What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-09 · 69 added, 208 removed, 67 unchanged (81% of the section changed)

6 unchanged sentences

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 endocrine and orphan lung diseases.

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

Our lead product is Afrezza (insulin human) Inhalation Powder, an ultra rapid-acting inhaled insulin indicated to improve glycemic control in adults with diabetes, which was approved by the FDA in June 2014 .

We collaborate with a number of third parties to formulate their drugs on our Technosphere drug delivery platform.

Since September 2018, we have been collaborating with United Therapeutics to develop an inhaled formulation of treprostinil known as Tyvaso DPI.

In April 2021, United Therapeutics submitted an NDA to the FDA seeking approval of Tyvaso DPI for the treatment of pulmonary arterial hypertension (PAH) and pulmonary hypertension associated with interstitial lung disease (PH-ILD).

In October 2021, the FDA issued a complete response letter to United Therapeutics pursuant to which the FDA declined to approve the NDA at this time, noting one deficiency related to an open inspection issue at a third-party analytical testing center for treprostinil.

The complete response letter did not pertain to us, and no issues were cited by the FDA as it relates to our facility in Connecticut for manufacturing, testing and packaging of finished Tyvaso DPI, including its associated device.

On October 18, 2021, UT stated that it believes that the single deficiency identified in the complete response will be resolved quickly and that Tyvaso DPI can receive approval by the summer of 2022, if not earlier.

Our business is subject to significant risks, including but not limited to our ability to commercialize Afrezza successfully, our ability to manufacture sufficient quantities of Afrezza and Tyvaso DPI and our potential need to raise additional capital to fund our operations.

In April 2021, United Therapeutics submitted an NDA to the FDA seeking approval of Tyvaso DPI .

The NDA was resubmitted in December 2021 following a CRL in October 2021.

The FDA is expected to complete its review of the pending NDA for Tyvaso DPI in May 2022.

Our business is subject to significant risks, including but not limited to our ability to commercialize Afrezza successfully and our ability to manufacture sufficient quantities of Afrezza and Tyvaso DPI.

Other significant risks also include the risks inherent in drug development, 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.

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.

Employees in California and Connecticut are mostly working in-person at our facilities in these states, although some remote work arrangements are still in place.

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

The impact of the COVID-19 pandemic continues to be uncertain.

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

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

As of September 30, 2021, we had an accumulated deficit of $3.1 billion and a stockholders’ deficit of $184.7 million.

Our net loss was $4.4 million and $52.9 million for the three and nine months ended September 30, 2021, respectively.

To date, we have funded our operations through the sale of convertible debt securities and equity, from the receipt of upfront and milestone payments from certain collaborations, from borrowings, from sales of Afrezza and, most recently, from the proceeds of the Sale-Leaseback Transaction.

See Note 14 — Subsequent Event.

CRITICAL ACCOUNTING POLICIES

Our critical accounting policies can be found in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, 2020.

As of March 31, 2022, we had an accumulated deficit of $3.2 billion and a stockholders’ deficit of $231.4 million.

Our net loss was $26.0 million for the three months ended March 31, 2022.

To date, we have funded our operations through the sale of convertible debt securities and equity, from the receipt of upfront and milestone payments from certain collaborations, from borrowings, from sales of Afrezza and from the proceeds of the Sale-Leaseback Transaction.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our critical accounting policies and estimates can be found in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report.

See Note 1 – Description of Business and Significant Accounting Policies in the condensed consolidated financial statements included in Part I – Financial Statements (Unaudited) for descriptions of the new accounting policies and impact of adoption.

RESULTS OF OPERATIONS

Three and nine months ended September 30, 2021 and 2020

The following tables provide a comparison of the revenue categories for the three and nine months ended September 30, 2021 and 2020 (dollars in thousands):

Trends and Uncertainties

We continue to experience the impact of the COVID-19 pandemic on our marketing of Afrezza, the accrual rate of our Afrezza pediatrics trial, our Brazil partner’s (Biomm) ability to market Afrezza and delays in the start of our clinical study in India.

