What changed in this filing

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Item 1A. Risk Factors

2020-08-05 compared with 2020-05-06 · 76 added, 86 removed, 718 unchanged (18% of the section changed)

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This report includes disclosures stating that our existing cash resources and our accumulated deficit raise substantial doubt about our ability to continue as a going concern.

As of March 31, 2020, we had cash and cash equivalents of $38.9 million and accumulated deficit of $3.0 billion.

We may need to raise additional capital, whether through the sale of equity or debt securities, additional strategic business collaborations, the establishment of other funding facilities, licensing arrangements, asset sale s or other means, in order to support our ongoing activities, including the commercialization of Afrezza and the development of our product candidates .

As of June 30, 2020, we had cash and cash equivalents of $63.2 million and accumulated deficit of $3.0 billion.

We may need to raise additional capital, whether through the sale of equity or debt securities, additional strategic business collaborations, the establishment of other funding facilities, licensing arrangements, asset sales or other means, in order to support our ongoing activities, including the commercialization of Afrezza and the development of our product candidates .

It may be difficult for us to raise additional funds on favorable terms, or at all.

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Successful commercialization of Afrezza is subject to many risks, including some that are outside our control.

There are numerous examples of unsuccessful product launches, second launches that und erperform original expectations and other failures to fully exploit the market potential of drug products, including by pharmaceutical companies with more experience and resources than us.

We ultimately may be unable to gain widespread market acceptance of Afrezza for a variety of reasons, including the treatment and dosage regimen, potential adverse effects, pricing relative to alternative products, the availability of alternative treatments and lack of coverage or adequate reimbursemen t.

There are numerous examples of unsuccessful product launches, second launches that underperform original expectations and other failures to fully exploit the market potential of drug products, including by pharmaceutical companies with more experience and resources than us.

We will need to maintain and enhance our commercialization capabilities in order to successfully commercialize Afrezza in the United States, and we may not have sufficient resources to do so.

The market for skilled commercial personnel is highly competi tive, and we may not be able to hire all of the personnel we need on a timely basis or retain them for a sufficient period.

In addition, Afrezza is a novel insulin therapy with a distinct time-action profile and non-injectable administration, and we are th erefore required to expend significant time and resources to train our sales force to be credible, persuasive and compliant with applicable laws in marketing Afrezza for the treatment diabetes to physicians and to ensure that a consistent and appropriate m essage about Afrezza is being delivered to our potential customers.

If we are unable to effectively train our sales force and equip them with effective materials, including medical and sales literature to help them inform and educate potential customers ab out the benefits of Afrezza and its proper administration, our efforts to successfully commercialize Afrezza could be put in jeopardy, which would negatively impact our ability to generate product revenues.

The market for skilled commercial personnel is highly competitive, and we may not be able to hire all of the personnel we need on a timely basis or retain them for a sufficient period.

In addition, Afrezza is a novel insulin therapy with a distinct time-action profile and non-injectable administration, and we are therefore required to expend significant time and resources to train our sales force to be credible, persuasive and compliant with applicable laws in marketing Afrezza for the treatment diabetes to physicians and to ensure that a consistent and appropriate message about Afrezza is being delivered to our potential customers.

If we are unable to effectively train our sales force and equip them with effective materials, including medical and sales literature to help them inform and educate potential customers about the benefits of Afrezza and its proper administration, our efforts to successfully commercialize Afrezza could be put in jeopardy, which would negatively impact our ability to generate product revenues.

If we are unable to maintain payor coverage of, and adequate reimbursement for Afrezza, physicians may limit how much or under what circumstances they will prescribe or administer Afrezza.

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We believe that comparisons from period to period of our financial results are not necessarily meaningful and should not be relied upon as indications of our future performance.

Our business, product sales, results of operations and ability to access capital could be adversely affected by the effects of health pandemics or epidemics, including the recent COVID-19 pandemic, in regions where we or third parties distribute our products or where we or third parties on which we rely have significant manufacturing facilities, concentrations of clinical trial sites or other business operations.

