What changed in this filing

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Item 1A. Risk Factors

2021-11-09 compared with 2021-08-11 · 106 added, 94 removed, 742 unchanged (21% of the section changed)

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If third-party payers do not cover Afrezza or any of our product candidates for which we receive regulatory approval, Afrezza or such product candidates might not be prescribed, used or purchased, which would adversely affect our revenues.

We may undertake internal restructuring activities in the future that could result in disruptions to our business or otherwise materially harm our results of operations or financial condition.

We are increasingly dependent on information technology systems, and infrastructure, which are vulnerable to service interruptions and attacks.

We may undertake internal restructuring activities in the future that could result in disruptions to our business or otherwise materially harm our results of op erations or financial condition.

We are increasingly dependent on information technology systems, and infrastructure, which are vulnerable to service interruptions, data breaches, and other similar incidents and attacks.

RISKS RELATED TO GOVERNMENT REGULATION

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We are subject to stringent, ongoing government regulation.

If we or any future marketing partner fails to comply with federal and state healthcare laws, including fraud and abuse and health information privacy and security laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.

If we or any future partner fails to comply with federal and state healthcare or privacy and data security laws, including fraud and abuse and health information laws and other laws governing the processing of personal data, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.

RISKS RELATED TO OUR COMMON STOCK

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There are numerous examples of failures to fully exploit the market potential of drug products, including by pharmaceutical companies with more experience and resources than us.

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

We ultimately may be unable to gain widespread market acceptance of Afrezza for a variety of reasons, including the treatment and dosage regimen, potential adverse effects, pricing and availability relative to alternative p roducts and lack of coverage or adequate reimbursement by payers .

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

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These studies will require significant capital resources, some of which may not be available to us.

We expect to initiate one of these studies, a Phase 3 clinical trial to evaluate the safety and efficacy of Afrezza in 4-17 year-old children and adolescents, in the second half of 2021.

We have to initiated one of these studies, a Phase 3 clinical trial to evaluate the safety and efficacy of Afrezza in 4-17 year-old children and adolescents.

We have engaged a clinical research organization to assist us with conducting this study and have budgeted the projected costs of the study in our operating plans.

T he FDA has also required that we conduct a five-year, randomized, controlled trial in patients with type 2 diabetes, the primary objective of which is to compare the incidence of pulmonary malignancy observed with Afrezza to that observed in a standard of care control group.

We have an ongoing dialogue with the FDA regarding the endpoints and goals for this study.

To date, we have not commenced a long-term safety study or budgeted any amount for it, but such a study would be anticipated to require substantial capital resources that we may not be able to obtain.

T he other required study is a long-term safety study that was originally intended to compare the incidence of pulmonary malignancy observed with Afrezza to that observed in a standard of care control group.

We have an ongoing dialogue with the FDA regarding the agency’s current interest in the long-term safety of Afrezza and an appropriate study design to address any concerns.

To date, we have not commenced a long-term safety study or budgeted any amount for it, but such a study in its original design would be anticipated to require substantial capital resources that we may not be able to obtain.

We are responsible for the NDA for Afrezza and its maintenance.

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These problems include difficulties with production costs and yields and quality control and assurance.

We may also experience shortages of qualified personnel, particularly at this time when we are seeking to fill a large number of open positions in our Danbury facility.

There is also a need to comply with strictly enforced federal, state and foreign regulations, including

Our facility is inspected on a regular basis by the FDA, most recently in late Ju ly 20 21 when the FDA conducted a pre-approval inspection related to Tyvaso DPI and a GMP inspection related to Afrezza .

The onsite portion of these inspections concluded in early August.

We expect the FDA to deliver a formal establishment inspection report in September.

If the FDA makes any major observations related to such inspections or in its review of information submitted as part of the NDA , the approval and launch of Tyvaso DPI may be delayed.

We may experience shortages of qualified personnel, which could impact our ability to meet production schedules.

There is also a need to comply with strictly enforced federal, state and foreign regulations, including inspections.

Our facility is inspected on a regular basis by the FDA, most recently in July 2021 when the FDA conducted a pre-approval inspection related to Tyvaso DPI and a GMP inspection related to Afrezza.