COVID-19 has impacted the supply chain for manufacturing Afrezza and Tyvaso DPI where we have increased safety stock of raw materials to mitigate supply chain risk.

Our manufacturing of Tyvaso DPI may not meet the required demand of our partner, UT.

If we fail as an effective manufacturing organization, we may be unable to support commercialization of Tyvaso DPI, if approved.

Three months ended March 31, 2022 and 2021

The following tables provide a comparison of the revenue categories for the three months ended March 31, 2022 and 2021 (dollars in thousands):

Three Months Ended

September 30,

Net revenue — commercial product sales:

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Net revenue — commercial product sales

Revenue — collaborations and services

Total revenues

Nine Months Ended

September 30,

Net revenue — commercial product sales:

Gross revenue from commercial product sales

Wholesaler distribution fees, rebates and chargebacks,

product returns and other discounts

Net revenue — commercial product sales

Gross-to-net revenue adjustment percentage

Revenue — collaborations and services

Total revenues

Gross revenue from sales of Afrezza increased by $3.9 million, or 32%, for the three months ended September 30, 2021 compared to the same period in the prior year.

The increase reflects higher product demand and price.

The gross-to-net adjustment was 40.3% of gross revenue, or $6.6 million, for the three months ended September 30, 2021, compared to 41.3% of gross revenue, or $5.1 million, for the same period in the prior year.

The decrease in the gross-to-net percentage was primarily driven by a decrease in wholesaler distribution fees (as a percentage of gross sales) as a result of the termination of our free goods program on December 31, 2020 and a decrease in product returns, partially offset by an increase in co-pay assistance.

As a result, net revenue from sales of Afrezza increased by $2.5 million, or 34%, for the three months ended September 30, 2021 compared to the prior year period.

Net revenue from collaborations and services increased by $4.4 million, or 54%, for the three months ended September 30, 2021 compared to the same period in the prior year.

The increase in collaborations and services revenue was primarily attributed to additional development work associated with our collaboration with UT and the change in the estimated completion date related to the amortization of deferred revenue for R&D Services.

Gross revenue from sales of Afrezza increased by $2.4 million, or 18%, for the three months ended March 31, 2022 compared to the same period in the prior year.

The increase reflects wholesaler inventory ordering patterns for the first quarter of 2021, which was adversely impacted as wholesalers decreased inventory levels, and price.

The gross-to-net adjustment was 38.7% of gross revenue, or $6.2 million, for the three months ended March 31, 2022, compared to 40.5% of gross revenue, or $5.5 million, for the same period in the prior year.

The decrease in the gross-to-net percentage was primarily driven by a decrease in wholesaler distribution fees (as a percentage of gross sales) due to an increased mix of specialty and retail pharmacy sales, a decrease in anticipated product returns, and lower co-pay assistance.

As a result, net revenue from sales of Afrezza increased by $1.7 million, or 21%, for the three months ended March 31, 2022 compared to the same period in the prior year.

Net revenue from collaborations and services decreased by $7.2 million, or 77%, for the three months ended March 31, 2022 compared to the same period in the prior year.

The decrease in collaborations and services revenue was primarily attributable to the completion of the R&D Services associated with our collaboration with UT.

In August 2021, we entered into a commercial supply agreement with UT (the “CSA”).

Revenue associated with the CSA is deferred until Tyvaso DPI is approved by the FDA for commercialization.

See Note 7 – Collaboration, Licensing and Other Arrangements .

Gross revenue from sales of Afrezza increased by $8.3 million, or 22%, for the nine months ended September 30, 2021 compared to the same period in the prior year.

The increase reflects higher product demand as a result of increased promotional activity in addition to the negative impact the COVID-19 pandemic had on the demand of Afrezza prescriptions in 2020, a more favorable mix of Afrezza cartridges and price.

