What changed in this filing

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Item 1A. Risk Factors

2020-11-04 compared with 2020-08-05 · 36 added, 21 removed, 773 unchanged (7% 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 June 30, 2020, we had cash and cash equivalents of $63.2 million and accumulated deficit of $3.0 billion.

As of September 30, 2020, we had cash and cash equivalents of $52.4 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 .

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The extent of our additional funding requirements will depend on a number of factors, including:

the degree to which revenue from Afrezza continues to grow in excess of the minimum revenue covenants under the MidCap Credit Facility;

the degree to which revenue from Afrezza exceeds or does not exceed the minimum revenue covenants under the MidCap Credit Facility;

the degree to which we are able to generate revenue from our Technosphere drug delivery platform, including through our collaborations;

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There can be no assurances, however, that we will be able to raise additional capital in the future 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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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, 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.

For example, the ongoing COVID-19 pandemic resulted in a number of 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, directed individuals to shelter at their places of residence, directed schools, businesses and governmental agencies to cease non-essential operations at physical locations, prohibited certain non-essential gatherings, and ordered cessation of non-essential travel.

In some places, these orders have been lifted whereas other locations, including Los Angeles County where our headquarters is located, continue to be subject to significant restrictions.

In parts of the country, the number of COVID-19 cases is increasing, raising the possibility that recurring cycles of restrictions will be imposed in the future.

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.

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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 .

Although we believe we have sufficient quantities of raw materials for planned manufacturing operations into 2021 , a prolonged supply interruption of certain components could adversely affect our ability to conduct commercialization activities and planned clinical trials .

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.

Our sales representatives, who normally conduct in-person office visits with healthcare providers, were required to work from home for varying periods of time since mid-March 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.

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.

While the potential economic impact brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, the pandemic continues to have the potential for disruption of global financial markets.

This disruption, if sustained or recurrent, could make it more difficult for us to access capital or to comply with the covenants contained in the MidCap Credit Facility, which could negatively affect our liquidity.

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

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

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

As of September 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.

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

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 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;

$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;

$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.

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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.

All or a portion of the PPP Loan may be forgiven by the SBA upon application to our lender by us beginning 60 days after loan approval, but not later than ten months after the end of our covered period, 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.

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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 .

The minimum cash covenant increase d to $40.0 million for any trailing twelve-month reporting period between July 31, 2020 and November 30, 2020 if the Afrezza trailing 12 month net sales target is not met during this period in accordance with an amendment to the MidCap Credit Facility.

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.

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.

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

A breach of any of these covenants could result in an event of default under the MidCap Credit Facility.

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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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Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal controls over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of our internal controls over financial reporting in our annual report on Form 10-K for that fiscal year.

Section 404 also requires our independent registered public accounting firm to attest to, and report on, our internal controls over financial reporting.

Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our internal controls over financial reporting will prevent all errors and all fraud.

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

As of October 26, 2020 , we had 232,600,608 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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In addition, they may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.

Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America are the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.*

Our amended and restated bylaws provide that, to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants, the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:

any derivative action or proceeding brought on our behalf;

any action or proceeding asserting a breach of fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders;

any action or proceeding asserting a claim against us or any of our current or former directors, officers or other employees arising out of or pursuant to any provision of the Delaware General Corporation Law, our amended and certificate of incorporation or amended and restated bylaws;

any action or proceeding to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws;

any action or proceeding as to which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware;

any action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine.

This provision does not apply to suits brought to enforce a duty or liability created by the Exchange Act.

Furthermore, Section 22 of the Securities Act of 1933, as amended, or the Securities Act, creates concurrent jurisdiction for federal and state courts over all such Securities Act actions.

Accordingly, both state and federal courts have jurisdiction to entertain such claims.

To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated bylaws further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.

While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions.

In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated bylaws.

This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.

These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers and other employees.

If a court were to find either exclusive forum provision in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business.

Because we do not expect to pay dividends in the foreseeable future, you must rely on stock appreciation for any return on any investment in our common stock.

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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