MANNKIND CORP 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements in this report that are not strictly historical in nature are “forward-looking statements” within the meaning of the federal securities laws made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, though not all forward-looking statements contain these identifying words. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below in Part II, Item 1A Risk Factors and elsewhere in this quarterly report on Form 10-Q. The preceding interim condensed consolidated financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and related notes for the year ended December 31, 2019 and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report. Readers are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made. OVERVIEW We are a biopharmaceutical company focused on the development and commercialization of inhaled therapeutic products for endocrinology and orphan lung diseases. Our only approved product, Afrezza, is an ultra rapid-acting inhaled insulin that was approved by the FDA in June 2014 to improve glycemic control in adult patients with diabetes. Afrezza became available by prescription in United States retail pharmacies in February 2015. Our business is subject to significant risks, including but not limited to our need to raise additional capital to fund our operations, our ability to successfully commercialize Afrezza, our ability to manufacture sufficient quantities of Afrezza and competition from other products and technologies. Other significant risks also include the risks inherent in clinical trials and the regulatory approval process for our product candidates, which in some cases depends upon the efforts of our partners. We continue to manage the risk to our business posed by the global COVID-19 pandemic. For much of the second quarter of 2020, our entire workforce worked from home except for 65 employees in our Connecticut facility who were essential for the commercial production of Afrezza and the clinical production of TreT. As various stay-at-home orders were lifted by individual states and counties during May and June, our sales representatives were able to resume in-person sales calls on a limited scale. Our offices in California and Connecticut have reopened, although many employees continue to work from home for a portion of each work week. Although our productivity has been impacted by the global pandemic, we have suitably adapted to the changed business environment that now exists. The COVID-19 pandemic continues to evolve rapidly and its ultimate impact remains highly uncertain. We do not yet know the full extent of potential delays or impacts on our business, our collaboration arrangements, commercialization efforts, healthcare systems or to the global economy as a whole. We continue to expect the COVID-19 pandemic to negatively impact our near-term revenues from Afrezza and believe it has the potential to have additional adverse impacts on our operations. We will continue to monitor the COVID-19 situation closely. As of June 30, 2020, we had an accumulated deficit of $3.0 billion and a stockholders’ deficit of $179.7 million. We had net loss of $10.3 million and $19.6 million for the three and six months ended June 30, 2020, respectively. To date, we have funded our operations through the sale of equity and convertible debt securities, from the receipt of upfront and milestone payments from certain collaborations, and from borrowings under certain loan arrangements. As discussed below in “Liquidity and Capital Resources,” if we are unable to obtain additional funding, there will continue to be substantial doubt about our ability to continue as a going concern. 29 CRITICAL ACCOUNTING POLICIES Our critical accounting policies can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, 2019. See Note 1 – Description of Business and Significant Accounting Policies in the condensed consolidated financial statements included in Part I – Financial Statements (Unaudited) for descriptions of the new accounting policies and impact of adoption. RESULTS OF OPERATIONS Three and six months ended June 30, 2020 and 2019 Revenues The following tables provide a comparison of the revenue categories for the three and six months ended June 30, 2020 and 2019 (dollars in thousands): Three Months Ended June 30, 2020 2019 $ Change % Change Net revenue — commercial product sales: Gross revenue from product sales $ 11,900 $ 10,339 $ 1,561 15 % Wholesaler distribution fees, rebates and chargebacks, product returns and other discounts (4,915 ) (4,274 ) $ 641 15 % Net revenue — commercial product sales 6,985 6,065 $ 920 15 % Revenue — collaborations and services 8,129 8,937 $ (808 ) (9 %) Total revenues $ 15,114 $ 15,002 $ 112 1 % Six Months Ended June 30, 2020 2019 $ Change % Change Net revenue — commercial