The gross-to-net adjustment was 40.2% of gross revenue, or $18.7 million, for the nine months ended September 30, 2021, compared to 41.8% of gross revenue, or $16.0 million, for the same period in the prior year.

The decrease in the gross-to-net percentage was primarily driven by a decrease in wholesaler distribution fees and rebates as a result of the termination of our free goods program on December 31, 2020, partially offset by an increase in co-pay assistance.

As a result, net revenue from sales of Afrezza increased by $5.6 million, or 25%, for the nine months ended September 30, 2021 compared to the prior year period.

Net revenue from collaborations and services increased by $10.7 million, or 44%, for the nine months ended September 30, 2021 compared to the same period in the prior year.

In August 2021, we entered into the CSA with UT.

Revenue associated with the CSA is deferred until Tyvaso DPI is approved by the FDA for commercialization.

Revenue associated with the CSA is deferred as of March 31, 2022 and will be recognized over the period when commercial product is sold to UT.

See Note 8 – Collaboration, Licensing and Other Arrangements .

Commercial product gross profit

The following tables provide a comparison of the commercial product gross profit categories for the three and nine months ended September 30, 2021 and 2020 (dollars in thousands):

The following tables provide a comparison of the commercial product gross profit categories for the three months ended March 31, 2022 and 2021 (dollars in thousands):

Three Months Ended

September 30,

Commercial product gross profit:

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Commercial product gross profit

Nine Months Ended

September 30,

Commercial product gross profit:

Net revenue — commercial product sales

cost of goods sold

Commercial product gross profit

Non-GAAP gross margin (1)

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See the reconciliation of gross margin to non-GAAP gross margin under Non-GAAP Measures below.

Commercial product gross profit for the three months ended September 30, 2021 increased by $2.3 million, or 61%, compared to the same period in the prior year.

Gross margin for the three months ended September 30, 2021 was 61% compared to 51% for the same period in the prior year.

The increase in gross profit and gross margin was attributable to an increase in Afrezza sales partially offset by an increase in cost of goods sold.

Cost of goods sold in creased by $0.2 million, or 6%, for the three months ended September 30, 2021 compared to the same period in the prior year.

The increase in cost of goods sold was primarily attributable to a decrease in manufacturing activities, which resulted in a lower amount of costs capitalized to inventory, partially offset by a decrease in manufacturing-related spending.

Commercial product gross profit for the nine months ended September 30, 2021 increased by $4.5 million, or 41%, compared to the same period in the prior year.

Gross margin for the nine months ended September 30, 2021 was 55% compared to 49% for the same period in the prior year.

The increase in gross profit and gross margin was attributable to an increase in Afrezza sales, partially offset by an increase in cost of goods sold.

Cost of goods sold in creased by $1.1 million, or 10%, for the nine months ended September 30, 2021 compared to the same period in the prior year, primarily due to a $2.0 million fee for the amendment of the Insulin Supply Agreement and a $1.1 million decrease in manufacturing activities, which resulted in a lower amount of costs capitalized to inventory, partially offset by $0.9 million of costs associated with lower cost per unit and the termination of the free goods program in December 31, 2020 .

On a non-GAAP basis, which excludes the $2.0 million insulin supply amendment fee, gross margin was 62% for the nine months ended September 30, 2021 compared to 49% for the same period in 2020.

See the reconciliation to non-GAAP net loss and EPS under Non-GAAP Measures below.

The following tables provide a comparison of the expense categories for the three and nine months ended September 30, 2021 and 2020 (dollars in thousands):

Commercial product gross profit for the three months ended March 31, 2022 increased by $3.8 million, or 99%, compared to the same period in the prior year.

Gross margin for the three months ended March 31, 2022 was 77% compared to 47% for the same period in the prior year.

The increase in gross profit and gross margin was attributable to an increase in Afrezza sales as well as a decrease in cost of goods sold.