The FDA made one observation during its most recent inspection, which we corrected and addressed with the FDA following the site visit.

If the FDA makes any major observations during future inspections, the corrective actions required could be onerous and time-consuming.

Any of these factors could cause us to delay or suspend production, could entail higher costs and may result in our being unable to obtain sufficient quantities for the commercialization of drug products at the costs that we currently anticipate.

Furthermore, if we or a third-party manufacturer fail to deliver the required commercial quantities of the product or any raw material on a timely basis, and at commercially reasonable prices, sustainable compliance and acceptable quality, and we were unable to promptly find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volume and quality on a timely basis, we would likely be unable to meet demand for such drug products and we would lose potential revenues.

In addition, i n October 2021, the FDA issued a complete response letter to United Therapeutics pursuant to which the FDA declined to approve the NDA for the approval of Tyvaso DPI for the treatment of PAH and PH-ILD at this time, noting only one deficiency related to an open inspection issue at a third-party analytical testing center for treprostinil.

In light of these developments, it is currently unclear when, or whether, approval of Tyvaso DPI in PAH and PH-ILD can be obtained.

We may need to raise additional capital to fund our operations.*

As of June 30, 2021, we had cash and cash equivalents of $62.5 million, short-term investments of $100.0 million and long-term investments of $39.0 million, and we had $293.3 million principal amount of outstanding debt.

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 .

As of September 30, 2021, we had cash and cash equivalents of $51.7 million, short-term investments of $87.3 million and long-term investments of $42.1 million, and we had $288.4 million principal amount of outstanding debt.

Although we subsequently closed the Sale-Leaseback Transaction for a sales price of $102.3 million, we may need to raise additional capital, whether through the sale of equity or debt securities, additional strategic business collaborations, the establishment of other funding facilities, licensing arrangements, asset sales or other means, in order to support our ongoing activities, including the commercialization of Afrezza and the development of our product candidates .

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

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the costs of procuring raw materials and operating our manufacturing facility;

our obligation to make milestone payments;

our obligation to make lease payments and milestone payments;

our success in establishing additional strategic business collaborations or other sales or licensing of assets, and the timing and amount of any payments we might receive from any such transactions;

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Issuances of additional debt or equity securities or the issuance of common stock upon conversion of outstanding convertible debt securities or upon the exercise of our currently outstanding warrants for shares of our common stock could impact the rights of the holders of our common stock and will dilute their ownership percentage.

Moreover, the establishment of other funding facilities may

impose restrictions on our operations.

Moreover, the establishment of other funding facilities may impose restrictions on our operations.

These restrictions could include limitations on additional borrowing and 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.

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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.

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

The ongoing COVID-19 pandemic has 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 restrictions.

The emergence of new variants of the SARS-CoV-2 virus raises the possibility that recurring cycles of restrictions will be imposed in the future, notwithstanding vaccination efforts.

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.

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

The ongoing COVID-19 pandemic has resulted in a number of restrictions to reduce the spread of the disease, many of which have been eased or lifted in recent months.

The emergence of new variants of the SARS-CoV-2 virus raises the possibility that recurring cycles of infection and corresponding restrictions will be imposed in the future, notwithstanding vaccination efforts.

The effects of the restrictions related to the COVID-19 pandemic and our related policies addressing the pandemic, including the evolving nature of such policies, may negatively impact productivity, disrupt our business and delay our development programs, regulatory and commercialization timelines.

We may also face challenges or disruptions as employees return back to the workplace, including re-integration challenges by our employees and distractions to management related to such transition.

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

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Although we believe we have sufficient quantities of raw materials for planned manufacturing operations in 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.

In addition, we believe that the severity of the COVID-19 pandemic in Brazil has the potential to continue 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 have not fully returned to conducting in-person office visits with healthcare providers, which impact s their productivity.

Although our sales representatives are conducting in-person sales calls to the extent permitted by state and local public health authorities and by the policies of individual healthcare providers that they interact with, they have not fully returned to conducting in-person office visits with healthcare providers, which impacts their productivity.

Disruptions in the prescription volume of Afrezza could also occur:

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as a result of general disruptions in the operations of payers, distributors, logistics providers and other third parties that are necessary for Afrezza to be prescribed and reimbursed.