Our business, product sales, results of operations and ability to access capital could be adversely affected by the effects of health pandemics or epidemics, including the recent ongoing COVID-19 pandemic, in regions where we or third parties distribute our products or where we or third parties on which we rely have significant manufacturing facilities, concentrations of clinical trial sites or other business operations.

The COVID-19 pandemic could materially affect our operations, including at our headquarters in California and at our manufacturing facility in Connecticut and with respect to our sales force and their ability to interact with health care professionals, as well as the business or operations of our suppliers, distributors or other third parties with whom we conduct business.*

Our business could be adversely affected by the effects of health pandemics or epidemics in regions where we have business operations, and could cause significant disruption in the operations of third-party manufacturers and distributors upon whom we rely.

For example, in December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China.

Since then, COVID-19 has spread to the United States and most countries around the world.

Our headquarters is located in California, and our manufacturing facility is located in Connecticut.

In addition, we have a distributor in Brazil, a partner preparing to conduct a clinical trial in India and suppliers located in various European countries.

On March 4, 2020, the Governor of California declared a state of emergency as a result of the threat of COVID-19 and subsequently issued an order closing all non-essential businesses, which took effect on March 19 , 2020.

The Governor of Connecticut issued a similar order on Mar ch 23, 2020.

The World Health Organization declared the COVID-19 outbreak a pandemic on March 11, 2020 , and the U.S.

government imposed travel restrictions on travel between the United States, Europe and certain other countries effective March 14, 2020 .

T he President of the United States declared the COVID-19 pandemic a national emergency on March 13, 2020 , invoking powers under the Stafford Act, the legislation that directs a federal emergency disaster response.

Beginning the week of March 16, 2020, appr oximately 70% of our workforce began working from home either all or substantially all of the time ;

the remaining 30% of our workforce represented certain employees in our Connecticut facility who are essential for the production of Afrezza and Treprostini l Technosphere .

The effects of the stay-at-home order s and our work-from-home policies may negatively impact productivity, disrupt our business and delay our development programs, regulatory and commercialization timelines, the magnitude of which will depe nd, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course.

These and similar, and perhaps more severe, disruptions in our operations due to COVID-19 could negatively impa ct our business, operating results and financial condition.

For example, the ongoing COVID-19 pandemic is resulting in travel and other restrictions to reduce the spread of the disease, including executive orders in California and Connecticut, and several other state and local orders across the country, which, among other things, direct individuals to shelter at their places of residence, direct businesses and governmental agencies to cease non-essential operations at physical locations, prohibit certain non-essential gatherings, and order cessation of non-essential travel.

In March 2020, our employees began working from home except for certain personnel in our Connecticut facility who are essential for the production of Afrezza and TreT.

The effects of state and local stay-at-home orders and our own work-from-home policies may negatively impact productivity, disrupt our business and delay our development programs, regulatory and commercialization timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course.

These and similar, and perhaps more severe, disruptions in our operations due to the COVID-19 pandemic could negatively impact our business, operating results and financial condition.

Quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases could impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost of materials, which would disrupt our supply chain.

Although we believe we have sufficient quantities of raw materials for planned manufacturing operations during 2020, a prolonged supply interruption of certain components could adversely affect our ability to conduct commercialization activities and planned clinical trials .

Sales and demand for Afrezza may be adversely affected by the global COVID-19 pandemic.

Our work-at-home policy included our sales representatives, who normally conduct in-person office visits with healthcare providers.

Although we have developed digital materials and programs for our sales force to use in order to continue to engage virtually with their target physicians, there can be no assurance that these new tools and approaches will be effective at sustaining prescription levels of Afrezza.

In addition, we believe that the severity of the COVID-19 pandemic in Brazil has the potential to negatively impact the distribution of Afrezza by our partner in that country.

Sales and demand for Afrezza have been adversely affected by the global COVID-19 pandemic, and we expect that the COVID-19 pandemic will continue to negatively impact near-term revenues from Afrezza.

Our sales representatives, who normally conduct in-person office visits with healthcare providers, were required to work from home for varying periods of time during the second quarter of 2020, which has had an impact to their productivity.