Cost of goods sold decreased by $2.0 million, or 47%, for the three months ended March 31, 2022 compared to the same period in the prior year.

The decrease in cost of goods sold was primarily attributable to a decrease of $2.3 million in manufacturing-related spending on Afrezza as a result of the absorption of manufacturing-related costs due to the manufacturing of a second product.

The following tables provide a comparison of the expense categories for the three months ended March 31, 2022 and 2021 (dollars in thousands):

Three Months Ended

September 30,

Cost of goods sold

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General and administrative

Asset impairment

(Gain) loss on foreign currency translation

Total expenses

Nine Months Ended

September 30,

Cost of goods sold

Cost of revenue — collaborations and services

Research and development

General and administrative

Asset impairment

(Gain) loss on foreign currency translation

Loss on purchase commitments

Gain on foreign currency translation

Total expenses

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* Not meaningful

Cost of revenue — collaborations and services increased by $4.5 million, or 284%, for the three months ended September 30, 2021 and $8.0 million, or 115%, for the nine months ended September 30, 2021 compared to the respective periods in the prior year.

The increases were attributable to an increase in costs for the UT License agreement, specifically an increase in manufacturing activities in preparation for supplying commercial product to UT, and the allocation of selling expenses related to the Vertice Pharma Co-Promotion Agreement.

Research and development expenses increased by $2.2 million, or 146%, for the three months ended September 30, 2021 compared to the same period in the prior year.

The increase was primarily attributable to costs incurred for research activities in our product pipeline and to the initiation of the Afrezza pediatrics clinical study (INHALE-1).

Research and development expenses increased by $3.7 million, or 79%, for the nine months ended September 30, 2021 compared to the same period in the prior year.

The increase was primarily attributable to costs incurred for the research activities in our product pipeline and to the initiation of the INHALE-1 study, as well as personnel costs associated with additional headcount.

Selling expenses increased by $2.6 million, or 31%, for the three months ended September 30, 2021 compared to the same period in the prior year.

The increase was primarily attributable to promotional expenses and patient support services of $2.0 million as well as personnel-related expenses of $1.5 million, which was driven by increased stock-based compensation and additional headcount to support Afrezza growth.

The increases in selling expenses were partially offset by a reduction related to the co-promotional cost for Thyquidity which was recognized as cost of revenue — collaboration and services.

Selling expenses increased by $8.3 million, or 35%, for the nine months ended September 30, 2021 compared to the same period in the prior year.

The increase was primarily attributable to promotional expenses and patient support services of $5.8 million and personnel-related expenses of $4.8 million, which reflected increased stock-based compensation, additional headcount to support Afrezza growth and our voluntary reduction in compensation in response to the COVID-19 pandemic in the prior year.

The increases in selling expenses were partially offset by a reduction related to the co-promotional cost for Thyquidity which was recognized as cost of revenue — collaboration and services.

General and administrative expenses increased by $0.8 million, or 13%, for the three months ended September 30, 2021 compared to the same period in the prior year .

This increase was primarily attributable to increased stock-based compensation.

General and administrative expenses increased by $4.5 million, or 24%, for the nine months ended September 30, 2021 compared to the same period in the prior year .

This increase was primarily attributable to increased stock-based compensation and our voluntary reduction in compensation expense in response to the COVID-19 pandemic in the prior year.

Additional increases consisted of professional fees and business development expenses .

An impairment of $0.1 million was recognized for the three and nine months ended September 30, 2021 for the contract asset associated with variable consideration for gross profits for sales of Thyquidity under Vertice Pharma’s co-promotion agreement.

See Note 7 – Collaboration, Licensing and Other Arrangements.

An impairment of $1.9 million was recognized for the nine months ended September 30, 2020 for a commitment asset related to the future funding commitments of the MidCap credit facility.

There were no asset impairments for the three months ended September 30, 2020.

