What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-04 compared with 2020-08-05 · 116 added, 107 removed, 121 unchanged (65% of the section changed)

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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.

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.

We are a biopharmaceutical company focused on the development and commercialization of inhaled therapeutic products for endocrine and orphan lung diseases.

Our only approved product, Afrezza (insulin human) Inhalation Powder, 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.

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 commercialize Afrezza successfully, 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.

Our sales representatives have resumed in-person sales calls to the extent permitted by state and local public health authorities and by the policies of individual healthcare providers on their call lists.

Our offices in California and Connecticut have reopened to non-essential personnel, although many employees continue to work from home for a portion of each workweek.

Although our productivity has been impacted by the global pandemic, we have suitably adapted to the changed business environment that now exists.

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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 expect the COVID-19 pandemic to continue 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 of September 30, 2020, we had an accumulated deficit of $3.0 billion and a stockholders’ deficit of $186.4 million.

We had net loss of $11.3 million and $30.8 million for the three and nine months ended September 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, from borrowings under certain loan arrangements and from commercial product sales.

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.

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RESULTS OF OPERATIONS

Three and six months ended June 30, 2020 and 2019

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,

Three and nine months ended September 30, 2020 and 2019

The following tables provide a comparison of the revenue categories for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands):

Three Months Ended September 30,

Net revenue — commercial product sales:

Gross revenue from product sales

Gross revenue from commercial product sales

Wholesaler distribution fees, rebates and chargebacks,

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Total revenues

Six Months Ended June 30,

Nine Months Ended September 30,

Net revenue — commercial product sales:

Gross revenue from product sales

Gross revenue from commercial product sales

Wholesaler distribution fees, rebates and chargebacks,

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Total revenues

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 ) .

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.

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 ) .

Gross revenue from the sales of Afrezza increased by $1.2 million, or 11%, for the three months ended September 30, 2020 compared to the same period in the prior year.

The increase was primarily driven by higher product demand with a more favorable mix of Afrezza cartridges and a price increase, partially offset by a reduction in sales to Biomm (Brazil).

The gross-to-net adjustment was $5.1 million (or 41% of gross revenue) for the three months ended September 30, 2020, compared to $4.7 million (or 43% of gross revenue) for the same period in the prior year.

The increase of $0.4 million was primarily driven by an increase in commercial product sales and a decrease in accounting estimates for product returns, partially offset by an increase in the utilization of our patient co-pay assistance program.

As a result, net revenue from the sales of Afrezza increased by $0.9 million, or 14%, for the three months ended September 30, 2020 compared to the prior year period.

During the third quarter of 2020, our sales force had varying degrees of access to physicians due to restrictions enacted in response to the COVID-19 pandemic.

This limitation on access continued to have an unfavorable impact on our commercial sales during the three months ended September 30, 2020 and is expected to continue to negatively impact our near-term revenues from Afrezza.

Net revenue from collaborations and services decreased by $0.1 million, or 1%, for the three months ended September 30, 2020 compared to the same period in the prior year.

During the third quarter of 2020, the Company sold clinical supplies to UT for use in their clinical study.

S ee Note 7 – Collaboration and Licensing Agreements in the condensed consolidated financial statements included in Part I – Financial Statements (Unaudited).

Gross revenue from the sales of Afrezza increased by $8.5 million, or 29%, for the nine months ended September 30, 2020 compared to the same period in the prior year.

The increase was primarily driven by higher product demand with a more favorable mix of Afrezza cartridges and a price increase, partially offset by a reduction in sales to Biomm (Brazil).

The gross-to-net adjustment was $16.0 million (or 42% of gross revenue) for the nine months ended September 30, 2020, compared to $12.2 million (or 41% of gross revenue) for the same period in the prior year.

The increase of $3.8 million was primarily driven by an increase in commercial product sales and a decrease in accounting estimates for product returns, partially offset by an increase in the utilization of our patient co-pay assistance program and accounting estimates for rebates.

As a result, net revenue from the sales of Afrezza increased by $4.7 million, or 27%, for the nine months ended September 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 by limiting the access of our sales force to physicians.

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

Net revenue from collaborations and services decreased by $5.1 million, or 17%, for the nine months ended September 30, 2020 compared to the same period in the prior year.

This was primarily driven by a $5.7 million decrease in revenue recognized from the UT Research Agreement, which was substantially completed in the second quarter of 2019.

During the third quarter of 2020, the Company sold clinical supplies to UT.

S ee Note 7 – Collaboration and Licensing Agreements in the condensed consolidated financial statements included in Part I – Financial Statements (Unaudited).

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,

The following tables provide a comparison of the commercial product gross profit categories for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands):

Three Months Ended September 30,

Commercial product gross profit:

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cost of goods sold

Commercial product gross profit

Six Months Ended June 30,

Commercial product gross profit (loss)

Nine Months Ended September 30,

Commercial product gross profit:

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Commercial product gross profit

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.

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,

Not meaningful.

