# MANNKIND CORP (MNKD) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from MANNKIND CORP's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/899460/000095017024021423/mnkd-20231231.htm
Accession: 0000950170-24-021423
Filing date: 2024-02-27
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/MNKD/
All MD&A years: /company/MNKD/mda/
Previous year: /company/MNKD/mda/fy2022/ (FY 2022)
Next year: /company/MNKD/mda/fy2024/ (FY 2024)

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.

A discussion of changes in our results of operations during the year ended December 31, 2022 compared to the year ended December 31, 2021 has been omitted from this Annual Report on Form 10-K but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 23, 2023, which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov.

Overview

We are a biopharmaceutical company focused on the development and commercialization of innovative therapeutic products and devices to address serious unmet medical needs for those living with endocrine and orphan lung diseases. Our signature technologies—Technosphere dry-powder formulations and Dreamboat inhalation devices—offer rapid and convenient delivery of medicines to the deep lung where they can exert an effect locally or enter the systemic circulation.

In our endocrine business unit, we currently commercialize two products: Afrezza (insulin human) Inhalation Powder, an ultra rapid-acting inhaled insulin indicated to improve glycemic control in adults with diabetes, and the V-Go wearable insulin delivery device, which provides continuous subcutaneous infusion of insulin in adults that require insulin. Afrezza was developed by us and received approval from the FDA in June 2014. Afrezza consists of a dry powder formulation of human insulin delivered from a small portable inhaler. V-Go received 510(k) clearance by the FDA in 2010 and has been available commercially since 2012. In May 2022, we acquired V-Go from Zealand Pharma A/S and Zealand Pharma US, Inc. (together “Zealand”) and began integrating the product into our endocrine business unit. V-Go is a mechanical basal-bolus insulin delivery system that is worn like a patch and can eliminate the need for taking multiple daily shots.

The first product to come out of our orphan lung disease pipeline, Tyvaso DPI (treprostinil) inhalation powder, received FDA approval in May 2022 for the treatment of PAH and PH-ILD. Our development and marketing partner, United Therapeutics, began commercializing Tyvaso DPI in June 2022 and is obligated to pay us a royalty on net sales of the product. We also receive a margin on supplies of Tyvaso DPI that we manufacture for UT.

The lead program in our pipeline of potential treatments for orphan lung diseases is MNKD-101, a nebulized formulation of clofazimine, for the treatment of severe chronic and recurrent pulmonary infections, including nontuberculous mycobacterial (NTM) lung disease. We believe an orally inhaled formulation of clofazimine could potentially provide several clinical advantages over the current solid oral dosage form of this drug. The FDA has designated MNKD-101 as both an orphan drug and a qualified infectious disease product for the treatment of pulmonary NTM infections. We plan to initiate a Phase 3 registrational study of MNKD-101 in the United States in the second quarter of 2024.

The next most advanced program in our pipeline is MNKD-201, a dry-powder formulation of nintedanib, for the treatment of idiopathic pulmonary fibrosis (IPF). An oral dosage form of nintedanib was approved for IPF by the FDA in 2014. However, a fairly large oral dose is required in order to achieve sufficient drug levels in lung tissue. Our goal with an inhaled formulation is to deliver a therapeutic amount of nintedanib to the lungs while avoiding high levels of the drug in other tissues, where it is associated with undesirable side effects. We plan to initiate a Phase 1 clinical study of MNKD-201 in the second quarter of 2024.

Our business is subject to significant risks, including but not limited to our ability to manufacture sufficient quantities of our products and Tyvaso DPI. Other significant risks also include the risk that our products may only achieve a limited degree of commercial success and 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.

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As of December 31, 2023, we had an accumulated deficit of $3.2 billion and a stockholders’ deficit of $246.2 million. We had net loss of $11.9 million, $87.4 million and $80.9 million in the years ended December 31, 2023, 2022 and 2021, respectively. To date, we have funded our operations primarily through the sale of our equity and convertible debt securities, from the receipt of upfront and milestone payments from collaborations, from borrowings, from sales of Afrezza and V-Go, from royalties and manufacturing revenue from UT, from proceeds of the sale-leaseback of our manufacturing facility in Danbury, CT and from the sale of a portion of future royalties that we receive from UT.