Cost of revenue — collaborations and services increased by $5.4 million, or 164%, for the three months ended March 31, 2022 compared to the same period in the prior year.

The increase was attributable to an increase in costs for the UT CSA, specifically an increase in manufacturing activities in preparation for supplying commercial product to UT.

Research and development expenses increased by $1.1 million, or 45%, for the three months ended March 31, 2022 compared to the same period in the prior year.

The increase was primarily attributable to costs incurred for research and development activities in our product pipeline, including the Phase 1 clinical trial for clofazimine.

Selling expenses increased by $3.1 million, or 32%, for the three months ended March 31, 2022 compared to the same period in the prior year.

The increase was primarily attributable to an enhanced primary care physician-focused promotional campaign that began in the fourth quarter of 2021, Afrezza territory restructuring costs, as well as promotional expenses and patient support services expenses to support Afrezza sales growth.

General and administrative expenses increased by $0.2 million, or 2%, for the three months ended March 31, 2022 compared to the same period in the prior year .

The increase was primarily attributable to increased stock-based compensation and headcount.

This increase was partially offset by lower legal fees and business development expenses.

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

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

The foreign currency translation gain was $2.1 million for the three months ended September 30, 2021 compared to a $3.9 million loss for the same period in the prior year.

The foreign currency translation gain was $5.0 million for the nine months ended September 30, 2021 compared to a $4.0 million loss for the same period in the prior year.

The foreign currency translation gain was $2.0 million for the three months ended March 31, 2022 compared to $3.8 million for the same period in the prior year.

Other Income (Expense)

The following tables provide a comparison of the other income (expense) categories for the three and nine months ended September 30, 2021 and 2020 (dollars in thousands):

The following tables provide a comparison of the other income (expense) categories for the three months ended March 31, 2022 and 2021 (dollars in thousands):

Three Months Ended

September 30,

Interest income

Interest expense on notes

Interest expense on Mann Group promissory notes

Gain on extinguishment of debt

Total other expense

Nine Months Ended

September 30,

Interest income

Interest expense on financing liability

Interest expense on notes

Interest expense on Mann Group promissory notes

Loss on extinguishment of debt, net

Other (expense) income

Total other expense

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* Not meaningful

Interest expense on notes increased by $1.7 million, or 156%, for the three months ended September 30, 2021 compared to the same period in the prior year.

The increase was primarily due to the interest expense from the Senior convertible notes issued in the first quarter of 2021.

Interest expense on notes increased by $7.7 million, or 241%, for the nine months ended September 30, 2021 compared to the same period in the prior year.

The increase was primarily due to a $3.7 million milestone obligation that was achieved during the first quarter of 2021 and interest expense on the Senior convertible notes.

Interest expense on Mann Group promissory notes decreased by $1.2 million, or 93%, for the three months ended September 30, 2021 and $2.4 million, or 61%, for the nine months ended September 30, 2021 compared to the same periods in the prior year.

The decrease was primarily due to the repayment of $35.1 million of outstanding principal under the Mann Group non-convertible note, the $10.0 million repayment of principal and interest on the Mann Group convertible note and the reduction of the interest rate from 7.00% to 2.50% pursuant to the first amendment on the remaining promissory note.

See Note 6 — Borrowings .

Gain on extinguishment of debt of $4.9 million for the three months ended September 30, 2021 consisted of the principal amount and related accrued and unpaid interest for our PPP loan, which was forgiven by the SBA in July 2021.

Loss on extinguishment of debt, net of $17.2 million for the nine months ended September 30, 2021 consisted of $22.1 million loss on extinguishment of debt for the amendment to the Mann Group convertible note, which did not result in a change in our financial position, partially offset by a $4.9 million gain on extinguishment of debt as a result of the SBA’s forgiveness of the PPP loan.