In addition, our planned clinical trials of Afrezza and those of our partner for Tyvaso DPI may be affected by the COVID-19 pandemic.

In addition, our planned clinical trials of Afrezza may be affected by the COVID-19 pandemic.

Clinical site initiation and patient enrollment may be delayed due to prioritization of hospital resources toward the COVID-19 pandemic.

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Other than Tyvaso DPI, which UT submitted for regulatory approval in April 2021, all of our product candidates will require additional research and development and, in some cases, significant preclinical, clinical and other testing prior to seeking regulatory approval to market them.

Accordingly, these

product candidates will not be commercially available for a number of years, if at all.

Accordingly, these product candidates will not be commercially available for a number of years, if at all.

Further research and development on these programs will require significant financial resources.

Given our limited financial resources, our need to support the regulatory submission and launch preparations of Tyvaso DPI and our ongoing attention on the development and commercialization of Afrezza, we may not be able to advance these programs into clinical development unless we are able to obtain specific funding for these programs or enter into collaborations with third parties.

In addition, in October 2021, the FDA issued a complete response letter to United Therapeutics pursuant to which the FDA declined to approve the NDA for the approval of Tyvaso DPI for the treatment of PAH and PH-ILD at this time, noting only one deficiency related to an open inspection issue at a third-party analytical testing center for treprostinil.

In light of these developments, it is currently unclear when, or whether, approval of Tyvaso DPI in PAH and PH-ILD can be obtained.

Even if our research programs identify product candidates that initially show promise, these candidates may fail to progress to clinical development for any number of reasons, including discovery upon further research that these candidates have adverse effects or other characteristics that indicate they are unlikely to be effective.

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

As of June 30, 2021, we had an accumulated deficit of $3.1 billion.

As of September 30, 2021, we had an accumulated deficit of $3.1 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 2027.

As of June 30, 2021, there was €74.8 million remaining in aggregate purchase commitments under this agreement.

As of September 30, 2021, there was €73.7 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, 2021, we had $293.3 million principal amount of outstanding debt, consisting of:

As of September 30, 2021, we had $288.4 million principal amount of outstanding debt, consisting of:

$230.0 million aggregate principal amount of Senior convertible notes bearing interest at 2.50% payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2021 and will mature on March 1, 2026, unless earlier converted, redeemed or repurchased.

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$18.4 million principal amount of indebtedness under the Mann Group convertible note bearing interest at a fixed rate of 2.50% per annum compounded quarterly and maturing in December 2025, which is convertible into shares of our common stock at the option of 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 in cash or in shares.

$4.9 million principal amount under a PPP loan, all of which was forgiven by the SBA subsequent to June 30, 2021.

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

Under the MidCap credit facility, our interest rate on borrowed amounts is dependent on one-month LIBOR, which is the basic rate of interest used in lending between banks on the London interbank market.

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Under the MidCap credit facility, we must comply with a minimum cash covenant of $10.0 million at all times and may be required to comply with additional covenants in the future under certain circumstances.

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:

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:

dispose of assets;

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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.

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 our unrestricted cash and short-term investments balance falls below $90.0 million, we will be subject to 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.

I f we fail to meet this covenant or the minimum cash covenant, any outstanding borrowings, together with accrued interest, under the MidCap credit facility could be declared immediately due and payable.

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We must rely on all of our suppliers to comply with relevant regulatory and other legal requirements, including the production of insulin and FDKP in accordance with the FDA’s cGMP for drug products, and the production of the Afrezza inhaler and related cartridges in accordance with QSRs.

Although we conduct our own inspections and review and/or approve investigations of each supplier, there can be no assurance that the FDA, upon inspection, would find that the supplier substantially complies with the QSR or cGMP requirements, where applicable.

Although we conduct our own

inspections and review and/or approve investigations of each supplier, there can be no assurance that the FDA, upon inspection, would find that the supplier substantially complies with the QSR or cGMP requirements, where applicable.

If a supplier fails to comply with these requirements or the comparable requirements in foreign countries, regulatory authorities may subject us to regulatory action, including criminal prosecutions, fines and suspension of the manufacture of our products.

