This randomized, multicenter, open-label, active-comparator, 2-arm, parallel-group, 6 month study with approximately 360 patients will compare the efficacy of two treatment regimens (Algorithm A versus Algorithm B) in insulin-naive patients with type 2 diabetes not optimally controlled by one or more oral antihyperglycemic medications. Patients will be assigned randomly to receive one of the following treatment groups:

Algorithm A is defined as a simplified diabetes management regimen starting with a fixed dose of HIIP (also known as AIR® Inhaled Insulin)(AIR® is a registered trademark of Alkermes,Inc.), titrating 2 times per week based on 2 times per week 4 point blood glucose values for the first month and titrating 1 time per week based on once weekly 4-point blood glucose values for the remainder of the study, increasing total daily dose by a maximum of 6 U per day.

Algorithm B is defined as an intensive diabetes management regimen, starting with an adjusted dose of AIR® Inhaled Insulin, titrating 2 times per week based on daily 4 point blood glucose values, with sustained monitoring of dose and blood glucose throughout the study, increasing total daily dose by a maximum of 8 U per day.

Inclusion Criteria:

• Type 2 diabetes mellitus for at least 6 months
• Have a HbA1c greater than 7.0% and less than or equal to 10.5% at screening.
• Patients who have been treated with the following regimen:

One or more oral antihyperglycemic medications on a stable dose for at least 6 weeks (12 weeks for thiazolidinediones [TZDs]),

AND

have been on insulin for 14 days or less throughout life and have not taken insulin within 6 months,

AND

are candidates for insulin therapy, in the opinion of the investigator.

Exclusion Criteria:

• Pregnancy
• Smoker
• History of more than two episodes of severe hypoglycemia during the 6 months prior to study entry
• Diagnosed with pneumonia in the 3 months prior to screening
• Patients who have received systemic glucocorticoid therapy within 3 months prior to study entry
• History of renal transplantation
• History of lung transplantation
• Active or untreated malignancy
• Treated with Incretin mimetics