product sales: Gross revenue from product sales $ 25,832 $ 18,546 $ 7,286 39 % Wholesaler distribution fees, rebates and chargebacks, product returns and other discounts (10,847 ) (7,405 ) $ 3,442 46 % Net revenue — commercial product sales 14,985 11,141 $ 3,844 35 % Revenue — collaborations and services 16,364 21,309 $ (4,945 ) (23 %) Total revenues $ 31,349 $ 32,450 $ (1,101 ) (3 %) Gross revenue from the sales of Afrezza increased by $1.6 million, or 15%, for the three months ended June 30, 2020 compared to the same period in the prior year. The increase was primarily driven by higher product demand, a price increase, a more favorable mix of Afrezza cartridges, and a shipment of $0.2 million to Biomm (Brazil). The gross-to-net adjustment was $4.9 million (or 41% of gross revenue) for the three months ended June 30, 2020, compared to $4.3 million (or 41% of gross revenue) for the same period in the prior year. The increase of $0.6 million was primarily driven by an increase in commercial product sales. As a result, net revenue from the sales of Afrezza increased by $0.9 million, or 15%, for the three months ended June 30, 2020 compared to the prior year period. During the second quarter of 2020, our sales force had very limited access to physicians as a result of the stay-at-home orders implemented around the country in response to the COVID-19 pandemic. This limited access, in addition to the stockpiling of extra refills that we believe took place in the first quarter of 2020, had an unfavorable impact on our commercial sales during the three months ended June 30, 2020. The ultimate impact of the COVID-19 pandemic on our operations is highly uncertain; therefore, the results of revenue from our commercial sales for the second quarter of 2020 should not be used as an indication of likely sales trends for the remainder of 2020. Net revenue from collaborations and services decreased by $0.8 million, or 9%, for the three months ended June 30, 2020 compared to the same period in the prior year. This was primarily driven by a $1.0 million decrease in revenue recognized from the UT Research Agreement, which was substantially completed in the second quarter of 2019 (see Note 7 – Collaboration and Licensing Agreements ) . 30 Gross revenue from the sales of Afrezza increased by $ 7.3 million, or 39 %, for the six months ended June 30, 2020 compared to the same period in the prior year. The increase was primarily driven by higher product demand, a price increase, a more favorable mix of Afrezza cartridges, and $ 0.7 million related to a reduction in wholesaler channel inventory in the six months ended June 30, 2019. The gross-to-net adjustment was $ 10.8 million (or 42 % of gross revenue) for the six months ended June 30, 2020, compared to $ 7.4 million (or 40 % of gross revenue) for the same period in the prior year. The increase of $ 3.4 million was primarily due to an increase in the utilization of our patient co-pay assistance programs and accounting estimates for rebates , partially offset by a decrease in accounting estimates for product returns . As a result, net revenue from the sales of Afrezza increased by $ 3.8 million, or 35 %, for the six months ended June 30 , 2020 compared to the prior year period. 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 physicians . These reduced sales were partially offset by the increased demand for Afrezza in the first quarter of 2020 due to patients stockpiling extra refills of their prescriptions. The ultimate impact of the pandemic on our operations remains highly uncertain; therefore, the results of revenue from our commercial sales for the first half of 2020 should not be used as an indication of likely sales trends for the remainder of 2020. Net revenue from collaborations and services decreased by $4.9 million, or 23%, for the six months ended June 30, 2020 compared to the same period in the prior year. This was primarily driven by a $5.5 million decrease in revenue recognized from the UT Research Agreement, which was substantially completed in the second quarter of 2019, partially offset by a $0.6 million increase in revenue from the UT License Agreement (see Note 7 – Collaboration and Licensing Agreements ) . Commercial product gross profit The following tables provide a comparison of the commercial product gross profit categories for the three and six months ended June 30, 2020 and 2019 (dollars in thousands): Three Months Ended June 30, 2020 2019 $ Change % Change Commercial product gross profit: Net revenue — commercial product sales $ 6,985 $ 6,065 $ 920 15 % Less: cost of goods sold 3,677 4,327 $ (650 ) (15 %) Commercial product gross profit $ 3,308 $ 1,738 $ 1,570 90 % Gross margin 47 % 29 % Six Months Ended June 30, 2020 2019 $ Change % Change Commercial product gross profit: Net revenue — commercial product sales $ 14,985 $ 11,141 $ 3,844 35 % Less: cost of goods sold 7,841 8,347 $ (506 ) (6 %) Commercial product gross profit $ 7,144 $ 2,794 $ 4,350 156 % Gross margin 48 % 25 % Commercial product gross profit for the three months ended June 30, 2020 increased by $1.6 million, or 90%, compared to the same period in the prior year. Gross margin for the three months ended June 30, 2020 increased to 47% from 29% for the same period in the prior year. The increase in gross profit and gross margin was attributable to higher commercial product sales combined with a reduction in cost of goods sold. Cost of goods sold de creased by $0.7 million, or 15%, for the three months ended June 30, 2020 compared to the same period in the prior year, primarily attributable to $0.6 million in reduced spending. Commercial product gross profit for the six months ended June 30, 2020 increased by $4.4 million, or 156%, compared to the same period in the prior year. Gross margin for the six months ended June 30, 2020 increased to 48% from 25% for the same period in the prior year. The increase in gross profit and gross margin was primarily attributable to higher commercial product sales. While cost of goods sold de creased by $0.5 million, or 6%, for the six months ended June 30, 2020 compared to the same period in the prior year. The reduction in cost of goods sold was primarily attributable to $1.2 million of increased manufacturing activities which resulted in a greater amount of costs capitalized to inventory and $0.6 million in reduced spending, partially offset by $0.9 million in costs associated with higher commercial product sales and $0.5 million of inventory write-offs. 31 Expenses The following tables provide a comparison of the expense categories for the three and six months ended June 30, 2020 and 2019 (dollars in thousands): Three Months Ended June 30, 2020 2019 $ Change % Change Expenses: Cost of goods sold $ 3,677 $ 4,327 $ (650 ) (15 %) Cost of revenue — collaborations and services 1,983 2,139 $ (156 ) (7 %) Research and development 1,464 1,632 $ (168 ) (10 %) Selling 7,271 9,380 $ (2,109 ) (22 %) General and administrative 6,399 7,229 $ (830 ) (11 %) Asset impairment 368 — $ 368 100 % Loss on foreign currency translation 1,867 1,247 $ 620 50 % Total expenses $ 23,029 $ 25,954 $ (2,925 ) (11 %) Six Months Ended June 30, 2020 2019 $ Change % Change Expenses: Cost of goods sold $ 7,841 $ 8,347 $ (506 ) (6 %) Cost of revenue — collaborations and services 5,345 3,676 $ 1,669 45 % Research and development 3,219 3,299 $ (80 ) (2 %) Selling 15,417 28,029 $ (12,612 ) (45 %) General and administrative 12,603 14,253 $ (1,650 ) (12 %) Asset impairment 1,889 — $ 1,889 100 % Loss (gain) on foreign currency translation 71 (688 ) $ 759 110 % Total expenses $ 46,385 $ 56,916 $ (10,531 ) (19 %) Cost of revenue — collaborations and services decreased by $0.2 million, or 7%, for the three months ended June 30, 2020 compared to the same period in the prior year. The decrease was attributable to lower resource costs related to conducting activities for our collaboration partner, UT. Cost of revenue — collaborations and services increased by $1.7 million, or 45%, for the six months ended June 30, 2020 compared to the same period in the prior year. The increase was attributable to resource costs related to conducting activities for our collaboration partners, Cipla and UT. Research and development expenses decreased by $0.2 million, or 10%, for the three months ended June 30, 2020 compared to the same period in the prior year. The decrease was attributable to lower clinical trial spending. Research and development expenses decreased by $0.1 million, or 2%, for the six months ended June 30, 2020 compared to the same period in the prior year. Selling expenses decreased by $2.1 million, or 22%, for the three months ended June 30, 2020 compared to the same period in the prior year . The decrease was primarily attributable to a $1.9 million reduction in promotional and marketing activities. Selling expenses decreased by $12.6 million, or 45%, for the six months ended June 30, 2020 compared to the same period in the prior year . The decrease was primarily attributable to a $9.3 million decrease in costs for television advertising for Afrezza and a $3.1 million decrease from a reduction in promotional and marketing activities. General and administrative expenses decreased by $0.8 million, or 11%, for the three months ended June 30, 2020 compared to the same period in the prior year . This decrease was primarily attributable to a $0.5 million decrease in personnel related costs as well as a $0.2 million decrease in professional costs. General and administrative expenses decreased by $1.7 million, or 12%, for the six months ended June 30, 2020 compared to the same period in the prior year . This decrease was primarily attributable to a $1.2 million decrease in personnel and employee related costs and a $0.5 million decrease in consulting costs. 