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Also, third-party payers may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available.

Even if favorable coverage and reimbursement status is attained for Afrezza or our product candidates for which we or our collaborators receive regulatory approval, less favorable

coverage policies and reimbursement rates may be implemented in the future.

In addition, because each third-party pay e r individually approves coverage and reimbursement levels, obtaining coverage and adequate reimbursement is a time-consuming and costly process.

We may be required to provide scientific and clinical support for the use of any product to each third-party pay e r separately with no assurance that approval would be obtained.

Even if favorable coverage and reimbursement status is attained for Afrezza or our product candidates for which we or our collaborators receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

In addition, because each third-party payer individually approves coverage and reimbursement levels, obtaining coverage and adequate reimbursement is a time-consuming and costly process.

We may be required to provide scientific and clinical support for the use of any product to each third-party payer separately with no assurance that approval would be obtained.

This process could delay the market acceptance of any product and could have a negative effect on our future revenues and operating results.

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All of our employees are “at will” and we currently do not have employment agreements with any of the principal members of our management , commercial or scientific staff, and we do not have key person life insurance to cover the loss of any of these individuals.

Replacing key employees may be difficult and time-consuming

because of the limited number of individuals in our industry with the skills and experience required to develop, gain regulatory approval of and commercialize products successfully.

Replacing key employees may be difficult and time-consuming because of the limited number of individuals in our industry with the skills and experience required to develop, gain regulatory approval of and commercialize products successfully.

We have relationships with scientific advisors at academic and other institutions to conduct research or assist us in formulating our research, development or clinical strategy.

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As a result, federal net operating loss and credit carry forwards of approximately $216.0 million are subject to an annual use limitation of approximately $13.0 million.

The annual limitation is cumulative and therefore, if not fully utilized in a year, can be utilized in future years in addition to the Section 382 limitation for those years.

The annual limitation is cumulative and therefore, if not fully utilized in a year, can be utilized in future years in addition to the Section 382

limitation for those years.

We have completed a Section 382 analysis beginning from the date of our initial public offering through December 31, 2020, to determine whether additional limitations may be placed on our net operating loss carryforwards and other tax attributes, and no additional changes in ownership that met the Section 382 ownership change threshold were identified through December 31, 2020.

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Our operations might be interrupted by the occurrence of a natural disaster or other catastrophic event.

At least for the foreseeable future, we expect that our manufacturing facility in Danbury, Connecticut will be the sole location for the manufacturing of Afrezza and Tyvaso DPI.

At least for the foreseeable future, we expect that our manufacturing facility in Connecticut will be the sole location for the manufacturing of Afrezza and Tyvaso DPI.

This facility and the manufacturing equipment we use would be costly to replace and could require substantial lead-time to repair or replace.

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

For example, we are not

insured against a terrorist attack.

For example, we are not insured against a terrorist attack.

Any natural disaster or catastrophic event could have a significant negative impact on our operations and financial results.

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Moreover, the risk of accidental contamination or injury from hazardous materials cannot be completely eliminated, and in the event of an accident, we could be held liable for any damages that may result, and any liability could fall outside the coverage or exceed the limits of our insurance.

Currently, our general liability policy provides coverage up to $1.0 million per occurrence and $2.0 million in the aggregate and is supplemented by an umbrella policy that provides a further $20.0 million of coverage;

Currently, our general liability policy provides coverage

up to $1.0 million per occurrence and $2.0 million in the aggregate and is supplemented by an umbrella policy that provides a further $20.0 million of coverage;

however, our insurance policy excludes pollution liability coverage and we do not carry a separate hazardous materials policy.

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Finally, current or future environmental laws and regulations may impair our research, development or production efforts or have an adverse impact on our business, results of operations and financial condition.

When we purchased the facilities located in Danbury, Connecticut in 2001, a soil and groundwater investigation and remediation was being conducted by a former site operator (the responsible party) under the oversight of the Connecticut Department of Environmental Protection, which is not completed.

When we purchased our facility in Connecticut in 2001, a soil and groundwater investigation and remediation was being conducted by a former site operator (the responsible party) under the oversight of the Connecticut Department of Environmental Protection, which is not completed.