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 products to a limited number of wholesale distributors and specialty and retail pharmacies, and durable medical suppliers (“DME”) 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 including discounts, allowances, rebates, returns and other incentives. See Reserves for Variable Consideration below.

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 of gross-to-net adjustments as of December 31, 2023 and, therefore, the transaction price was not reduced further during the year ended December 31, 2023. 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, historical experience, payer channel mix unbilled claims, claim submission time lags and inventory levels in the distribution channel.

51

Our reserves for variable consideration are reflected in our gross-to-net adjustments which were 43% of gross product revenue, or $56.4 million, for the year ended December 31, 2023, compared to 42% of gross product revenue, or $40.8 million, for the year ended December 31, 2022. 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 $2.0 million or a 1.5% change in the gross-to-net adjustment percentage for the year ended December 31, 2023.

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.

Revenue Recognition – Collaborations and Services — We enter into licensing, research or other agreements under which we license certain rights to our product candidates to third parties, conduct research or provide other 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 commercial supply agreement (as amended, the “CSA”), we have identified three distinct performance obligations: (1) the license, supply of product to be used in clinical development, and continued development and approval support for Tyvaso DPI (“R&D Services and License”); (2) development activities for the next generation of the product (“Next-Gen R&D Services”); and (3) a material right associated with current and future commercial manufacturing and supply of product (“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. Following the FDA’s approval of Tyvaso DPI, UT began issuing purchase orders for the supply of product, which represent distinct contracts and performance obligations under ASC 606. Revenue is recognized for the supply of product at a point in time, once control is transferred to UT. See Note 11 – 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 December 2022 with UT and 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 $1.8 million for the year ended December 31, 2023.

Revenue Recognition — Royalties — We recognize royalty revenue for a sales-based or usage-based royalty if it is promised in exchange for an intellectual property license. The royalty revenue is recognized as the latter of the subsequent sale of the product occurs or if the performance obligation to which the royalty has been allocated has been satisfied or partially satisfied. Our collaboration agreement with UT entitles us to receive a royalty on net sales of Tyvaso DPI for the license of our IP that was considered to be interdependent with the development activities that supported the approval of Tyvaso DPI.

Stock-Based Compensation — Share-based payments to employees, including grants of restricted stock units, performance-based awards, restricted stock units with market conditions (“Market RSUs”), nonqualified stock options (“options”) 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. 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. 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.

The grant date fair value for the Market RSUs was $9.40 per unit for the Market RSUs granted during the year ended December 31, 2023, compared to $6.10 per unit for the Market RSUs granted during the year ended December 31, 2022. 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 $0.8 million for the year ended December 31, 2023.

Results of Operations

52

Trends and Uncertainties

Our collaboration agreement with UT entitles us to receive a 10% royalty on net sales of Tyvaso DPI, subject to the sale by us in December 2023 of a 1% royalty on future net sales to a royalty purchaser (leaving us with a 9% royalty). See Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements included in Part II, Item 8 — Financial Statements and Supplementary Data. Our royalty revenue reflects the upward trend in demand for Tyvaso DPI in the marketplace.

Manufacturing risks may adversely affect our ability to manufacture our products and could reduce our gross margin or impact our collaboration with UT.

Our future success is dependent on our, and our current and future collaboration partners’, ability to effectively commercialize approved products. Our future success is also dependent on our pipeline of new products. There is a high rate of failure inherent in the R&D process for new drugs. As a result, there is a high risk that the funds we invest in research programs will not generate sufficient financial returns. Products may appear promising in development but fail to reach market within the expected or optimal timeframe, or at all.