32 During the three months ended June 30 , 2020 , an impairment of $ 0.4 million was recognized for the write-off of debt issuance costs associated with future funding commitments of the MidCap Credit Facility . See Note 6 – Borrowings in the condensed consolidated financial statements included in Part I – Financial Statements (Unaudited) . During the six months ended June 30, 2020, an impairment of $1.9 million was recognized for a commitment asset and debt issuance costs related to the future funding commitments of the MidCap Credit Facility (see Note 1 – Description of Business and Significant Accounting Policies and Note 6 – Borrowings in the condensed consolidated financial statements included in Part I – Financial Statements (Unaudited). There were no asset impairments for the three or six months ended June 30, 2019. Other Income (Expense) The following tables provide a comparison of the other income (expense) categories for the three and six months ended June 30, 2020 and 2019 (dollars in thousands): Three Months Ended June 30, 2020 2019 $ Change % Change Interest income $ 14 $ 255 $ (241 ) (95 %) Interest expense on notes (1,084 ) (564 ) $ 520 92 % Interest expense on promissory notes (1,281 ) (1,109 ) $ 172 16 % Other income (expense) 14 (17 ) $ 31 182 % Total other expense $ (2,337 ) $ (1,435 ) $ 902 63 % Six Months Ended June 30, 2020 2019 $ Change % Change Interest income $ 147 $ 573 $ (426 ) (74 %) Interest expense on notes (2,155 ) (1,157 ) $ 998 86 % Interest expense on promissory notes (2,540 ) (2,189 ) $ 351 16 % Other income (expense) 10 (31 ) $ 41 132 % Total other expense $ (4,538 ) $ (2,804 ) $ 1,734 62 % Interest income decreased by $0.2 million and $0.4 million, or 95% and 74%, for the three and six months ended June 30, 2020, respectively, compared to the same period in the prior year, which was primarily attributable to a lower interest rate on our U.S. Treasury money market investments as well as lower cash balances. Interest expense on notes increased by $0.5 million and $1.0 million, or 92% and 86%, for the three and six months ended June 30, 2020, respectively, compared to the same period in the prior year. The increase was primarily attributable to the new MidCap Credit Facility (see Note 6 – Borrowings in the condensed consolidated financial statements included in Part I – Financial Statements (Unaudited). LIQUIDITY AND CAPITAL RESOURCES To date, we have funded our operations through the sale of equity and convertible debt securities, from the receipt of upfront and milestone payments from certain collaborations, and from borrowings under certain loan arrangements. 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 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; • $2.6 million principal amount of the December 2020 note , which matures in December 2020; 33 • $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 t he 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; and • $4.9 million from a loan under the Paycheck Protection Program of the CARES Act, all or a portion of which may be forgiven. 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. There can be no assurance that we will have sufficient resources to make any required repayments of principal under the MidCap Credit Facility, the 2024 convertible notes, the December 2020 note, the Mann Group promissory notes or unforgiven amounts of the PPP Loan when required. 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. The 2024 convertible notes and the Mann Group convertible note are fully convertible at any time prior to maturity as further disclosed in Note 6 – Borrowings . To date, we have been able to timely make our required interest payments, but 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 under the MidCap Credit Facility, or if we fail to repay or repurchase the 2024 convertible notes, the December 2020 note, Mann Group promissory notes, borrowings under the MidCap Credit Facility or unforgiven amounts of the PPP Loan, we will be in default under the applicable instrument for such indebtedness, 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 noteholders initiating bankruptcy proceedings or causing us to cease operations altogether. In July 2013, we issued Milestone Rights to the Milestone Purchasers. The Milestone Rights provide the Milestone Purchasers certain rights to receive payments of up to $90.0 million upon the occurrence of specified strategic and sales milestones, $70.0 million of which remains payable upon achievement of such milestones. See Note 11 – Commitments and Contingencies and Note 6 – Borrowings for further information related to the Milestone Rights. These and other factors raise substantial doubt