Interest expense on financing liability was $2.4 million for the three months ended March 31, 2022 and represented interest incurred on the Sale Leaseback transaction for our manufacturing facility in Danbury, CT, which closed in the fourth quarter of 2021.

Interest expense on notes de creased by $ 3 .7 million, or 57 %, for the three months ended March 31, 2022 compared to the same period in the prior year.

The decrease was primarily due to a $3.7 million milestone obligation that was achieved during the first quarter of 2021, partially offset by an increase in interest expense on the Senior convertible notes .

See Note 7 — Borrowings .

Other expense or income for the nine months ended September 30, 2021 consisted primarily of the loss associated with a foreign currency hedging transaction which was entered into to mitigate our exposure to foreign currency exchange risks associated with our insulin purchase obligation in 2021 under the Insulin Supply Agreement.

There were no hedging transaction for the three months ended September 30, 2021 and 2020 or the nine months ended September 30, 2020.

Net Loss and Earnings Per Share (“EPS”)

The net loss for the three months ended September 30, 2021 was $4.4 million, or $0.02 per share, compared to a $11.3 million net loss in the same period in the prior year, or $0.05 per share.

The decreased net loss of $6.8 million was primarily due to an increase in

Afrezza net revenues and revenues from collaboration and services as well as a non-cash gain on extinguishment of the PPP loan of $4.9 million , partially offset by an in crease of cost of revenue from collaboration and services and SG&A expenses .

The net loss for the nine months ended September 30, 2021 was $52.9 million, or $0.21 per share, compared to a $30.8 million net loss in the nine months ended September 30, 2020, or $0.14 per share.

The increased net loss of $22.0 million was primarily due to the non-cash loss on extinguishment of the Mann Group convertible note of $22.1 million net of a non-cash gain on extinguishment of the PPP loan of $4.9 million, as well as an increase in SG&A expenses, cost of revenue – collaboration and services, partially offset by an increase in Afrezza net revenues and revenues from collaboration and services.

Non-GAAP net loss, adjusted to exclude the $4.9 million non-cash gain on extinguishment of the PPP loan was $9.4 million, or $0.04 per share, for the three months ended September 30, 2021 compared to $11.3 million, or $0.05 per share, for the same period in the prior year.

Non-GAAP net loss, adjusted to exclude $17.2 million net loss on extinguishment of debt, net, which consisted of the $22.1 million non-cash loss on extinguishment of the Mann Group convertible note partially offset by the $4.9 million gain on extinguishment of the PPP loan, in addition to the Amphastar amendment fee of $2.0 million was $33.7 million or $0.14 per share, for the nine months ended September 30, 2021 compared to $30.8 million, or $0.14 per share, for the same period in the prior year.

See the reconciliation to non-GAAP net loss and EPS under Non-GAAP Measures below.

Non-GAAP Measures

To supplement our unaudited condensed consolidated financial statements presented under GAAP, we are presenting certain non-GAAP financial measures.

We are providing these non-GAAP financial measures to disclose additional information to facilitate the comparison of past and present operations, and they are among the indicators management uses as a basis for evaluating our financial performance.

We believe that these non-GAAP financial measures, when considered together with our GAAP financial results, provide management and investors with an additional understanding of our business operating results, including underlying trends.

These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures;

should be read in conjunction with our unaudited condensed consolidated financial statements prepared in accordance with GAAP;

have no standardized meaning prescribed by GAAP;

and are not prepared under any comprehensive set of accounting rules or principles.

In addition, from time to time in the future there may be other items that we may exclude for purposes of our non-GAAP financial measures;

and we may in the future cease to exclude items that we have historically excluded for purposes of our non-GAAP financial measures.

Likewise, we may determine to modify the nature of its adjustments to arrive at our non-GAAP financial measures.

Because of the non-standardized definitions of non-GAAP financial measures, the non-GAAP financial measures as used by us in this Quarterly Report on Form 10-Q have limits in their usefulness to investors and may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies.