Years ended December 31, 2023 and 2022

Revenues

The following table provides a comparison of the revenue categories for the years ended December 31, 2023 and 2022 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","$ Change","","","% Change"],["Net revenue \u2013 commercial product sales:"],["Gross revenue from product sales","","$","130,461","","","$","97,048","","","$","33,413","","","","34","%"],["Less: Wholesaler distribution fees, rebates and chargebacks, product returns and other discounts","","","56,432","","","","40,801","","","$","15,631","","","","38","%"],["Net revenue \u2013 commercial product sales","","$","74,029","","","$","56,247","","","$","17,782","","","","32","%"],["Gross-to-net revenue adjustment percentage","","","43","%","","","42","%"],["Revenue \u2013 collaborations and services","","","52,954","","","","27,924","","","$","25,030","","","","90","%"],["Royalties \u2013 collaborations","","","71,979","","","","15,599","","","$","56,380","","","","361","%"],["Total revenues","","$","198,962","","","$","99,770","","","$","99,192","","","","99","%"]]
[[/GREPCENT_TABLE]]

Afrezza — Gross revenue from sales of Afrezza increased by $16.8 million, or 24%, for the year ended December 31, 2023 compared to the prior year. The increase reflects a combination of higher product demand and higher price (including a more favorable gross-to-net adjustment). The gross-to-net adjustment was 38% of gross revenue, or $33.0 million, for the year ended December 31, 2023 compared to 39% of gross revenue, or $27.8 million, for the prior year. The decrease in the gross-to-net percentage was primarily impacted by decreases in co-pay assistance and anticipated product returns partially offset by an increase in government rebates (as a percentage of gross sales). As a result, net revenue from sales of Afrezza increased by $11.6 million, or 27%, for the year ended December 31, 2023 compared to the prior year.

V-Go — Gross revenue from sales of V-Go increased by $16.6 million, or 64%, for the year ended December 31, 2023 compared to the prior year. The increase was a result of a full year of sales in 2023 compared to seven months in the prior year as V-Go was acquired in May 2022. The gross-to-net adjustment was 55% of gross revenue, or $23.4 million, for the year ended December 31, 2023 compared to 50% of gross revenue, or $13.0 million, for the prior year. The increase in gross-to-net percentage was mainly attributable to increased commercial and government rebates (as a percentage of gross sales). As a result, net revenue from sales of V-Go increased by $6.2 million, or 48%, for the year ended December 31, 2023 compared to the prior year.

Collaborations and Services — Net revenue from collaborations and services increased by $25.0 million, or 90%, for the year ended December 31, 2023 compared to the prior year. The increase in revenue was primarily attributable to manufacturing revenues being deferred in the prior year period until we began commercial manufacturing in May 2022 and an increase in product sold to UT. During the year ended December 31, 2023, we recognized $52.0 million of revenue under the CSA compared to $24.8 million in the prior year. Royalty revenue increased $56.4 million for the year ended December 31, 2023 compared to the prior year primarily due to a full year of Tyvaso DPI sales in the current year and an increase in patient demand.

See Note 11 – Collaboration, Licensing and Other Arrangements in the consolidated financial statements included in Part II, Item 8 – Financial Statements and Supplementary Data.

53

Commercial product gross profit

The following table provides a comparison of the commercial product gross profit categories for the years ended December 31, 2023 and 2022 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","$ Change","","","% Change"],["Commercial product gross profit:"],["Net revenue \u2013 commercial product sales","","$","74,029","","","$","56,247","","","$","17,782","","","","32","%"],["Less: Cost of goods sold","","","20,863","","","","16,003","","","$","4,860","","","","30","%"],["Commercial product gross profit:","","$","53,166","","","$","40,244","","","$","12,922","","","","32","%"],["Gross margin","","","72","%","","","72","%"]]
[[/GREPCENT_TABLE]]

Commercial product gross profit increased by $12.9 million, or 32%, for the year ended December 31, 2023 compared to the prior year. The increase in gross profit was primarily attributable to an increase in Afrezza net revenue and gross margin. The acquisition of V-Go in May 2022 contributed to the increase in commercial product sales and related cost of goods sold. As a result, gross margin remained consistent with the prior year at 72%.