The responsible party will make all filings necessary to achieve closure for the environmental remediation conducted at the site, and has agreed to indemnify us for any future costs and expenses we may incur that are directly related to the final closure.

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

We are increasingly dependent on information technology systems and infrastructure, which are vulnerable to service interruptions and attacks.*

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

Our business requires manipulating, analyzing and storing large amounts of data.

We are increasingly dependent on information technology systems and infrastructure, which are vulnerable to service interruptions, data breaches, and other similar incidents and attacks.*

We, and third parties acting on our behalf, employ and are increasingly dependent upon information technology systems, infrastructure, applications, websites and other resources.

Our business requires collecting, manipulating, analyzing, storing and otherwise processing large amounts of data, including proprietary data, sensitive data, personal data and other confidential information.

In addition, we rely on an enterprise software system to operate and manage our business.

Our business therefore depends on the continuous, effective, reliable and secure operation of our computer hardware, software, networks, Internet servers and related infrastructure.

The multitude and complexity of our computer systems and the potential value of our data make them inherently vulnerable to service interruption or destruction, malicious intrusion and random attack.

Likewise, data privacy or security breaches by employees or others may pose a risk that sensitive data including intellectual property, trade secrets or personal information belonging to us or our customers or other business partners may be exposed to unauthorized persons or to the public.

Our systems are also potentially subject to cyber-attacks, which can be highly sophisticated and may be difficult to detect.

Such attacks are often carried out by motivated, well-resourced, skilled and persistent actors including nation states, organized crime groups and “hacktivists.” Cyber-attacks could include the deployment of harmful malware and key loggers, a denial-of-service attack, a malicious website, the use of social engineering and other means to affect the confidentiality, integrity and availability of our information technology systems, infrastructure and data.

Our key business partners face similar risks and any security breach of their systems could adversely affect our security status.

Additionally, natural disasters, public health pandemics or epidemics ( including, for example, the COVID-19 pandemic ), terrorism, war and telecommunication and electrical failures may result in damage to or the interruption or impairment of key business processes, or the loss or corruption of confidential information, including intellectual property, proprietary business information and personal information.

While we continue to invest in the protection of our critical or sensitive data and information technology, there can be no assurance that our efforts will prevent or detect service interruptions or breaches in our systems that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, business or reputational harm to us.

Our business, including our ability to conduct clinical trials, therefore depends on the continuous, effective, reliable and secure operation of our information technology resources and those of third parties acting on our behalf, including computer hardware, software, networks, Internet servers and related infrastructure.

These resources, including due to their multitude and complexity, and the data they transit or store (which includes valuable information) are vulnerable to service interruption or destruction, malicious intrusion and random attack.

Likewise, data privacy or security breaches by employees or others (whether intentional or accidental) may pose a risk that sensitive data including intellectual property, trade secrets, personal data or other confidential data belonging to us or our customers or other business partners may be exposed to unauthorized persons or to the public.

We, and third parties acting on our behalf, are also potentially subject to cyber-attacks and other malicious internet-based activity, including ransomware attacks and supply chain attacks, which can be highly sophisticated, are constantly evolving and may be difficult to predict and detect and costly to investigate and attempt to remediate.

Such attacks, which are increasingly prevalent and severe, are often carried out by motivated, well-resourced, skilled and persistent actors, including nation states, organized crime groups and “hacktivists,” but threats come from a wide variety of actors.

Cyber-attacks could include the deployment of harmful malware and key loggers, a denial-of-service attack, a malicious website, the use of social engineering and other means to affect the confidentiality, integrity and availability of our information technology systems, infrastructure and data.

Our key business partners, including our service providers, face similar risks and any security breach of their systems could adversely affect our security status.

Additionally, natural disasters, public health pandemics or epidemics (including, for example, the COVID-19 pandemic), terrorism, war, telecommunication and electrical failures and similar events may result in damage to or the interruption or impairment of key business processes, including disruptions of clinical trials, or the loss or corruption of confidential information, including intellectual property, proprietary business information and personal data.