Disruptions in the prescription volume of Afrezza could also occur:

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The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically.

The COVID-19 pandemic is expected to negatively impact our near-term revenues from Afrezza.

In response, we have taken measures to counteract an anticipated decline in sales, including the implementation of cost saving measures to reduce payroll costs, professional fees, supplier and other vendor costs.

On April 27, 2020, we also implemented a 20% pay reduction for certain employees whose payroll costs exceed $100,000, including executive officers, which we expect to maintain for at least 10 weeks.

In addition, we obtained a $4.9 million loan under the Paycheck Protection Program of the CARES Act, which we intend to use to retain employees, maintain payroll and make lease, interest and utility payments.

In response, we took measures in the second quarter of 2020 to counteract an anticipated decline in sales, including the implementation of cost saving measures to reduce professional fees, supplier and other vendor costs.

In April 2020, we also implemented a 20% pay reduction for certain employees whose payroll costs exceed $100,000, including executive officers, which we expect to maintain for at least 10 weeks.

In addition, we obtained a $4.9 million loan under the Paycheck Protection Program of the CARES Act in April 2020, which we intend to use to retain employees, maintain payroll and make lease, interest and utility payments.

While the potential economic impact brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, the pandemic is currently resulting in disruption of global financial markets.

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The ultimate impact of the COVID-19 pandemic or a similar health pandemic or epidemic is highly uncertain and subject to change.

We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, commercialization efforts, healthcare systems or the global economy as a whole.

T hese effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely .

We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, commercialization efforts, healthcare systems or to the global economy as a whole.

These effects could have a material impact on our operations.

We will continue to monitor the COVID-19 situation closely.

If we do not obtain regulatory approval of Afrezza in foreign jurisdictions, we will not be able to market Afrezza in such jurisdictions, which could limit our commercial revenues.

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Although Afrezza has been approved in the United States by the FDA and in Brazil by ANVISA, we have not yet obtained approval in any other jurisdiction.

In order to market Afrezza in a foreign jurisdic tion, we must obtain regulatory approval in each such foreign jurisdiction, and we may never be able to obtain such approvals.

In order to market Afrezza in a foreign jurisdiction, we must obtain regulatory approval in each such foreign jurisdiction, and we may never be able to obtain such approvals.

The research, testing, manufacturing, labeling, sale, import, export, marketing, and distribution of pharmaceutical products outside the United States are subject to extensive regulation by foreign regulatory authorities, whose regulations differ from country to country.

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We are not currently profitable and have rarely generated positive net cash flow from operations.

As of March 31, 2020, we had an accumulated deficit of $3.0 billion.

As of June 30, 2020, we had an accumulated deficit of $3.0 billion.

The accumulated deficit has resulted principally from costs incurred in our research and development programs, the write-off of assets (including goodwill, inventory and property, plant and equipment) and general operating expenses.

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In addition, under our Insulin Supply Agreement with Amphastar, we agreed to purchase certain annual minimum quantities of insulin through 2026.

As of March 31, 2020, there was €82.0 million remaining in aggregate purchase commitments under this agreement .

As of June 30, 2020, there was €80.9 million remaining in aggregate purchase commitments under this agreement .

We may not have the necessary capital resources to service this contractual commitment.

Our losses have had, and are expected to continue to have, an adverse impact on our working capital, total assets and stockholders’ equity.

Our ability to achieve and sustain positive cash flow from operations and profitability depends h eavily upon successfully commercializing Afrezza, and we cannot be sure when, if ever, we will generate positive cash flow from operations or become profitable.

Our ability to achieve and sustain positive cash flow from operations and profitability depends heavily upon successfully commercializing Afrezza, and we cannot be sure when, if ever, we will generate positive cash flow from operations or become profitable.

We have a substantial amount of debt, and we may be unable to make required payments of interest and principal as they become due.*

The notes to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q provide details about our various debt obligations.