Expenses

The following table provides a comparison of the expense categories for the years ended December 31, 2023 and 2022 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","$ Change","","","% Change"],["Expenses:"],["Cost of goods sold","","$","20,863","","","$","16,003","","","$","4,860","","","","30","%"],["Cost of revenue \u2014 collaborations and services","","","41,908","","","","41,494","","","$","414","","","","1","%"],["Research and development","","","31,283","","","","19,721","","","$","11,562","","","","59","%"],["Selling","","","51,776","","","","53,753","","","$","(1,977",")","","","(4","%)"],["General and administrative","","","42,538","","","","37,720","","","$","4,818","","","","13","%"],["Loss (gain) on foreign currency transaction","","","1,916","","","","(4,811",")","","$","(6,727",")","","*"],["Total expenses","","$","190,284","","","$","163,880","","","$","26,404","","","","16","%"]]
[[/GREPCENT_TABLE]]

_________________________

* Not meaningful

Cost of revenue — collaborations and services increased by $0.4 million, or 1%, for the year ended December 31, 2023 compared to the prior year. The cost of revenue for collaborations and services remained consistent with the prior year as manufacturing activities shifted from preproduction efforts in the first five months of 2022 to full commercial production of Tyvaso DPI thereafter. Higher manufacturing volumes resulted in efficiencies which contributed to a lower effective cost per unit.

Research and development expenses increased by $11.6 million, or 59%, for the year ended December 31, 2023 compared to the prior year. The increase was primarily attributable to increases in development activities for clofazimine inhaled suspension (MNKD-101), costs for an Afrezza post-marketing clinical study (INHALE-3) which commenced in the second quarter of 2023, costs for the Afrezza pediatric clinical study (INHALE-1) and other research and development activities.

Selling expenses decreased by $2.0 million, or 4%, for the year ended December 31, 2023, compared to the prior year. The decrease was primarily attributable to the termination of an Afrezza pilot promotional effort with a contract sales force targeting primary care physicians, which ended in the third quarter of 2022, partially offset by increased personnel and promotional activities related to the acquisition of V-Go in May 2022.

General and administrative expenses increased by $4.8 million, or 13%, for the year ended December 31, 2023 compared to the prior year. This increase was primarily attributable to increased personnel costs, including stock-based compensation and headcount.

Loss on foreign currency transaction was $1.9 million for the year ended December 31, 2023 compared to a gain of $4.8 million for the prior year. Under the Insulin Supply Agreement with Amphastar, payment obligations are denominated in Euros. We are required to record the foreign currency transaction impact of the U.S. dollar to Euro exchange rate associated with the recognized loss on purchase commitments. The year-over-year change was due to the conversion of Euro to U.S. dollar exchange rates.

54

Other Income (Expense)

The following table provides a comparison of the other income (expense) categories for the years ended December 31, 2023 and 2022 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","$ Change","","","% Change"],["Interest income","","$","6,154","","","$","2,513","","","$","3,641","","","","145","%"],["Interest expense on financing liability","","","(9,825",")","","","(9,758",")","","$","67","","","","1","%"],["Interest expense","","","(15,151",")","","","(15,011",")","","$","140","","","","1","%"],["Interest expense on liability for sale of future royalties","","","(185",")","","","\u2014","","","$","185","","","*"],["Loss on available-for-sale securities","","","(170",")","","","(932",")","","$","(762",")","","","(82","%)"],["Other income (expense)","","","122","","","","(102",")","","$","(224",")","","","(220","%)"],["Total other expense","","$","(19,055",")","","$","(23,290",")","","$","(4,235",")","","","(18","%)"]]
[[/GREPCENT_TABLE]]

_________________________

* Not meaningful

Interest income, consisting of interest on investments net of amortization, increased by $3.6 million compared to the prior year primarily due to higher yields on our marketable securities and money market funds.

Interest expense on financing liability was $9.8 million for each of the years ended December 31, 2023 and 2022, and represented interest incurred on the sale lease-back transaction for our manufacturing facility in Danbury, CT, which was entered into in the fourth quarter of 2021.

Interest expense on notes for the year ended December 31, 2023 was comparable to the prior year. See Note 10 — Borrowings.

