MANNKIND CORP (MNKD) FY 2021 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto included in this Annual Report on Form 10-K. We have elected the presentation requirements under Rule 12b-2 of the Exchange Act as a smaller reporting company and have herein included a two-year discussion of our financial condition and results of operations.

Overview

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 PAH and PH-ILD. 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 by 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. 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. The COVID-19 pandemic has the potential to have additional adverse impacts on our operations. We will continue to monitor the COVID-19 situation closely.

As of December 31, 2021, we had an accumulated deficit of $3.1 billion and a stockholders’ deficit of $209.3 million. We had net loss of $80.9 million and $57.2 million in the years ended December 31, 2021 and 2020, 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 a sale-leaseback of our manufacturing facility in Danbury, CT.

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Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements is in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of our consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosure of contingent assets and liabilities. We consider an accounting estimate to be critical to the consolidated financial statements if (i) the estimate is complex in nature or requires a high degree of judgment and (ii) different estimates and assumptions were used, the results could have a material impact on the consolidated financial statements. On an ongoing basis, we evaluate our estimates and the application of our policies. We base our estimates on historical experience, current conditions and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We consider our critical accounting policies to be those related to revenue recognition and gross-to-net adjustments, inventory costing and recoverability, recognized loss on purchase commitments, impairment of long-lived assets, milestone rights liability, clinical trial expenses, stock-based compensation and accounting for income taxes. These critical accounting policies are also considered significant accounting policies and are more fully described in Note 2 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Part II, Item 8 — Financial Statements and Supplementary Data.

Revenue Recognition – Net Revenue – Commercial Product Sales — We sell Afrezza to a limited number of wholesale distributors and specialty and retail pharmacies in the U.S. (collectively, “Customers”). Wholesale distributors subsequently resell our products to retail pharmacies and certain medical centers or hospitals. Specialty pharmacies sell directly to patients. In addition to distribution agreements with Customers, we enter into arrangements with payers that provide for government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of our products.

We recognize revenue on product sales when the Customer obtains control of our product, which occurs at delivery for wholesale distributors and generally at delivery for specialty pharmacies. We recognize revenue on product sales to a retail pharmacy as the product is dispensed to patients. Product revenues are recorded net of applicable reserves for variable consideration. Components of variable consideration include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, payer rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts between us and our, payers, and other indirect customers relating to the sale of our products.

Reserves for Variable Consideration — Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, payer rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts between us and our Customers, payers, and other indirect customers relating to the sale of our products. These reserves are based on the amounts earned, or to be claimed on the related sales, and result in a reduction of accounts receivable or establishment of a current liability. Significant judgments are required in making these estimates.

Where appropriate, these estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method in Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reduce recognized revenue to our best estimates of the amount of consideration to which we are entitled based on the terms of the respective underlying contracts.

The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Our analysis also contemplates application of the constraint in accordance with the guidance, under which we determined a material reversal of revenue would not occur in a future period for the estimates detailed below as of December 31, 2021 and, therefore, the transaction price was not reduced further during the year ended December 31, 2021. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net revenue — commercial product sales and earnings in the period such variances become known.

Significant judgment is required in estimating gross-to-net adjustments considering legal interpretations of applicable laws and regulations, historical experience, payer channel mix, current contract prices under applicable programs, unbilled claims, processing time lags and inventory levels in the distribution channel.

Our reserves for variable consideration are reflected in our gross-to-net adjustments which were 38.8% of gross revenue, or $24.9 million, for the year ended December 31, 2021, compared to 40.6% of gross revenue, or $22.1 million, for the year ended December 31, 2020. If there is a 10% difference between the estimates for accruals and the actual liability in the reserves for variable consideration, the impact to our revenue for commercial product sales would be $0.9 million or a 1% change in the gross-to-net adjustment percentage for the year ended December 31, 2021.

These reserves are further detailed under Reserves for Variable Consideration in Note 2 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Part II, Item 8 — Financial Statements and Supplementary Data.

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Revenue Recognition – Collaborations and Services — We enter into licensing or research agreements under which we license certain rights to our product candidates to third parties or conduct research services to third parties. The terms of these arrangements may include, but are not limited to, payment to us of one or more of the following: up-front license fees; development, regulatory, and commercial milestone payments; payments for commercial manufacturing and clinical supply services we provide; and royalties on net sales of licensed products and sublicenses of the rights. As part of the accounting for these arrangements, we must develop assumptions that require judgment such as determining the performance obligation in the contract and determining the stand-alone selling price for each performance obligation identified in the contract. With respect to our significant collaboration and service agreement with UT that includes a long-term customer supply agreement (“CSA”), we have identified three distinct performance obligations: (1) R&D Services and License; (2) Next-Gen R&D Services; and (3) a material right for manufacturing services (“Manufacturing Services”). Pre-production activities under the CSA, such as facility expansion services and other administrative services, were considered bundled services under the Manufacturing Services performance obligation as required by ASC 606. See Note 8 – Collaboration, Licensing and Other Arrangements of the Notes to Consolidated Financial Statements included in Part II, Item 8 — Financial Statements and Supplementary Data.