While we continue to invest in the protection of our critical or sensitive data and information technology, there can be no assurance that our efforts (or the efforts of third parties with whom we do business) will prevent or detect service interruptions, vulnerabilities or breaches in our systems or the systems of third parties that process our data, which could adversely affect our business and operations and/or result in the loss of critical, personal or other sensitive or confidential information and could result in financial, legal, business or reputational harm to us, including in connection with government enforcement actions, investigations, fines, penalties, audits and inspections, additional reporting requirements and/or oversight, temporary or permanent bans on all or some processing of personal data (which could impact our clinical trials or training of our algorithm), lawsuits (including class action litigation), indemnity obligations, negative publicity, diversions of funds and resources, notification obligations (including to affected individuals and governmental authorities), and other adverse events or outcomes.

Our contracts, which often contain privacy- and data security-related obligations, may not have limitations of liability and there can be no assurance that any limitations of liability that are included in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages if we fail to comply with applicable data protection laws, contracts, policies or other obligations related to privacy, information security or security incidents.

We also cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or adequately mitigate liabilities or damages with respect to claims, costs, litigation, fines, penalties, and other losses or material adverse impacts arising out of our privacy and security practices or security incidents, or that such coverage will continue to be available on commercially reasonable terms or at all.

Changes in funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal functions on which the operation of our business may rely, which could negatively impact our business.

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Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our product candidates in the United Kingdom or the European Union and restrict our ability to generate revenue and achieve and sustain profitability.

While the Trade and Cooperation Agreement provides for the tariff-free trade of medicinal products between the UK and the EU there may be additional non-tariff costs to such trade which did not exist prior to the end of the Transition Period.

While the Trade and Cooperation Agreement provides for the tariff-free trade of medicinal products between the United Kingdom (“UK”) and the EU there may be additional non-tariff costs to such trade which did not exist prior to the end of the Transition Period.

Further, should the UK diverge from the EU from a regulatory perspective in relation to medicinal products, tariffs could be put into place in the future.

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The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.

As a biopharmaceutical company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payers, certain federal and state healthcare laws and regulations, including those pertaining to fraud and abuse and patients’ rights are and will be applicable to our business.

For example, we could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business.

The laws that may affect our ability to operate include, among others:

Additionally, there are numerous U.S.

and foreign laws, regulations and industry standards that govern the processing of personal data, including privacy, data security, consumer protection and health information privacy laws.

The number and scope of these laws, regulations and industry standards are changing, subject to differing applications and interpretations, and may be inconsistent between jurisdictions or in conflict with each other, making compliance difficult.

The key laws that may affect our ability to operate include, among others:

The federal Anti-Kickback Statute (as amended by PPACA, which modified the intent requirement of the federal Anti-Kickback Statute so that a person or entity no longer needs to have actual knowledge of the Statute or specific intent to violate it to have committed a violation), which constrains our business activities, including our marketing practices, educational programs, pricing policies, and relationships with healthcare providers or other entities by prohibiting, among other things, knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, either the referral of an individual or the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

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The federal Health Insurance Portability and Accountability Act (“HIPAA”), which created new federal criminal statutes that prohibit, among other things, knowingly and willfully executing a scheme to defraud any healthcare benefit program or falsifying, concealing, or covering up a material fact in connection with the delivery of or payment for health care benefits;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information on entities subject to the law, such as certain healthcare providers, health plans, and healthcare clearinghouses and their respective business associates that perform services for them that involve the creation, use, maintenance or disclosure of, individually identifiable health information as well as their covered subcontractors.

In addition, in May 2018, the European Union, or EU, adopted European General Data Protection Regulation, or GDPR, which contains new provisions specifically directed at the processing of health information, higher sanctions and extra-territoriality measures intended to bring non-EU companies under the regulation.

We anticipate that over time we may expand our business operations to include additional operations in the EU, including potentially conducting preclinical and clinical trials.

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

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

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

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

The federal Physician Payments Sunshine Act under PPACA, which requires certain manufacturers of drugs, devices, biologics, and medical supplies to report annually to CMS information related to payments and other transfers of value to physicians (defined to include defined to include doctors, dentists, optometrists, podiatrists and chiropractors), and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their

immediate family members .