Loss on available-for-sale securities for the years ended December 31, 2023 and 2022 was $0.2 million and $0.9 million, respectively, as a result of the change in the fair value of the investment that related to credit risk.

Other income for the year ended December 31, 2023 consisted primarily of a gain on disposal of property and equipment of $0.3 million and fair value adjustment of a milestone liability of $0.3 million, partially offset by a write off of an investment of $0.3 million and a loss on settlement of $0.2 million. Other expense for the year ended December 31, 2022 consisted of a loss associated with a foreign currency hedging transaction that was entered into to mitigate our exposure to foreign currency exchange risks associated with our insulin purchase obligation under the Insulin Supply Agreement with Amphastar.

Non-GAAP Measures

To supplement our consolidated financial statements presented under GAAP, we are presenting non-GAAP income (loss) from operations, non-GAAP net income (loss) and non-GAAP net income (loss) per share - basic, which are 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.

The following table reconciles our financial measures as reported in our consolidated statement of operations to a non-GAAP presentation as adjusted for the following select non-cash items: revenue from the 1% portion of sold royalties and interest expense on the related liability, stock-based compensation expense, gain on foreign currency transaction and gain on available-for-sale securities for the periods presented (in thousands, except per share amounts):

55

[[GREPCENT_TABLE]]
[["","","Year"],["","","Ended December 31,"],["","","2023","","","2022"],["GAAP income (loss) from operations","","$","8,678","","","$","(64,110",")"],["Select non-cash adjustments:"],["Sold portion of royalty revenue(1)","","","(2,103",")","","","\u2014"],["Stock compensation","","","17,649","","","","13,447"],["Loss (gain) on foreign currency transaction","","","1,916","","","","(4,811",")"],["Non-GAAP income (loss) from operations","","$","26,140","","","$","(55,474",")"],["GAAP net loss","","$","(11,938",")","","$","(87,400",")"],["Select non-cash adjustments:"],["Sold portion of royalty revenue(1)","","","(2,103",")","","","\u2014"],["Stock compensation","","","17,649","","","","13,447"],["Loss (gain) on foreign currency transaction","","","1,916","","","","(4,811",")"],["Interest expense on liability for sale of future royalties","","","185","","","","\u2014"],["Loss on available-for-sale securities","","","170","","","","932"],["Non-GAAP net income (loss)","","$","5,879","","","$","(77,832",")"],["GAAP net loss per share - basic","","$","(0.04",")","","$","(0.34",")"],["Select non-cash adjustments:"],["Sold portion of royalty revenue","","","(0.01",")","","","0.00"],["Stock compensation","","","0.07","","","","0.05"],["Loss (gain) on foreign currency transaction","","","0.01","","","","(0.02",")"],["Interest expense on liability for sale of future royalties","","","0.00","","","","0.00"],["Loss on available-for-sale securities","","","0.00","","","","0.00"],["Non-GAAP net income (loss) per share - basic","","$","0.03","","","$","(0.31",")"],["Weighted average shares - basic","","","267,014","","","","257,092"]]
[[/GREPCENT_TABLE]]

_________________________

(1)
Represents the non-cash portion of the 1% royalty on net sales of Tyvaso DPI earned during the fourth quarter of 2023 which is remitted to the royalty purchaser and recognized as royalties from collaborations in our consolidated statements of operations. Our revenues from royalties from collaborations during the fourth quarter of 2023 totaled $21.0 million, of which $2.1 million will be remitted to the royalty purchaser.

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 and V-Go, manufacturing Tyvaso DPI, the funding of general and administrative expenses, and principal and interest payments on our financing liability and debt.

To date, we have funded our operations primarily through the sale of equity and convertible debt securities, from the receipt of upfront and milestone payments from collaborations, from borrowings, from sales of Afrezza and V-Go, from royalties and manufacturing revenue from UT as well as from proceeds from the sale of certain assets and the sale of a portion of our future royalties that we receive from UT.