If an arrangement has multiple performance obligations, the allocation of the transaction price is determined from observable market inputs, and we use key assumptions to determine the stand-alone selling price, which may include development timelines, reimbursement rates for personnel costs, discount rates, and probabilities of technical and regulatory success. Revenue is recognized based on the measurement of progress as the performance obligation is satisfied and consideration received that does not meet the requirements to satisfy the revenue recognition criteria is recorded as deferred revenue. Current deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months. Amounts that we expect will not be recognized within the next 12 months are classified as long-term deferred revenue.

If there is a 10% difference in the estimates used to determine the transaction price for the CSA entered into in August 2021 with UT, the related allocation of the transaction price between performance obligations, the difference between the estimates for accruals and the actual liability for deferred revenue and revenue recognized for collaborations and services would be $0.2 million for the year ended December 31, 2021.

Stock-Based Compensation — Share-based payments to employees, including grants of nonqualified stock options (“options”), restricted stock units, performance-based awards, restricted stock units with market conditions (“Market RSUs”), and the compensatory elements of employee stock purchase plans, are recognized in the consolidated statements of operations based upon the fair value of the awards at the grant date. We use the Black-Scholes option valuation model to estimate the grant date fair value of employee options and the compensatory elements of employee stock purchase plans. Restricted stock units are valued based on the market price on the grant date. We evaluate stock awards with performance conditions as to the probability that the performance conditions will be met and estimates the date at which the performance conditions will be met in order to properly recognize stock-based compensation expense over the requisite service period. The grant date fair value and the effect of the market conditions for the Market RSUs was estimated using a Monte Carlo valuation.

The grant date fair value for the Market RSUs was $9.30 per unit for the Market RSUs granted during the year ended December 31, 2021, compared to $3.77 per unit for the Market RSUs granted during the year ended December 31, 2020. If there is a 10% difference in the grant date fair value of the Market RSUs, the impact to our stock-based compensation expense would be $0.4 million for the year ended December 31, 2021.

Results of Operations

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.

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Years ended December 31, 2021 and 2020

Revenues

The following table provides a comparison of the revenue categories for the years ended December 31, 2021 and 2020 (dollars in thousands):

Gross revenue from the sales of Afrezza increased by $9.6 million, or 18%, for the year ended December 31, 2021 compared to the prior year. The increase primarily reflects higher product demand including a more favorable mix of Afrezza cartridges and price. The gross-to-net adjustment was 38.8% of gross revenue, or $24.9 million, for the year ended December 31, 2021, compared to 40.6% of gross revenue, or $22.1 million, for the prior year. The decrease in the gross-to-net percentage was primarily driven by a decrease in wholesale distribution fees as a result of the termination of our free goods program on December 31, 2020, and a decrease in product returns including an adjustment related to the start of an agreement with a retail pharmacy, partially offset by an increase in co-pay assistance. As a result, net revenue from sales of Afrezza increased by $6.8 million, or 21%, for the year ended December 31, 2021 compared to the prior year.

Net revenue from collaborations and services increased by $3.5 million, or 11%, for the year ended December 31, 2021 compared to the prior year. The increase in collaborations and services revenue was primarily attributed to additional development work associated with our collaboration with UT. In August 2021, we entered into the CSA with UT. Revenue associated with the CSA is deferred as of December 31, 2021. See Note 8 – Collaboration, Licensing and Other Arrangements in the consolidated financial statements included in Part II, Item 8 – Financial Statements and Supplementary Data.

Commercial product gross profit

The following table provides a comparison of the commercial product gross profit categories for the years ended December 31, 2021 and 2020 (dollars in thousands):

Commercial product gross profit for the year ended December 31, 2021 increased by $5.1 million, or 30%, compared to the prior year. Gross margin for the year ended December 31, 2021 increased to 57% from 53% for 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 increased by $1.8 million, or 12%, for the year ended December 31, 2021 compared to the prior year, primarily due to a $2.0 million fee for the amendment of the Insulin Supply Agreement, a $1.5 million increase in inventory write-offs and a $1.0 million increase related to decreased manufacturing activities. The increase in cost of goods sold was partially offset by $2.3 million in reduced manufacturing-related spending, $0.5 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 year ended December 31, 2021 compared to 53% for the prior year. See the reconciliation to non-GAAP net loss and Earnings per Common Share (“EPS”) under Non-GAAP Measures below.