As of March 31, 2020, we had $120.3 million principal amount of outstanding debt, consisting of:

As of June 30, 2020, we had $122.6 million principal amount of outstanding debt, consisting of:

$40.0 million principal amount under the MidCap Credit Facility, bearing interest at an annual rate equal to one-month LIBOR plus 6.75%, subject to a one-month LIBOR floor of 2.00%, and payable in equal monthly installments beginning in August 2021 through maturity in August 2024;

$5.0 million principal amount of the 2024 convertible notes bearing interest at 5.75% per annum, with interest payable in cash or equity semiannually in arrears on February 15 and August 15 of each year, and maturing in November 2024, all of which is convertible into shares of our common stock at the option of the holder at a conversion price of $3.00 per share;

$ 5.2 million in respect of the 2020 notes, each in the amount of $2.6 million, one of which will mature on June 30, 2020 and the other of which will mature on December 31, 2020 ;

$2.6 million principal amount of the December 2020 note, which matures in December 2020 ;

$70.1 million principal amount of indebtedness under the Mann Group promissory notes bearing interest at a fixed rate of 7.00% per annum compounded quarterly and maturing in November 2024, $35.0 million of which is convertible into shares of our common stock at the option of the Mann Group at a conversion price of $2.50 per share.

Interest is paid-in-kind from August 2019 until the end of 2020, after which we have the option to either pay interest-in-kind or in shares.

In addition, in April 2020 we received proceeds of $4.9 million from a loan under the Paycheck Protection Program of the CARES Act, all or a portion of which may be forgiven, which we intend to use to retain employees, maintain payroll and make lease, interest and utility payments.

The PPP Loan matures on April 9, 2022 and bears interest at a rate of 0.98% per annum.

Commencing November 9, 2020, we are required to pay the lender equal monthly payments of principal and interest as required to fully amortize by April 9, 2022 any principal amount outstanding on the PPP Loan as of October 9, 2020.

All or a portion of the PPP Loan may be forgiven by the SBA upon application by us beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements.

Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered interest and covered utilities during the eight week period beginning on the date of loan approval.

$4.9 million from a loan under the Paycheck Protection Program of the CARES Act.

The PPP Loan matures in April 2022 and bears interest at a rate of 0.98% per annum.

On November 9, 2020, we may be required to pay the lender $1.4 million of principal and interest, which includes six months of payments deferred in accordance with the terms of the PPP Loan, and equal monthly payments of principal and interest thereafter as required to fully amortize the remaining principal amount by April 9, 2022.

All or a portion of the PPP Loan may be forgiven by the SBA upon application to our lender by us beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements.

Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered interest and covered utilities during the 24 week period (or eight-week period at our option) beginning on the date of loan approval.

Not more than 40% of the forgiven amount may be for non-payroll costs.

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The PPP Loan application required us to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations.

While we made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan is consistent with the broad objectives of the Paycheck Protection Program of the CARES Act, the certification described above does not contain any objective criteria and is subject to interpretation.

While we made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan is consistent with the broad objectives of the PPP, the certification described above does not contain any objective criteria.

In addition, the SBA has stated that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith.

The lack of clarity regarding loan eligibility under the Paycheck Protection Program has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans.

The lack of clarity regarding loan eligibility under the PPP has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans.

If, despite our good-faith belief that we satisfied all eligible requirements for the PPP Loan, we are found to be in violation of any of the laws or governmental regulations that apply to us in connection with the PPP Loan, including the False Claims Act, or it is otherwise determined that we were not eligible to receive the PPP Loan, we may be subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP Loan.

In addition, our receipt of the PPP Loan may result in adverse publicity and damage to our reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources.

If we fail to take all actions necessary and promptly file all required reporting to ensure than no less than 90% of the PPP Loan is forgiven in accordance with the loan forgiveness provisions of the Paycheck Protection Program, we will be in violation of the consent given by MidCap with respect to such additional indebtedness, which could lead to an event of default under the MidCap Credit Facility.

If we fail to take all actions necessary and promptly file all required reporting to ensure than no less than 90% of the PPP Loan is forgiven in accordance with the loan forgiveness provisions of the PPP, we will be in violation of the consent given by MidCap with respect to such additional indebtedness, which could lead to an event of default under the MidCap Credit Facility.