The following tables reconcile our financial measure for net loss and EPS as reported in our condensed consolidated statement of operations to a non-GAAP presentation as adjusted for the $4.9 million non-cash gain on extinguishment of the PPP loan for the three months ended September 30, 2021 and the $22.1 million non-cash loss on extinguishment of the Mann Group convertible note net of the $4.9 million gain on extinguishment of the PPP loan for the nine months ended September 30, 2021, which did not result in a change in our financial position, as well as the $2.0 million Amphastar amendment fee.

Three Months Ended

September 30,

(In thousands, except per share data)

GAAP to Non-GAAP Net Loss and EPS

Net loss per share - basic and diluted

Less non-cash gain on extinguishment of debt (1)

Non-GAAP net loss

Non-GAAP net loss per share - basic and diluted

Shares used to compute non-GAAP net loss per share

- basic and diluted

Nine Months Ended

September 30,

GAAP to Non-GAAP Net Loss and EPS

Net loss per share - basic and diluted

Less non-cash loss on extinguishment of debt, net (1)

Less Amphastar amendment fee (1)

Non-GAAP net loss

Non-GAAP net loss per share - basic and diluted

Shares used to compute non-GAAP net loss per share

- basic and diluted

____________________

* Not meaningful

(1) There is no impact for income taxes associated with the non-cash loss on extinguishment of debt, net or the Amphastar amendment fee as a result of our full valuation allowance.

The following table reconciles our gross margin financial measure as reported in Management’s Discussion and Analysis of Financial Condition and Results of Operations to a non-GAAP presentation as adjusted for the nonrecurring amendment fee related to an amendment to our Insulin Supply Agreement in May 2021.

Nine Months Ended

September 30,

Net revenue — Afrezza

Less cost of goods sold

GAAP gross profit — Afrezza

Exclude Amphastar amendment fee

Non-GAAP gross profit — Afrezza

Non-GAAP gross margin

____________________

* Not meaningful

LIQUIDITY AND CAPITAL RESOURCES

To date, we have funded our operations through the sale of equity and convertible debt securities, from the receipt of upfront and milestone payments from certain collaborations, from borrowings and from sales of Afrezza.

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

Our principal sources of liquidity are our cash, cash equivalents, and investments.

Our primary uses of cash include the development of our product pipeline, the manufacturing and marketing of Afrezza, the funding of general and administrative expenses, and interest expense on our financing liability and debt.

We believe we will be able to meet our liquidity needs over the next twelve months based on the balance of cash, cash equivalents and investments on hand.

We believe we will meet longer-term expected future cash requirements and obligations, through a combination of cash and investments on hand, operating activities including manufacturing revenue and royalties from the production and sale of Tyvaso DPI, if approved, to UT, and available credit from our Midcap credit facility.

As of March 31, 2022, 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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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.

In February 2021, we elected to convert the $5.0 million principal amount of 2024 convertible notes into 1,666,667 shares of our common stock in accordance with the terms of the 2024 convertible notes.

There can be no assurance that we will have sufficient resources to make any required repayments of principal under the Senior convertible notes, the MidCap credit facility or the Mann Group convertible note.

3 unchanged sentences

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

In July 2013, we issued Milestone Rights to the Milestone Purchasers.

In July 2013, we issued Milestone Rights to the Original Milestone Purchasers.

The Milestone Rights were subsequently assigned the Milestone Purchasers.

The Milestone Rights provide the Milestone Purchasers certain rights to receive payments of up to $90.0 million upon the occurrence of specified strategic and sales milestones, $65.0 million of which remains payable upon achievement of such milestones.

See Note 13 – Commitments and Contingencies and Note 7 – Borrowings for further information related to the Milestone Rights.

During the nine months ended September 30, 2021, we used $49.4 million of cash for our operating activities, which primarily consisted of $47.7 million of selling, general and administrative expenses, $25.5 million of cost of goods sold, $7.7 million of costs for research and development and $5.6 million of cash paid for interest, partially offset by $37.6 million of revenue.