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Expenses

The following table provides a comparison of the expense categories for the years ended December 31, 2021 and 2020 (dollars in thousands):

* Not meaningful

Cost of revenue – collaborations and services increased by $12.5 million, or 130%, for the year ended December 31, 2021 compared to the prior year. The increase was primarily attributable to an increase in manufacturing activities in preparation for supplying commercial product to UT.

In-process research and development expense of $13.2 million for the year ended December 31, 2020 related to the acquisition of QrumPharma for total consideration of approximately $12.7 million and transaction costs of approximately $0.5 million. The acquisition of QrumPharma was accounted for as an asset acquisition and expensed on the date of acquisition as substantially all of the fair value of the assets acquired was concentrated in a single asset that consisted of in-process research and development in a pre-clinical development state. See Note 3 – Acquisition in the consolidated financial statements included in Part II, Item 8 – Financial Statements and Supplementary Data.

Research and development expenses increased by $6.1 million, or 97%, for the year ended December 31, 2021 compared to the prior year. The increase was mainly attributable to costs incurred for development activities on our product pipeline and the Afrezza pediatrics clinical study (INHALE-1) as well as personnel costs primarily associated with additional headcount.

Selling expenses increased by $11.2 million, or 32%, for the year ended December 31, 2021 compared to the prior year. The increase was primarily attributable to higher promotional expenses, patient support services, and personnel-related expenses driven by increased headcount to support Afrezza growth and our voluntary reduction in compensation expense in the prior year in response to the COVID-19 pandemic.

General and administrative expenses increased by $7.2 million, or 29%, for the year ended December 31, 2021 compared to the prior year. This increase was primarily attributable to increased personnel costs associated with increased headcount and stock-based compensation in addition to our voluntary reduction in compensation expense in the prior year in response to the COVID-19 pandemic. Additional increases consisted of professional fees and business development expenses.

During the year ended December 31, 2021, an impairment of $0.1 million was recognized for the write-off of a contract asset related to a co-promotion collaboration arrangement. During the year ended December 31, 2020, an impairment of $1.9 million was recognized for a commitment asset and debt issuance costs related to the future funding commitments of the MidCap Credit Facility (see Note 1 – Description of Business and Note 7 – Borrowings in the consolidated financial statements included in Part II, Item 8 – Financial Statements and Supplementary Data.

Under the Insulin Supply Agreement with Amphastar, payment obligations are denominated in Euros. We are required to record the foreign currency translation impact of the U.S. dollar to Euro exchange rate associated with the recognized loss on purchase commitments. The foreign currency translation resulted in a gain of $6.6 million for the year ended December 31, 2021 compared to a loss of $8.0 million for the prior year. This impact was due to the translation of the U.S. dollar to Euro exchange rates.

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Other Income (Expense)

The following table provides a comparison of the other income (expense) categories for the years ended December 31, 2021 and 2020 (dollars in thousands):

* Not meaningful

Interest expense on financing liability was $1.3 million for the year ended December 31, 2021 and represented interest incurred on the sale lease-back transaction for our manufacturing facility in Danbury, CT.

Interest expense on notes increased by $5.7 million, or 61%, for the year ended December 31, 2021 compared to the same period in the prior year. The increase was primarily due to interest expense on the Senior convertible notes as well as a $3.7 million milestone obligation that was achieved during the first quarter of 2021, partially offset by a decrease in interest expense on Mann Group promissory notes due to (i) the repayment of $35.1 million of outstanding principal under the Mann Group non-convertible note, (ii) the $10.0 million reduction of principal and interest on the Mann Group convertible note from a conversion to our common stock and (iii) a decrease of the interest rate from 7.00% to 2.50% on the remaining promissory note. See Note 6 — Borrowings.

Loss on extinguishment of debt of $17.2 million for the year ended December 31, 2021 consisted of a $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 U.S. Small Business Administration’s (“SBA”) forgiveness of the Paycheck Protection Program loan (the “PPP loan”). The loss on extinguishment of debt for the year ended December 31, 2020 was primarily due to the third amendment to the MidCap Credit Facility, in addition to the prepayment of the 2020 notes. See Note 6 — Borrowings.