Beginning in 2022, applicable manufacturers a lso will be required to report information regarding its payments and other transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists and certified nurse midwives during the previous year ;

State and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations, which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information on entities subject to the law, such as certain healthcare providers, health plans, and healthcare clearinghouses and their respective business associates that perform services for them that involve the creation, use, maintenance or disclosure of, individually identifiable health information as well as their covered subcontractors.

We may be or may become subject to the European General Data Protection Regulation (“EU GDPR”) and the EU GDPR as it forms part of UK law by virtue of section 3 of the European Union (Withdrawal) Act of 2018 (“UK GDPR”), which contain significant and complex compliance burdens with respect to processing personal data, including provisions specifically directed at the processing of health information and other categories of “special category” data, higher sanctions (including, for example, under the EU GDPR, fines of up to the higher of €20 million or 4% of global annual revenue for the preceding financial year), restrictions on transferring personal data outside of the European Economic Area (“EEA”) or UK and extra-territoriality measures that bring companies outside of the EEA and UK under the regulation.

We anticipate that over time we may expand our business operations to include additional operations in the EU and UK, including potentially conducting preclinical and clinical trials.

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

Brazil’s General Data Protection Law (Lei Geral de Proteção de Dados Pessoais or LGPD) (Law No.

13,709/2018), which broadly regulates the processing of personal data and imposes compliance obligations and penalties comparable to the EU GDPR and UK GDPR, including similar cross-border data transfer restrictions .

The CCPA requires covered companies to, among other things, provide new disclosures to California consumers, provide such consumers with various rights with respect to their data (including ways to opt-out of certain sales of personal data), and provides for significant civil penalties as well as a new private right of action for data breaches and statutory damages.

In addition, it is anticipated that the California Privacy Rights Act of 2020 (“CPRA”), effective January 1, 2023, will expand the CCPA.

The CPRA will, among other things, give California residents the ability to limit use of certain sensitive personal data, expand the types of data breaches subject to the CCPA’s private right of action, and establish a new California Privacy Protection Agency to implement and enforce the new law.

Furthermore, other U.S.

states have enacted or proposed data privacy laws, which could further complicate the legal landscape.

These laws will likely impact (possibly significantly) our business activities and exemplify the vulnerability of our business to not only cyber threats but also the evolving regulatory environment related to personal data.

Beginning in 2022, applicable manufacturers also will be required to report information regarding its payments and other transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists and certified nurse midwives during the previous year;

Other state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state and foreign laws governing the privacy and security and other processing of personal data (including health information) in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts;

state laws that require pharmaceutical companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government that otherwise restricts certain payments that may be made to healthcare providers and entities;

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

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

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

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

Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated.

If we or our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, or any contractual obligations related to the same, we may be subject to governmental enforcement actions, investigations, litigation (including class action lawsuits) and other penalties, including significant civil, criminal and administrative penalties, damages, fines, imprisonment, disgorgement, defense costs, exclusion from U.S.

federal or state healthcare programs, additional reporting requirements and/or oversight (including if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws), bans or restrictions on our processing of personal data, indemnity obligations and the curtailment or restructuring of our operations.

Any such event or consequence, including penalties, damages, fines, and curtailment or restructuring of our operations, could materially adversely affect our ability to operate our business, including our ability to run clinical trials, and our financial results and harm our reputation.

Although compliance programs can help mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be eliminated.

Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.

If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program or other governmental pricing programs in the United States, we could be subject to additional reimbursement requirements, fines, sanctions and exposure under other laws which could have a material adverse effect on our business, results of operations and financial condition.

exposure under other laws which could have a material adverse effect on our business, results of operations and financial condition.

We participate in the Medicaid Drug Rebate Program, as administered by CMS, and other federal and state government pricing programs in the United States, and we may participate in additional government pricing programs in the future.

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For example, the coverage claimed in a patent application can be significantly reduced before a patent is issued, either in the United States or abroad.

Statutory differences in patentable subject matter may limit the protection we can obtain on some of our inventions outside of the United States.

Statutory differences in patentable subject matter may limit the protection we can obtain on some of our inventions

outside of the United States.