Any of these events could have a material adverse effect on our business, results of operations and financial condition.

Under the MidCap Credit Facility, our interest rate on borrowed amounts is dependent on one-month LIBOR, which is the basic rate of interest used in len ding between banks on the London interbank market .

LIBOR is widely used as a reference for setting the interest rate on loans globally and is currently scheduled to be phased out in 2021.

Before one-month LIBOR is phased out, we may need to renegotiate th e MidCap Credit Facility to replace one-month LIBOR with a new standard, which has yet to be established.

The consequences of these developments cannot entirely be predicted, but could result in higher interest rates on our loans under the MidCap Credit Fa cility.

Before one-month LIBOR is phased out, we may need to renegotiate the MidCap Credit Facility to replace one-month LIBOR with a new standard, which has yet to be established.

The consequences of these developments cannot entirely be predicted, but could result in higher interest rates on our loans under the MidCap Credit Facility.

We cannot provide assurance that future interest rate changes will not have a material negative impact on our business, financial position, or operating results.

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These factors make it unlikely that we will be able to satisfy the milestone conditions necessary for us to draw the remaining advance under the MidCap Credit Facility.

Under the MidCap Credit Facility, we must comply with a minimum cash covenant of $15.0 million at all times, which will increase to $20.0 million following the funding of an additional advance.

Under the MidCap Credit Facility, w e must comply with a minimum cash covenant of $15.0 million at all times , which will increase to $20.0 million following the funding of an additional advance .

Further, the MidCap Credit Facility requires us, and any debt arrangements we may enter into in the future may require us, to comply with various covenants that limit our ability to, among other things:

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The restrictive covenants in the MidCap Credit Facility could prevent us from pursuing business opportunities that we or our stockholders may consider beneficial.

Our expectation that COVID-19 will negatively impact near-term revenues from Afrezza could also affect our compliance with a covenant relating to trailing twelve-month minimum Afrezza net revenue, tested on a monthly basis, which is set forth in the MidCap Credit Facility Agreement, as amended.

The stay-at-home orders implemented around the country in response to the COVID-19 pandemic negatively impacted the sales of Afrezza in the second quarter of 2020 as our sales force had very limited access to service providers.

We expect that the COVID-19 pandemic will continue to negatively impact near-term revenues from Afrezza, which could also affect our compliance with a covenant relating to trailing twelve-month minimum Afrezza net revenue, tested on a monthly basis, which is set forth in the MidCap Credit Facility Agreement, as amended.

If we fail to meet this covenant, any outstanding borrowings, together with accrued interest, under the MidCap Credit Facility could be declared immediately due and payable.

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There can be no assurance that we will have sufficient resources to make any required repayments of principal under the terms of our indebtedness when required.

Further, if we undergo a fundamen tal change, as that term is defined in the indentures governing the terms of the 2024 convertible notes, the holders of such debt securities will have the option to require us to repurchase all or any portion of such debt securities at a repurchase price o f 100% of the principal amount of such debt securities to be repurchased plus accrued and unpaid interest, if any.

While we have been able to timely make our required interest payments to date, we cannot guarantee that we will be able to do so in the futur e.

If we fail to pay interest on the 2024 convertible notes or the MidCap Term Loan, or if we fail to repay or repurchase the 2024 convertible notes, 2020 notes, MidCap Term Loan , PPP Loan or borrowings under t he Mann Group promissory notes when required, we will be in default under the instrument for such debt securities or loans, and may also suffer an event of default under the terms of other borrowing arrangements that we may enter into from time to time.

Any of these events could have a material advers e effect on our business, results of operations and financial condition, up to and including the note holders initiating bankruptcy proceedings or causing us to cease operations altogether.

Further, if we undergo a fundamental change, as that term is defined in the indentures governing the terms of the 2024 convertible notes, the holders of such debt securities will have the option to require us to repurchase all or any portion of such debt securities at a repurchase price of 100% of the principal amount of such debt securities to be repurchased plus accrued and unpaid interest, if any.

While we have been able to timely make our required interest payments to date, we cannot guarantee that we will be able to do so in the future.