Net Loss and EPS

The net loss for the year ended December 31, 2021 was $80.9 million, or $0.32 per share, compared to a $57.2 million net loss in the prior year, or $0.26 per share. The increase in net loss of $23.7 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 and cost of revenue – collaboration and services, partially offset by an increase in Afrezza net revenues and revenues from collaboration and services, a gain on purchase commitment as well as cost for in-process research and development incurred 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 $61.7 million or $0.25 per share, for the year ended December 31, 2021 compared to $57.2 million, or $0.26 per share, for the prior year. See the reconciliation to non-GAAP net loss and EPS under Non-GAAP Measures below.

Non-GAAP Measures

To supplement our 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 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 Annual Report on Form 10-K 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.

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The following tables reconcile our financial measure for net loss and net loss per share as reported in our consolidated statement of operations to a non-GAAP presentation as adjusted for 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 year ended December 31, 2021, which did not result in a change in our financial position, as well as the $2.0 million Amphastar amendment fee.

* Not meaningful

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.

Liquidity and Capital Resources

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.

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, from sales of Afrezza and the sale lease-back of our manufacturing facility in Danbury, CT.

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.

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The following table presents our material cash requirements associated with contractual commitments for future periods (in thousands):

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. The Senior convertible notes and Mann Group convertible note are fully convertible prior to maturity as further disclosed in Note 7 – Borrowings.

To date, we have been able to timely make our required interest payments, but we cannot guarantee that we will be able to do so in the future. If we fail to repurchase the Mann Group promissory notes, we will be in default under the applicable instrument for such indebtedness, and may also suffer an event of default under the terms of other borrowing arrangements that we may enter into from time to time. Any of these events could have a material adverse effect on our business, results of operations and financial condition, up to and including the noteholders initiating bankruptcy proceedings or causing us to cease operations altogether.

In July 2013, we issued Milestone Rights to the Original Milestone Purchasers. The Milestone Rights provided the Original 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 to Barings upon achievement of such milestones. See Note 12 – Commitments and Contingencies and Note 7 – Borrowings for further information related to the Milestone Rights.

During the year ended December 31, 2021, we used $61.7 million of cash for our operating activities, which primarily consisted of $65.8 million of selling, general and administrative expenses, $35.5 million of cost of goods sold and cost of revenue, $11.7 million of costs for research and development and $6.5 million of cash paid for interest, partially offset by $47.6 million of revenue.

During the year ended December 31, 2020, we used $28.1 million of cash for our operating activities, which reflects our net loss of $57.2 million, partially offset by non-cash charges of $38.9 million (including $13.2 million for the write-off of in-process research and development related to the acquisition of QrumPharma). The net change in operating assets and liabilities was primarily a result of the recognition of deferred revenue of $32.8 million, which was partially offset by the receipt of milestone payments from UT of $25.0 million and pass-through payments of $1.9 million.

Cash used in investing activities of $151.5 million for the year ended December 31, 2021 was primarily due to the purchase of debt securities of $196.1 million, partially offset by proceeds received from sales of debt securities of $59.1 million.

Cash provided by investing activities of $15.2 million for the year ended December 31, 2020 was primarily due to the proceeds from the sale of treasury bills of $20.0 million, partially offset by $4.0 million of cash consideration paid for the acquisition of QrumPharma, net of $0.2 million of cash acquired, in addition to $0.5 million of related transaction costs.

Cash provided by financing activities of $270.3 million for the year ended December 31, 2021 was primarily due to net proceeds from the offering of Senior convertible notes of $222.7 million and net proceeds from the sale-leaseback transaction of $99.1 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.

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Cash provided by financing activities of $49.9 million for the year ended December 31, 2020 was primarily due to the receipt of $23.5 million in gross proceeds from at the market offerings, the exercise of outstanding warrants to purchase shares of our common stock of $11.6 million, proceeds from the MidCap Credit Facility of $10.0 million and proceeds from the PPP Loan of $4.9 million.

Future Liquidity Needs

We are not currently profitable and have rarely generated positive net cash flow from operations. In addition, we expect to continue to incur significant expenditures for the foreseeable future in support of our manufacturing operations, sales and marketing costs for Afrezza, and development costs for other product candidates in our pipeline. As of December 31, 2021, we had capital resources of $124.2 million in cash and cash equivalents, $79.9 million in short-term investments and $56.6 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 7 – 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 a sale-leaseback transaction of our manufacturing facility in Danbury, CT for a sales price of $102.3 million.

We believe our resources will be sufficient to fund our operations for the next twelve months from the date of issuance of our consolidated financial statements included in Item 8 – Financial Statements.

Recent Accounting Pronouncements

See Note 2 — Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Part II, Item 8 — Financial Statements and Supplementary Data for information regarding accounting standards we adopted in 2021 and other new accounting standards that have been issued by the FASB but are not effective until after December 31, 2021.