We believe we will be able to meet our liquidity needs over the next twelve months, as well as longer-term needs, based on the balance of cash, cash equivalents and investments on hand, projected sales of Afrezza and V-Go, and projected royalties and manufacturing revenue from the production and sale of Tyvaso DPI. The following table presents our material cash requirements as of December 31, 2023 associated with contractual commitments for future periods (in thousands):

[[GREPCENT_TABLE]]
[["","","2024","","","2025 - 2026","","","2027 - 2028","","","Thereafter","","","Total"],["Senior convertible notes(1)","","$","5,750","","","$","238,625","","","$","\u2014","","","$","\u2014","","","$","244,375"],["MidCap credit facility(2)","","","21,885","","","","13,656","","","","\u2014","","","","\u2014","","","","35,541"],["Mann Group convertible note(3)","","","223","","","","9,057","","","","\u2014","","","","\u2014","","","","9,280"],["Financing liability (4)","","","10,018","","","","20,802","","","","22,023","","","","177,278","","","","230,121"],["Insulin purchase agreement (5)","","","3,209","","","","4,682","","","","13,251","","","","44,611","","","","65,753"],["Insulin purchase capacity fees (5)","","","\u2014","","","","3,865","","","","2,208","","","","4,417","","","","10,490"],["Total material cash requirements","","$","41,085","","","$","290,687","","","$","37,482","","","$","226,306","","","$","595,560"]]
[[/GREPCENT_TABLE]]

56

_________________________

(1)
$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 maturing on March 1, 2026, unless earlier converted, redeemed or repurchased by us. The Senior convertible notes are convertible at an initial conversion price of approximately $5.21 per share of common stock. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture.

(2)
$33.3 million principal amount under the MidCap credit facility, bearing interest at an annual rate equal to one-month Secured Overnight Financing Rate (“SOFR") plus 6.25% (capped at a total of 8.25%), subject to a one-month SOFR floor of 1.00%. Interest is payable monthly in arrears. Principal is payable in equal monthly installments beginning in September 2023 through maturity in August 2025.

(3)
$8.8 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 payable quarterly in arrears in-kind or in shares at our option.

(4)
$104.1 million principal amount of indebtedness under the Sale-Leaseback Transaction, plus $123.3 million of imputed interest and $2.7 million in unamortized debt issuance costs. On November 8, 2021, we sold a portion of our manufacturing facility located in Danbury, CT to an affiliate of Creative Manufacturing Properties (the “Purchaser”) for a sales price of $102.3 million. We leased the property from the Purchaser for an initial term of 20 years, with four renewal options of five years each. The total annual rent under the lease started at approximately $9.5 million per year, subject to a 50% rent abatement during the first year of the lease, and increases annually by (i) 2.5% in the second through fifth year of the lease and (ii) 3% in the sixth and each subsequent year of the lease, including any renewal term. We are responsible for payment of operating expenses, property taxes and insurance for the leased property. Pursuant to the terms of the lease, we have four options to repurchase the property, in 2026, 2031, 2036 and 2041, for the greater of (i) $102.3 million or (ii) the fair market value of the leased property. Interest expense is calculated using an incremental borrowing rate of approximately 9%.

(5)
The July 2014 Insulin Supply Agreement with Amphastar to manufacture and supply us certain quantities of recombinant human insulin for use in Afrezza was amended in May 2021 and again on December 22, 2023 to purchase certain minimum quantities over a term that currently extends through at least December 31, 2034. Unless terminated earlier, the agreement can be renewed for additional, successive two-year terms upon 12 months’ written notice given prior to the end of the initial term or any additional two-year term.

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 repay, repurchase or redeem our outstanding notes when required, 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. We may from time to time seek to retire or purchase our outstanding debt, including the Senior convertible notes, through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material.

In July 2013, we issued the Milestone Rights pursuant to the Milestone Rights Agreement 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, $55.0 million of which remain payable as of December 31, 2023. See Note 9 – Accrued Expenses and Other Current Liabilities, Note 10 – Borrowings and Note 16– Commitments and Contingencies for further information related to the Milestone Rights.