If we fail to pay interest on the 2024 convertible notes or the MidCap Term Loan, or if we fail to repay or repurchase the 2024 convertible notes, December 2020 note, MidCap Term Loan, PPP Loan or borrowings under the Mann Group promissory notes when required, we will be in default under the instrument for such debt securities or loans, and may also suffer an event of default under the terms of other borrowing arrangements that we may enter into from time to time.

Any of these events could have a material adverse effect on our business, results of operations and financial condition, up to and including the note holders initiating bankruptcy proceedings or causing us to cease operations altogether.

If we do not achieve our projected development goals in the timeframes we expect, our business, financial condition and results of operations will be harmed and the market price of our common stock and other securities could decline.

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These institutions are becoming increasingly aware of the commercial value of their findings and are more active in seeking patent and other proprietary rights as well as licensing revenues.

Continued testing of Afrezza or our product candidates may not yield successful results, and even if it does, we may still be unable to commer cialize our product candidates.

Continued testing of Afrezza or our product candidates may not yield successful results, and even if it does, we may still be unable to commercialize our product candidates.*

Forecasts about the effects of the use of drugs, including Afrezza, over terms longer than the clinical studies or in much larger populations may not be consistent with the earlier clinical results.

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On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price increases.

Moreover, the Trump administration previously released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contained proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of

their products and reduce the out of pocket costs of d rug products paid by consumers.

The Department of Health and Human Services (“HHS”) has solicited feedback on some of these measures and has implemented others under its existing authority.

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This final rule codified CMS’s policy change that was effective January 1, 2019.

Although a number of these and other measures may require additional authorization to become effective, Congress and the Trump administration have stated that they will continue to seek new legislative and /or administrative measures to control drug costs.

At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patien t reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

We expect that there wil l continue to be a number of federal and state proposals to implement similar and/or additional governmental controls.

More recently, President Trump signed an executive order (one of several intended to encourage lower drug prices) on July 24, 2020 directing HHS to make rules that would exclude from the safe harbor protections of the Anti-Kickback Statute rebates paid by manufacturers to insurers, pharmacies and pharmacy benefit managers for Medicare Part D drugs, provided such rules do not increase federal spending or out-of-pocket costs to patients.

Although a number of these and other measures may require additional authorization to become effective, Congress and the Trump administration have stated that they will continue to seek new

legislative and /or administrative measures to control drug costs.

At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

We expect that there will continue to be a number of federal and state proposals to implement similar and/or additional governmental controls.

We cannot be certain what legislative proposals will be adopted or what actions federal, state or private third-party payors may take in response to any drug pricing and reimbursement reform proposals or legislation.

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Such reforms may limit our ability to generate revenues from sales of Afrezza or other products that we may develop in the future and achieve profitability.

Further, to the extent that such reforms have a material adverse effect on the business, financial condition and profitability of any future marketing partner for Afrez za, and companies that are prospective collaborators for our product candidates, our ability to commercialize Afrezza and our product candidates under development may be adversely affected.

Further, to the extent that such reforms have a material adverse effect on the business, financial condition and profitability of any future marketing partner for Afrezza, and companies that are prospective collaborators for our product candidates, our ability to commercialize Afrezza and our product candidates under development may be adversely affected.

In the United States and elsewhere, sales of prescription pharmaceuticals still depend in large part on the availability of coverage and adequate reimbursement to the consumer from third-party payors, such as government health administration authorities and private insurance plans.

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Finally, if we were to change our critical accounting estimates, including those related to the recognition of collaboration revenue and other revenue sources, our operating results could be significantly affected.

Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, fin ancial condition or results of operations.

Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations.

New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our business operations and financial performance.

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We depend on our facilities and on collaborators, contractors and vendors for the continued operation of our business, some of whom are located in other countries.

Natural disasters or other catastrophic events, including interruptions in the supply of natural resources, political and governmental changes, severe weather conditions, public health pandemics or epidemics (including, for example, the recent outbreak of COVID-19), wildfires and other fires, explosions, actions of animal rights activists, terrorist attacks, volcanic eruptions, earthquakes and wars could disrupt our operations or those of our collaborators, contractors and vendors.