Commercial product gross profit for the three months ended September 30, 2020 increased by $4.4 million compared to the same period in the prior year.

Gross margin for the three months ended September 30, 2020 increased to 51% from a negative 11% for the same period in the prior year.

The increase in gross profit and gross margin was attributable to a reduction in cost of goods sold combined with higher commercial product sales.

Cost of goods sold de creased by $3.5 million, or 49%, for the three months ended September 30, 2020 compared to the same period in the prior year, primarily attributable to a $2.8 million amendment fee associated with our Insulin supply agreement in 2019, $0.5 million in reduced manufacturing-related spending and $0.5 million of costs associated with product sales in Brazil (Biomm) in 2019, partially offset by $0.4 million of decreased manufacturing activities which resulted in a reduced amount of costs capitalized to inventory.

Commercial product gross profit for the nine months ended September 30, 2020 increased by $8.7 million compared to the same period in the prior year.

Gross margin for the nine months ended September 30, 2020 increased to 49% from 12% for the same period in the prior year.

The increase in gross profit and gross margin was attributable to a reduction in cost of goods sold combined with higher commercial product sales.

Cost of goods sold decreased by $4.0 million, or 26%, for the nine months ended September 30, 2020 compared to the same period in the prior year.

The reduction in cost of goods sold was primarily attributable to a $2.8 million amendment fee associated with our Insulin supply agreement in 2019, $0.8 million of increased manufacturing activities which resulted in a greater amount of costs capitalized to inventory and $1.1 million in reduced manufacturing-related spending, partially offset by $0.5 million of inventory write-offs and $0.4 million in costs associated with higher commercial product sales.

The following tables provide a comparison of the expense categories for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands):

Three Months Ended September 30,

Cost of goods sold

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General and administrative

Asset impairment

Loss on foreign currency translation

Loss (gain) on foreign currency translation

Total expenses

Six Months Ended June 30,

Nine Months Ended September 30,

Cost of goods sold

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Total expenses

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 .

Cost of revenue — collaborations and services decreased by $0.3 million, or 14%, for the three months ended September 30, 2020 compared to the same period in the prior year.

The decrease was attributable to resource costs related to conducting activities for our collaboration partner, UT, in addition to the cost of clinical supplies.

Cost of revenue — collaborations and services increased by $1.4 million, or 26%, for the nine months ended September 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, UT and Cipla, in addition to the cost of clinical supplies.

Research and development expenses decreased by $ 0.1 million, or 6%, for the three months ended September 30, 2020 compared to the same period in the prior year.

The decrease was attributable to lower clinical trial spending, partially offset by an increase in preventative maintenance efforts in 2020.

Research and development expenses decreased by $ 0.2 million, or 4%, for the nine months ended September 30, 2020 compared to the same period in the prior year.

The decrease was attributable to lower clinical trial spending, partially offset by an increase in preventative maintenance efforts in 2020.

Selling expenses decreased by $1.3 million, or 13%, for the three months ended September 30, 2020 compared to the same period in the prior year .

The decrease was primarily attributable to a $1.2 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 .

Selling expenses decreased by $13.9 million, or 37%, for the nine months ended September 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 $4.1 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.

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.

General and administrative expenses decreased by $ 1.5 million, or 21%, for the three months ended September 30, 2020 compared to the same period in the prior year .

This decrease was primarily attributable to a $0.8 million decrease in professional costs .

General and administrative expenses decreased by $3.1 million, or 15%, for the nine months ended September 30, 2020 compared to the same period in the prior year .

This decrease was primarily attributable to a $1.3 million decrease in consulting costs, a $1.2 million decrease in personnel and employee related costs and a $0.3 million reduction in property taxes.

During the nine months ended September 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 months ended September 30, 2020 or the three or nine months ended September 30, 2019.

Under the Insulin Supply Agreement with Amphastar, payment obligations are denominated in Euros.

We are required to record the foreign currency translation impact of the U.S.

dollar to Euro exchange rate associated with the recognized gain or loss on purchase commitments.

The foreign currency translation gain decreased $7.7 million for the three months ended September 30, 2020 to a loss of $3.9 million, compared to a gain of $3.8 million for the same period in the prior year.

The foreign currency translation gain decreased $8.5 million for the nine months ended September 30, 2020 to a loss of $4.0 million, compared to a gain of $4.5 million for the same period in the prior year.

This impact was due to the translation of the U.S.

dollar to Euro exchange rates.

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,

The following tables provide a comparison of the other income (expense) categories for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands):

Three Months Ended September 30,

Interest income

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Interest expense on promissory notes

Gain on extinguishment of debt

Other income (expense)

Total other expense

Six Months Ended June 30,

Nine Months Ended September 30,

Interest income

1 unchanged sentence

Interest expense on promissory notes

Gain on extinguishment of debt

Other income (expense)

Total other expense

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).

Interest income decreased by $0.2 million and $0.6 million, or 92% and 79%, for the three and nine months ended September 30, 2020, respectively, compared to the same period in the prior year, due to lower short-term interest rates.