For example, methods of treating patients are not patentable in many countries outside of the United States.

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In some instances, we may seek re-examination or reissuance of our own patents.

If we attempt to enforce our patents, they

may be challenged in court where they could be held invalid, unenforceable, or have their breadth narrowed to an extent that would destroy their value.

If we attempt to enforce our patents, they may be challenged in court where they could be held invalid, unenforceable, or have their breadth narrowed to an extent that would destroy their value.

We also rely on unpatented technology, trade secrets, know-how and confidentiality agreements.

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In particular, Inter Partes Review (“IPR”), available against any issued United States patent (pre-and post-AIA), has resulted in a higher rate of claim invalidation, due in part to the much reduced opportunity to repair claims by amendment as compared to re-examination, as well as the lower standard of proof used at the USPTO as compared to the federal courts.

With the passage of time an increasing number of patents related to successful pharmaceutical products are being subjected to IPR.

With the passage of time an increasing number of patents related to successful pharmaceutical products are being

subjected to IPR.

Moreover, the filing of IPR petitions has been used by short-sellers as a tool to help drive down stock prices.

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In addition, there is a risk that we would have to pay the other party damages for having violated the other party’s patents (which damages may be increased, as well as attorneys’ fees ordered paid, if infringement is found to be willful), or that we will be required to obtain a license from the other party in order to continue to commercialize the affected products, or to design our products in a manner that does not infringe a valid patent.

We may not prevail in any legal action, and a required license under the

patent may not be available on acceptable terms or at all, requiring cessation of activities that were found to infringe a valid patent.

We may not prevail in any legal action, and a required license under the patent may not be available on acceptable terms or at all, requiring cessation of activities that were found to infringe a valid patent.

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

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At the same time, some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources.

An adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our products or result in substantial monetary damages, which would adversely affect our business, financial condition and results of operations and cause the market price of our common stock and other securities to decline.

An adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our products or

result in substantial monetary damages, which would adversely affect our business, financial condition and results of operations and cause the market price of our common stock and other securities to decline.

We may not obtain trademark registrations for our potential trade names.

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RISKS RELATED TO OUR COMMON STOCK

We may not be able to generate sufficient cash to service all of our indebtedness.

We may be forced to take other actions to satisfy our obligations under our indebtedness or we may experience a financial failure.

Our ability to make scheduled payments on or to refinance our debt obligations will depend on our financial and operating performance, which is subject to the commercial success of Afrezza, the extent to which we are able to successfully develop and commercialize our Technosphere drug delivery platform and any other product candidates that we develop, prevailing economic and competitive conditions, and to certain financial, business and other factors beyond our control.

We may not be able to generate sufficient cash to service all of our indebtedness and commitments.

We may be forced to take other actions to satisfy our obligations or we may experience a financial failure.

Our ability to make scheduled payments on our lease and debt obligations will depend on our financial and operating performance, which is subject to the commercial success of Afrezza, the extent to which we are able to successfully develop and commercialize our Technosphere drug delivery platform and any other product candidates that we develop, prevailing economic and competitive conditions, and to certain financial, business and other factors beyond our control.

We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness.

assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our future debt agreements.

If our cash flows and capital resources are insufficient to fund our obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness and lease obligations.

We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled obligations or that these actions would be permitted under the terms of our future debt agreements.

In the absence of sufficient operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations.

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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 30, 2021 , we had 249,660,178 shares of common stock outstanding.

As of October 29, 2021 , we had 251,256,353 shares of common stock outstanding.

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

If our common stockholders sell substantial amounts of common stock in the public market, or the market perceives that such sales may occur, the market price of our common stock and other securities may decline.

Likewise, the issuance of additional shares of our common stock upon the exchange or conversion of the Mann Group promissory notes , or upon issuance of our outstanding warrants, could adversely affect the market price of our common stock and other securities.

Likewise, the issuance of additional shares of our common stock upon the exchange or conversion of the Mann Group promissory notes , or the Senior convertible notes, could adversely affect the market price of our common stock and other securities.

In addition, the existence of these notes may encourage short selling of our common stock by market participants, which could adversely affect the market price of our common stock and other securities.

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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