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.

Cash used in investing activities of $139.0 million for the nine months ended September 30, 2021 was primarily due to the purchase of $238.4 million of debt securities and $6.3 million purchase of property and equipment, partially offset by the sale of $105.7 million of debt securities.

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 provided by financing activities of $172.9 million for the nine months ended September 30, 2021 was primarily due to net proceeds from the offering of Senior convertible notes of $222.7 million, partially offset by the repayment of $35.1 million of Mann Group non-convertible notes and related unpaid accrued interest and the repayment of $10.0 million of principal and $1.0 million prepayment penalty for the MidCap credit facility.

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.

During the three months ended March 31, 2022, we used $18.2 million of cash for our operating activities, which primarily consisted of $16.3 million of selling, general and administrative expenses, $9.0 million of cost of goods sold, $5.1 million of costs for research and development and $3.6 million of cash paid for interest, partially offset by $15.7 million of revenue.

During the three months ended March 31, 2021, we used $12.7 million of cash for our operating activities as a result of our net loss of $12.9 million.

The net change in operating asset and liabilities was primarily a result of the recognition of amortization of deferred revenue of $9.0 million, partially offset by an increase in accrued expenses and other current liabilities of $8.3 million.

Cash used in investing activities of $ 39.5 million for the three months ended March 31, 2022 was primarily due to the purchase of $ 56.0 million of debt securities and $ 5.0 million purchase of available-for-sale securities , and $5.1 million purchase of property and equipment , partially offset by the maturity of $ 26.5 million of debt securities .

Cash used in investing activities of $31.4 million for the three months ended March 31, 2021 was primarily due to the purchase of debt securities.

Cash provided by financing activities of $0.8 million for the three months ended March 31, 2022 was primarily due to proceeds from the market price stock purchase plan of $0.7 million.

Cash provided by financing activities of $225.0 million for the three months ended March 31, 2021 was primarily due to net proceeds from the offering of Senior convertible notes of $222.9 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 development costs for other product candidates in our pipeline.

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

In March 2021, we issued $230.0 million of Senior convertible notes.

In April 2021, we made a $10.0 million principal prepayment against outstanding term loans under the MidCap credit facility and repaid the entire principal amount of $35.1 million outstanding under the Mann Group non-convertible note (together with all accrued and unpaid interest thereon) as further disclosed in Note 6 – Borrowings .

As amended, the MidCap credit facility provides a secured term loan facility with an aggregate principal amount of up to $100.0 million, of which $60.0 million remains available for borrowing if the conditions for Tranche 3 are met.

In November 2021, we closed the Sale-Leaseback Transaction for a sales price of $102.3 million.

See Note 14 — Subsequent Event .

We believe our resources will be sufficient to fund our operations for the next twelve months from the date of issuance of our condensed consolidated financial statements included in Part I – Financial Statements (Unaudited) .

Off-Balance Sheet Arrangements

As of September 30, 2021 and December 31, 2020, we did not have any off-balance sheet arrangements.

As of March 31, 2022, we had capital resources of $67.2 million in cash and cash equivalents, $95.2 million in short-term investments, $70.5 million in long-term investments, and total principal amount of outstanding borrowings of $288.4 million.

We believe our resources will be sufficient to fund our operations for beyond the next twelve months from the date of issuance of our condensed consolidated financial statements included in Part I – Financial Statements (Unaudited) .

Contractual Obligations

See Note 6 – Borrowings, Note 12 – Commitments and Contingencies and Note 14 – Subsequent Event for a discussion of material changes outside of the ordinary course of business in our contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as contained in the Annual Report.

See Note 7 – Borrowings and Note 13 – Commitments and Contingencies for a discussion of material changes outside of the ordinary course of business in our contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as contained in the Annual Report.

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