about our ability to continue as a going concern. Our financial statements and related notes thereto included elsewhere in this report do not include adjustments that might result from any unfavorable outcome of this uncertainty. During the six months ended June 30, 2020, we used $14.9 million of cash for our operating activities as a result of our net loss of $19.6 million, in addition to a net cash outflow from changes in balances of operating assets and liabilities of $5.3 million, partially offset by non-cash charges of $10.0 million. The change in operating asset and liabilities was primarily a result of deferred revenue amortization of $16.4 million, partially offset by a milestone payment from UT of $12.5 million. During the six months ended June 30, 2019, we used $31.3 million of cash for our operating activities as a result of our net loss of $27.3 million, offset by a net cash inflow from changes in balances of operating assets and liabilities of $10.7 million and non-cash charges of $6.6 million. The change in operating asset and liabilities was primarily a result of deferred revenue amortization of $21.3 million, recognized loss on purchase commitments of $4.0 million, partially offset by a milestone payment from UT of $12.5 million and an increase accounts payable of $2.2 million. The non-cash charges included $ 3.7 million of stock-based compensation and $2.3 million of interest accrued through promissory notes. Cash provided by investing activities of $19.7 million for the six months ended June 30, 2020 was primarily due to the proceeds from the sale of treasury bills. Cash used in investing activities of $26.4 million for the six months ended June 30, 2019, was primarily due to a purchase of short-term treasury bills. Cash provided by financing activities of $28.5 million for the six months ended June 30, 2020 was primarily due to the receipt of $12.6 million in gross proceeds from at the market offerings for an aggregate of 7,871,461 shares of our common stock under the CF Sales Agreement, the exercise of outstanding warrants to purchase shares of our common stock of $11.6 million, and proceeds from the PPP Loan of $4.9 million . 34 Cash used in financing activities of $0.7 million for the six months ended June 30, 2019 was primarily due to a principal payment of the Facility Financing Obligation of $2.5 million, offset by $1.9 million in proceeds from at the market offerings of our common stock under our CF Sales Agreement . Future Liquidity Needs We are not currently profitable and have rarely generated positive net cash flows from operations. In addition, we expect to continue to incur significant expenditures for the foreseeable future in support of our manufacturing operations, sales and marketing costs for Afrezza, and collaboration and development costs for product candidates in our pipeline. As of June 30, 2020, we had an accumulated deficit of $3.0 billion and $122.6 million of total principal amount of outstanding borrowings, with limited capital resources of $63.2 million in cash and cash equivalents. These financial conditions raise substantial doubt about our ability to continue as a going concern. Our capital resources may not be sufficient to continue to meet our current and anticipated obligations over the next twelve months if we cannot increase our operating cash inflows by growing our prescription and revenue base and by obtaining access to the remaining $25.0 million borrowings that may become available under the MidCap Credit Facility (which, in turn, requires us to grow Afrezza revenue before we can access such funds). 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 physicians, and the COVID-19 pandemic is expected to continue to negatively impact our near-term revenues from Afrezza, which potentially shortens our cash runway and increases the risk of non-compliance with the minimum revenue covenant in the MidCap Credit Facility described below. In response, during the second quarter of 2020, we took 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. In addition, in April 2020 we received proceeds of $4.9 million from a loan under the Paycheck Protection Program of the CARES Act, at least 75% of which we used to maintain payroll and retain employees, particularly those employees who were responsible for growing Afrezza prescriptions and revenue. Our ability to draw the $25.0 million Tranche 3 of the MidCap Credit Facility depends on our ability to achieve certain trailing 12-month Afrezza net revenue targets, which we are unlikely to achieve. The availability of Tranche 3 also depends on TreT achieving certain development milestones, which is likely to be negatively impacted by the COVID-19 pandemic. In the event our capital resources are not sufficient, we may need to raise additional capital by selling equity or debt