Interest expense on notes decreased by $3.1 million and $2.1 million, or 74% and 39%, for the three and nine months ended September 30, 2020, respectively, compared to the same period in the prior year.

The decrease was primarily due to a $3.4 million milestone obligation that was achieved in the third quarter of 2019, partially offset by interest expense from the MidCap Credit Facility.

The gain on extinguishment of debt for the three and nine months ended September 30, 2019 was primarily due to the cancellation of the 2021 notes in exchange for cash, common stock, 2024 convertible notes and non-interest bearing notes in August 2019 pursuant to an exchange agreement.

There was no gain on extinguishments for the three and nine months ended September 30, 2020.

LIQUIDITY AND CAPITAL RESOURCES

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

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, from borrowings under certain loan arrangements and from commercial product sales.

As of September 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;

$2.6 million principal amount of the December 2020 note , which was prepaid in October 2020 with the issuance of 1,377,356 shares of our common stock;

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.

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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.

Principal and interest payments can be deferred up to ten months after the end of the Company’s covered period unless the Company is notified earlier of its loan forgiveness status.

In the event the SBA does not authorize loan forgiveness, the deferred principal and interest will be payable to the lender and the Company will then make equal monthly payments 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 Mann Group promissory notes or unforgiven amounts of the PPP Loan if 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.

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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.

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 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.

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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.

These liabilities 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.

During the nine months ended September 30, 2020, we used $28.4 million of cash for our operating activities as a result of our net loss of $30.8 million, in addition to a net cash outflow from changes in balances of operating assets and liabilities of $14.9 million, partially offset by non-cash charges of $17.4 million.

The change in operating asset and liabilities was primarily a result of deferred revenue amortization of $24.4 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 .

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 .

During the nine months ended September 30, 2019, we used $83.4 million of cash for our operating activities as a result of our net loss of $37.6 million.

The net cash outflow was primarily due to result of deferred revenue amortization of $29.5 million and paid-in-kind interest on Promissory note of $32.8 million, partially offset by a milestone payment from UT of $12.5 million.

Cash provided by investing activities of $19.7 million for the nine months ended September 30, 2020 was primarily due to the proceeds from the sale of treasury bills.

Cash used investing activities of $22.6 million for the nine months ended September 30, 2019, was primarily due to a purchase of short-term treasury bills of $44.9 million partially offset by proceeds of from sales of treasury bills of $25.0 million.

Cash provided by financing activities of $31.2 million for the nine months ended September 30, 2020 was primarily due to the receipt of $15.1 million in gross proceeds from at the market offerings for an aggregate of 9,401,827 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.

Cash provided by financing activities of $64.8 million for the nine months ended September 30, 2019 was primarily due to net proceeds from the Midcap Credit Facility of $39.1 million and net proceeds from exchange of Mann Group promissory notes which was offset by payments for financing facility of $6.9 million .

Future Liquidity Needs

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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.

As of September 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 $52.4 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.

The various stay-at-home orders implemented around the country in response to the COVID-19 pandemic have negatively impacted the sales of Afrezza by limiting the access of our sales force to physicians.

The COVID-19 pandemic is expected to continue to negatively impact our near-term revenues from Afrezza, which potentially shortens our cash runway.

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.

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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.

In addition, the COVID-19 pandemic continues to have the potential for 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.

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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.

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.

The impact of the COVID-19 pandemic on Afrezza sales also increased the risk of non-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.

In August 2020, we entered into an amendment to the MidCap Credit Facility, pursuant to which the parties agreed that no breach of this covenant between July 31, 2020 and November 30, 2020 will be deemed to occur if we have unrestricted cash of at least $40.0 million.

Thereafter, if we fail to meet the minimum Afrezza net revenue 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.

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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.

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, 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.

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Off-Balance Sheet Arrangements

As of June 30, 2020 and December 31, 2019, we did not have any off-balance sheet arrangements.

As of September 30, 2020 and December 31, 2019, we did not have any off-balance sheet arrangements.

Contractual Obligations

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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.

If a change in the one-month LIBOR interest rate equal to 10% of the one-month LIBOR interest rate on September 30, 2020 were to have occurred, this change would not have a material effect on our interest payment obligation.

Foreign Currency Exchange Risk

On July 1, 2019, the Company entered into a 90-day foreign currency hedging transaction to mitigate its exposure to foreign currency exchange risks associated with the then-existing third quarter amount of €1.9 million.

The Company realized a de minimis currency loss during third quarter of 2019.

This amount was recorded in other income and expense.

We incur and will continue to incur significant expenditures for insulin supply obligations under our Insulin Supply Agreement with Amphastar.

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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.

For the three months ended September 30, 2020, we realized a $3.9 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.

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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.

dollar to Euro exchange rate on September 30, 2020 were to have occurred, this change would have resulted in a foreign currency impact to our pre-tax loss of approximately $9.5 million.

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 2. Management’s Discussion and Analysis