Natural disasters or other catastrophic events, including interruptions in the supply of natural resources, political and governmental changes, severe weather conditions, public health pandemics or epidemics (including, for example, the ongoing COVID-19 pandemic), wildfires and other fires, explosions, actions of animal rights activists, terrorist attacks, volcanic eruptions, earthquakes and wars could disrupt our operations or those of our collaborators, contractors and vendors.

We might suffer losses as a result of business interruptions that exceed the coverage available under our and our contractors’ insurance policies or for which we or our contractors do not have coverage.

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If we are unable to collect these future costs and expenses, if any, from the responsible party, our business, financial condition and results of operations may be harmed.

We are increasingly dependent on informa tion technology systems, infrastructure and data security.

We are increasingly dependent on information technology systems, infrastructure and data security.

We are increasingly dependent upon information technology systems, infrastructure and data security.

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For example, in October 2018, we received a warning letter from the FDA’s Office of Prescription Drug Promotion (“OPDP”) related to a particular post on our Afrezza Facebook page.

The warning letter stated that the post in question failed to adequately disclose the r isks associated with the use of Afrezza.

The warning letter stated that the post in question failed to adequately disclose the risks associated with the use of Afrezza.

As a result, we temporarily inactivated all Afrezza social media accounts (including Facebook, Instagram and Twitter) then, after consultation with OPDP, placed a corrective post on Facebook and Instagram.

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There remain judicial and congressional challenges to certain provisions of the PPACA, as well as efforts by the Trump administration to repeal or replace certain aspects of the PPACA.

President Trump has signed Executive Orders and other directives des igned to eliminate the implementation of certain provisions of the PPACA or otherwise circumvent some of the requirements for health insurance mandated by the PPACA.

President Trump has signed Executive Orders and other directives designed to eliminate the implementation of certain provisions of the PPACA or otherwise circumvent some of the requirements for health insurance mandated by the PPACA.

Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the PPACA.

While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the PPACA have been signed into law.

The Tax Act includes a provision that repealed, effective Janua ry 1, 2019, the tax-based shared responsibility payment imposed by the PPACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”.

In addition, the 2020 fe deral spending package permanently eliminate d , effective January 1, 2020, the PPACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax.

The B ipartisan Budget Act of 2018, or the BBA, among other things, amended the PPACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans .

The Tax Act includes a provision that repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the PPACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”.

In addition, the 2020 federal spending package permanently eliminate d , effective January 1, 2020, the PPACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax.

The Bipartisan Budget Act of 2018, or the BBA, among other things, amended the PPACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans .

In December 2018, CMS published a new final rule permitting further collections and payments to and from certain PPACA qualified health plans and health insurance issuers under the PPACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment.

On Decemb er 14, 2018, a Texas U.S.

On December 14, 2018, a Texas U.S.

District Court Judge ruled that the PPACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act.

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Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the PPACA are invalid as well.

On March 2, 2020, the United Stat es Supreme Court granted the petitions for writs of certiorari to review this case, and has allotted one hour for oral arguments, which are expected to occur in the fall.

On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case, and has allotted one hour for oral arguments, which are expected to occur in the fall.

It is unclear how such litigation , and other efforts to repeal and replace the PPACA will impact the PPACA and our business.

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With such expansion, we would be subject to increased governmental regulation in the EU countries in which we might operate, including the GDPR;

The CCPA, which has been dubbed the first “GDPR-like” law in the United States;

The California Consumer Privacy Act (“CCPA”), which created individual privacy rights for California consumers (as that word is broadly defined in the law) and placed increased privacy and security obligations on entities handling personal data of consumers or households.

The CCPA requires covered companies to provide new disclosures to California consumers, provide such consumers new ways to opt-out of certain sales of personal information, and allows for a new cause of action for data breaches.