securities, entering into strategic business collaboration agreements with other companies, seeking other funding facilities or licensing arrangements, selling assets or by other means. However, we cannot provide assurances that additional capital will be available on acceptable terms or at all. In addition, the COVID-19 pandemic is currently causing disruption of global financial markets. This disruption, if sustained or recurrent, could prevent us or make it more difficult for us to access capital or make it difficult to comply with the covenants contained in the MidCap Credit Facility, which could negatively affect our liquidity. Issuances of debt or additional equity could impact the rights of our existing stockholders, dilute the ownership percentages of our existing stockholders and may impose restrictions on our operations. These restrictions could include limitations on additional borrowing, specific restrictions on the use of our assets as well as prohibitions on our ability to create liens, pay dividends, redeem our stock or make investments. 35 We expect that the COVID-19 pandemic will continue to negatively impact near-term revenues from Afrezz a, 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. If we default under our obligations under the MidCap Credit Facility, the lender could proceed against the collateral granted to them to secure our indebtedness or declare all obligations under the MidCap Credit Facility to be due and payable. In certain circumstances, procedures by the lender could result in a loss by us of all of our equipment and inventory, which are included in the collateral granted to the lender. We may not have sufficient resources to make any required repayments of principal under the terms of our indebtedness when required. 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 are unable to meet our current and anticipated obligations over the next twelve months through our existing capital resources, or obtain new sources of capital when needed, we may have to delay or reduce the scope of our manufacturing operations, reduce or eliminate one or more of our development programs, or make significant changes to our operating plan. These factors raise substantial doubt about our ability to continue as a going concern. Off-Balance Sheet Arrangements As of June 30, 2020 and December 31, 2019, we did not have any off-balance sheet arrangements. Contractual Obligations See Note 6 – Borrowings and Note 11 – Commitments and Contingencies for a discussion of material changes outside of the ordinary course of business in our contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as contained in the Annual Report. 36 ITEM 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Interest on borrowings under the MidCap Credit Facility is determined, for any one-month period, on the basis of one-month LIBOR in effect at the beginning of such period plus 6.75%, subject to a one-month LIBOR floor of 2.00%. Accordingly, our interest expense under the MidCap Credit Facility is subject to changes in the one-month LIBOR rate. All other debt has fixed interest rates, so the interest expense associated with such debt is not exposed to changes in market interest rates. Specifically, the interest rate on amounts borrowed under the Mann Group promissory notes is fixed at 7.00%, the interest rate under the 2024 convertible notes is fixed at 5.75%, and the interest rate under the PPP Loan is fixed at 0.98%. See Note 6 – Borrowings for information about the principal amount of outstanding debt. If a change in the one-month LIBOR interest rate equal to 10% of the one-month LIBOR interest rate on June 30, 2020 were to have occurred, this change would not have a material effect on our interest payment obligation. Foreign Currency Exchange Risk We incur and will continue to incur significant expenditures for insulin supply obligations under our Insulin Supply Agreement with Amphastar. Such obligations are denominated in Euros. At the end of each reporting period, the recognized gain or loss on purchase commitment is converted to U.S. dollars at the then-applicable foreign exchange rate. As a result, our business is affected by fluctuations in exchange rates between the U.S. dollar and the Euro. For the three months ended June 30, 2020, we realized a $1.9 million currency loss, which was included in loss on foreign currency translation in the accompanying condensed consolidated statements of operations. Exchange rate fluctuations may adversely affect our expenses, results of operations, financial position and cash flows. If a change in the U.S. dollar to Euro exchange rate equal to 10% of the U.S. dollar to Euro exchange rate on June 30, 2020 were to have occurred, this change would have resulted in a foreign currency impact to our pre-tax loss of approximately $9.1 million.