agreement that had milestones we think weren’t achievable. In fact, most of the things we talked about at the time were trying to emphasize that they start very soon and we believe they were all certainly achievable and that’s perhaps as much more I can say at this point.
Jay Olson
Okay. And then on the convertible debt that comes to in August, the $100 million, can you help us understand what options are on the table there and maybe give us some idea what your plans are for that?
Matt Pfeffer
Well, good news is we have a lot of options. Bad news is with the volatility and the stock and so far that we’ve experienced, currently it makes it harder to choose which one is the best one because it can change from day to day. And as we sit here at this moment and at least the last time I check the price and I did few months ago. I mean, they are in the money. They can just convert or we might want to and just conversationally, just to make them go away and have this not be an issue in people’s minds or we can extend them or stock them out.
There is just a whole host of the things that we can do. People talk about, worry about dilution and so forth. And I have a said couple of times publicly, one thing I can virtually guarantee we won’t do is the marketed secondary offering. That doesn’t mean there might not be some equity components somewhere down the road. It’s not going to be in a way that those shares would be readily made available to somebody who is a short of stock, just hypothetically.
I mean, a convert is still, is really just a matter of when it [Technical Difficulty], does it occur immediately or does it occur when they convert? I think the dilution from these instruments already have been factored in by everybody. So next time, we can do something without issuing more shares then we’d be issuing on to this instrument, I think we will be in good shape.
And I have almost daily talks with different organization and holders of the convert because they are very interested too. Most of the calls I get are from people looking because they like their paper and they want to keep it or some form of it. And so I’ve always said if we can find a way to do it that made sense for the company, we would probably extend it or roll out a bunch of the instrument. When we get closer, we will be able to see which makes more sense.
Question-and-Answer Session
Q - Jay Olson
Okay. We do have a few minutes left. At this point, I would like to check with the audience if there is any questions. Okay, we’ll keep going. Now you’ve taken a number of steps to reduce your cost structure, you mentioned on the earnings call that you closed your facility in New Jersey. Can you talk about how has your number of employees changed? You spend about $10 million on G&A in the first quarter, should we expect that to go down? And I know recognizing that this isn’t an opportunity to give guidance necessarily but just sort of how we should think about that going forward?
Matt Pfeffer
Yeah. We did say, it’s going down quite a bit. I mean, most of our spend is down by of a half from the prior year but it will continue to go down. The closure of the premise for its facility for example is something that we haven’t seen the benefit of it. I mean, that facility is now empty but we paid rent through May. So this month will be the first month to recognize that 50 something 1,000 a month savings.
In addition there were a lot of people there that are no longer with us. I mean, obviously some of the functions that were based there like clinical trials and regulatory so forth, we don’t need so meet people as we did because we’re not doing those kind of efforts any more. Those are now in Sanofi’s hand. Again as we allow those people, we’re able to find other uses for it or frankly some of them are in Sanofi now, which is a very good thing but some of them are gone.
So there were roughly 60 people in that facility. I think by the end of the month I could probably count the remainder but its still technically consider premise in place on one hand that will certainly result in some savings as well. And we have announced that our headquarters facility in California is now most of the MTD stage because so much of the operations have been streamlined and moved into the Danbury, Connecticut facility so that facility is not for sale.
We spend approximately a million or something a year just operating that facility, so that will be dramatic saving as probably million dollar just from that in addition to whatever we’ve been sales proceed. So there is a lot of things doing progress. It’s continually moving down, have to be pulled in so far but you should expect it to continue.
Jay Olson
Okay. Now in the first quarter you spend about $4 million on CapEx, should we expect that to come down over time? And is there any other color you can give us just in general on sort of cash run rate?
Matt Pfeffer
I give you firm maybe there, just kind of funny. There you should not expect that to be recurring. The most of that cost was associated with the final conclusion of the second two filling lines. So you’d probably remember went from one line to three since we tripling our capacity in that facility. I hope we’ll have to spend some more like that to again, increase our capacity but I wouldn’t expect that it will be this year or anytime real soon. It will all be body dependent and we want to be in a position to ramp up quickly if we need to.
Jay Olson
Okay. And just going back to the agreement with Sanofi briefly, another question that I know I get, you may have also received queries about is just in terms of if Sanofi did choose to opt out of the AFREZZA agreement? Can you describe for us what that would sort of look like in terms of their obligations or notification, any financial obligations, timing of how that would happen?
Hakan Edstrom
So, for all, I just look all the agreements just kind of complex, I don’t want to go into -- I’ll give you the broad brush. I mean, this document is the public document. So if anybody wants to go into details they can find it. And obviously, we have no reason to think that and we have a lot of reasons to think the opposite, but Sanofi is very devoted to this product and has a firm commitment.
If they decided they wanted to discontinue, their first opportunity wouldn’t be until the beginning of next year and at which point they have to be trigger a notice period. So there is no -- somebody misinterpreted something and posted something about their -- they could potentially turn it as quickly as next month, that’s completely untrue.
The first opportunity to give us notice of their intend to discontinue be next year or sometime and then there is three, six months be what it is or the reason for the termination and then there is some potential continuing obligations relating to trials and so forth after that.
Jay Olson
Okay. And then just looking beyond AFREZZA at the Technosphere platform, you’ve spoken about opportunities potentially in supported care of cancer, talking about pain, respiratory disease? When should we expect to see any potential catalyst milestone with regard to new applications on the Technosphere platform?
Hakan Edstrom
Well, we took actually a decision together with the Board yes, recently. So the first project is now underway and we’re getting the API and actually this week we are beginning the discussion internal, how to deal this discussion in regards to adopting one other projects. And we also have a couple of discussions going on with the external potential partners at the point in time.
However, I would say that our assumption is that we will take these two say, proof-of-concept in regards to that that we have differentiate the product. And at that time, at least for the first couple of projects we would look at partnering opportunities that’s what we would kind of seek our partners.
I would say that its probably say, 18 to 24-month period in terms of bringing this still validation through development into proof-of-concept before you would see us necessarily go out and sign specific deals unless we stumble upon something kind of.
In the meantime, because our idea is to have, I will say, the portfolio of four to six projects that we will be pursuing during this time and over the next say, six to nine months, hopefully we will get that.
And from there we will under pursue because we have about 35 people that’s devoted to this one. So we do have the experience. We do have the resources. We just need to make some market decisions in terms of which one they are of this products we are pursuing that can provide the financial incentives to us and the partner and the market opportunity.
Jay Olson
Okay. Very good. With that we’re out of time. So wrap things up. I want to thank you again for joining us here today. Appreciate it.
Hakan Edstrom
Thank you.
Matt Pfeffer
Thank you.
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