In addition to the above, we also expect to have material cash requirements relating to paying our employees and consultants, professional services fees, marketing expenses, manufacturing expenditures, and clinical trial expenses. In addition, we make substantial and often long-term investments in our supply chain in order to ensure we have enough inventory and drug product to meet current and future revenue forecasts, as well as clinical trial needs.

In February 2018, we entered into a controlled equity offering sales agreement (the “CF Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor Fitzgerald”), as sales agent, pursuant to which we may offer and sell, from time to time, through Cantor Fitzgerald, shares of our common stock. Under the Sales Agreement, Cantor Fitzgerald may sell shares by any method deemed to be an “at-the-market offering” as defined in Rule 415 under the Securities Act of 1933, as amended. In February 2022, we filed a sales agreement prospectus under a registration statement on Form S-3 (File No. 333-262981) covering the sale of up to $50.0 million of our common stock through Cantor Fitzgerald under the CF Sales Agreement, of which $23.3 million remained available as of December 31, 2023.

During the year ended December 31, 2023, we generated $34.1 million of cash from our operating activities, which primarily consisted of $241.3 million of reimbursements from a customer, which is inclusive of approximately $40.0 million of deferred revenue for collaborations and services, partially offset by $84.1 million of cost of goods sold, $46.7 million of selling expenses, $33.4 million of general and administrative expenses, $28.1 million of costs for research and development, $9.6 million of cash paid for interest on the financing liability and $8.7 million of cash paid for interest on notes.

During the year ended December 31, 2022, we used $80.7 million of cash for our operating activities, which primarily consisted of $75.1 million of selling, general and administrative expenses, $58.5 million of cost of goods sold, $23.8 million of costs for research and

57

development, $8.9 million of cash paid for interest on notes and $9.6 million of cash paid for interest on the financing liability, partially offset by $108.3 million of revenue.

Cash used in investing activities of $2.0 million for the year ended December 31, 2023 was primarily due to the maturity of $119.2 million of debt securities, partially offset by the purchase of $79.1 million of debt securities and $42.4 million purchase of property and equipment.

Cash provided by investing activities of $4.9 million for the year ended December 31, 2022 was primarily due to the maturity of $107.3 million of debt securities, partially offset by the up-front consideration of $15.3 million for certain assets and assumed liabilities related to V-Go, $5.0 million purchase of available-for-sale securities, the purchase of $74.5 million of debt securities and $7.6 million purchase of property and equipment.

Cash provided by financing activities of $136.6 million for the year ended December 31, 2023 was primarily due to proceeds of $150.0 million from the sale of a portion of our future royalties from net sales of Tyvaso DPI and net proceeds from at-the-market offerings of $6.8 million, partially offset by $10.2 million in payments for taxes related to net issuance of common stock associated with restricted stock units and stock options, and principal payments of $6.7 million on the MidCap credit facility.

Cash provided by financing activities of $21.4 million for the year ended December 31, 2022 was primarily due to net proceeds from at-the-market offering of $19.4 million and proceeds from market price stock purchase plan and employee stock purchase plan of $2.8 million, partially offset by the milestone payment of $1.1 million.

Future Liquidity Needs

We believe we will be able to meet our near-term liquidity needs based on our cash, cash equivalents and investments on hand, sales of Afrezza and V-Go, and royalties and manufacturing revenue from the production and sale of Tyvaso DPI as well as through debt or equity financing, if necessary, for our long-term liquidity needs. Although net cash provided by operating activities reflected in our consolidated statements of cash flows was $34.1 million during the year ended December 31, 2023, we have not generated cash flows from operating activities on a consistent basis and we incurred a net loss during the year ended December 31, 2023. In addition, we expect to continue to incur expenditures for the foreseeable future in support of our manufacturing operations, sales and marketing costs for our products and development costs for other product candidates in our pipeline. As of December 31, 2023, we had capital resources of $238.5 million in cash and cash equivalents, $56.6 million in short-term investments and $7.2 million in long-term investments, and total principal amount of outstanding borrowings of $272.1 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 Part II, Item 8 – Financial Statements and Supplementary Data.

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 new accounting standards that have been issued by the FASB but are not effective until after December 31, 2023.