The CCPA will likely impact (possibly significantly) our business activities and exemplifies the vulnerability of our business to not only cyber threats but also the evolving regulatory environment related to personal data and protected health information;

The federal Physician Payments Sunshine Act under PPACA, which requires certain manufacturers of drugs, devices, biologics, and medical supplies to report annually to CMS information related to payments and other transfers of value to physicians, as defined by such law, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members;

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and state laws that require drug manufacturers to report information related to payments and other transfer of value to physicians and other healthcare providers and entities, marketing expenditures or drug pricing.

Because of the breadth of these laws and the narrowness of available statutory exceptions and regulatory safe harbors , it is possible that some of our business activities could be subject to ch allenge under one or more of such laws.

With Afrezza now available in Brazil and as we pursue additional international approvals, we will be subject to similar foreign laws and regulations.

If we or our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including significant civil, criminal and administrative penalties, damages, fines, imprisonment, disgorgement, exclusion from U.S.

federal or sta te healthcare programs, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our op erations.

federal or state healthcare programs, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations.

Any penalties, damages, fines, curtailment or restructuring of our operations could materially adversely affect our ability to operate our business and our financial results.

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We also may not be able to develop a non-infringing product design on commercially reasonable terms, or at all.

Although we do not believe that Af rezza infringes any third-party patents , we have identified certain patents having claims that may trigger an allegation of infringement in connection with the commercial manufacture and sale of Afrezza.

If a court were to determine that Afrezza was infrin ging any of these patent rights, we would have to establish with the court that these patents are invalid or unenforceable in order to avoid legal liability for infringement of these patents.

However, proving patent invalidity or unenforceability can be di fficult because issued patents are presumed valid.

Although we do not believe that Afrezza infringes any third-party patents , we have identified certain patents having claims that may trigger an allegation of infringement in connection with the commercial manufacture and sale of Afrezza.

If a court were to determine that Afrezza was infringing any of these patent rights, we would have to establish with the court that these patents are invalid or unenforceable in order to avoid legal liability for infringement of these patents.

However, proving patent invalidity or unenforceability can be difficult because issued patents are presumed valid.

Therefore, in the event that we are unable to prevail in a non-infringement or invalidity action we will have to either acquire the third-party patents outright or seek a royalty-bearing license.

Royalty-b earing licenses effectively increase production costs and therefore may materially affect product profitability.

Furthermore, should the patent holder refuse to either assign or license us the infringed patents, it may be necessary to cease manufacturing t he product entirely and/or design around the patents, if possible.

Royalty-bearing licenses effectively increase production costs and therefore may materially affect product profitability.

Furthermore, should the patent holder refuse to either assign or license us the infringed patents, it may be necessary to cease manufacturing the product entirely and/or design around the patents, if possible.

In either event, our business, financial condition and results of operations would be harmed and our profitability could be materially and adversely impacted.

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In the future, we may sell additional shares of our common stock to raise capital.

In addition, a substantial number of shares of our common stock is reserved for:

issuance upon the exercise of stock options, the vesting of restricted stock unit awards and purchases under our employee stock purchase program.

In addition, a substantial number of shares of our common stock is reserved for issuance upon the exercise of stock options, the vesting of restricted stock unit awards and purchases under our employee stock purchase program.

We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock.

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The stock market, particularly in recent years, has experienced significant volatility particularly with respect to pharmaceutical and biotechnology stocks, and this trend may continue.

The recent outbreak of COVID-19, for example, has negatively affected the stock market and investor sentiment and has resulted in significant volatility.

The COVID-19 pandemic, for example, has negatively affected the stock market and investor sentiment and has resulted in significant volatility.

The volatility of pharmaceutical and biotechnology stocks often does not relate to the operating performance of the companies represented by the stock.

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The future sale of our common stock or the exchange or conversion of our convertible debt into, or exercise of our outstanding warrants for, common stock could negatively affect the market price of our common stock and other securities.*

As of April 13, 2020 , we had 213,137,730 shares of common stock outstanding.

As of July 13, 2020 , we had 229,174,914 shares of common stock outstanding.

Substantially all of these shares are available for public sale, subject in some cases to volume and other limitations.

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You could lose the entire value of any investment in our common stock.

UNR EGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

DEFAULTS UPON SENIOR SECURITIES

MINE SAFETY DISCLOSURES

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors