MannKind(MNKD) - 2024 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements, including statements of operations, comprehensive income (loss), balance sheets, stockholders' deficit, and cash flows, along with detailed notes providing context and breakdowns of key financial items and accounting policies Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including statements of operations, comprehensive income (loss), balance sheets, stockholders' deficit, and cash flows, along with detailed notes providing context and breakdowns of key financial items and accounting policies Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net income or loss over specific periods, providing a snapshot of operational profitability Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Total revenues | $72,386 | $48,611 | $138,649 | $89,237 | | Total expenses | $55,776 | $46,890 | $105,317 | $93,514 | | Income (loss) from operations | $16,610 | $1,721 | $33,332 | $(4,277) | | Total other expense | $(18,301) | $(6,986) | $(24,129) | $(10,783) | | Net income (loss) | $(2,014) | $(5,265) | $8,616 | $(15,060) | | Net income (loss) per share – basic | $(0.01) | $(0.02) | $0.03 | $(0.06) | | Net income (loss) per share – diluted | $(0.01) | $(0.02) | $0.03 | $(0.06) | Condensed Consolidated Statements of Comprehensive Income (Loss) This statement presents net income or loss alongside other comprehensive income items, such as unrealized gains or losses on available-for-sale securities Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income (loss) | $(2,014) | $(5,265) | $8,616 | $(15,060) | | Unrealized gain on available-for-sale securities | $0 | $443 | $0 | $443 | | Comprehensive income (loss) | $(2,014) | $(4,822) | $8,616 | $(14,617) | Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and stockholders' deficit at specific points in time, reflecting its financial position Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Cash and cash equivalents | $96,643 | $238,480 | | Short-term investments | $151,118 | $56,619 | | Total current assets | $325,940 | $373,393 | | Total assets | $443,836 | $475,198 | | Total current liabilities | $80,012 | $104,125 | | Total liabilities | $669,616 | $721,366 | | Total stockholders' deficit | $(225,780) | $(246,168) | Condensed Consolidated Statements of Stockholders' Deficit This statement tracks changes in the company's stockholders' deficit over time, including net income/loss, stock-based compensation, and other equity adjustments - Total stockholders' deficit improved from $(246.17) million at January 1, 2024, to $(225.78) million at June 30, 2024[19] - Net income contributed $10.63 million to accumulated deficit by March 31, 2024, followed by a net loss of $(2.01) million by June 30, 2024[19] - Stock-based compensation expense for the six months ended June 30, 2024, was $10.31 million[19] Condensed Consolidated Statements of Cash Flows This statement categorizes cash inflows and outflows into operating, investing, and financing activities, illustrating the company's liquidity and cash generation Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $10,536 | $3,752 | | Net cash (used in) provided by investing activities | $(103,617) | $17,456 | | Net cash used in financing activities | $(48,024) | $(4,791) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(141,105) | $16,417 | | Cash, cash equivalents and restricted cash, end of period | $97,375 | $86,184 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and breakdowns of the figures presented in the financial statements, including accounting policies and specific financial items Note 1. Description of Business and Significant Accounting Policies This note outlines the company's core business, its therapeutic focus, and the key accounting principles applied in preparing the financial statements - MannKind is a biopharmaceutical company focused on developing and commercializing innovative therapeutic products and devices for endocrine and orphan lung diseases, utilizing Technosphere dry-powder formulations and Dreamboat inhalation devices[28] - The company commercializes Afrezza (inhaled insulin) and the V-Go wearable insulin delivery device, and partners with United Therapeutics (UT) for Tyvaso DPI (treprostinil inhalation powder), receiving a 9% royalty on net sales and a margin on manufactured supplies[28][55] Net Revenue by Category (in thousands) | Revenue Type | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Product revenue | $46,758 | $29,278 | $89,986 | $58,004 | | Services | $36 | $278 | $420 | $500 | | Royalties | $25,592 | $19,055 | $48,243 | $30,733 | | Total net revenue | $72,386 | $48,611 | $138,649 | $89,237 | Cost of Goods Sold and Cost of Revenue (in thousands) | Cost Type | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Product revenue | $20,377 | $13,995 | $38,628 | $30,023 | | Services | $0 | $242 | $347 | $427 | | Total cost of goods sold and cost of revenue | $20,377 | $14,237 | $38,975 | $30,450 | Note 2. Investments This note details the company's investment portfolio, including available-for-sale and held-to-maturity securities, and their fair values and interest income - The fair value of the available-for-sale investment in Thirona convertible notes was $5.3 million as of June 30, 2024, down from $6.9 million at December 31, 2023, resulting in a $1.6 million loss for the three and six months ended June 30, 2024, due to modification[95] Held-to-Maturity Investments (in thousands) | Category | June 30, 2024 Amortized Cost | June 30, 2024 Aggregate Fair Value | December 31, 2023 Amortized Cost | December 31, 2023 Aggregate Fair Value | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Due in one year or less | $231,331 | $231,446 | $115,263 | $115,374 | | Due after one year through five years | $13,398 | $13,478 | $7,155 | $7,197 | | Total | $244,729 | $244,924 | $122,418 | $122,571 | - Interest income on investments increased to $3.2 million for Q2 2024 (from $1.4 million in Q2 2023) and $6.6 million for H1 2024 (from $2.6 million in H1 2023)[96] Note 3. Accounts Receivable This note provides a breakdown of accounts receivable, net, including commercial and collaboration receivables, and details significant customer concentrations Accounts Receivable, Net (in thousands) | Category | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Accounts receivable – commercial, gross | $22,270 | $20,199 | | Less: Wholesaler distribution fees & prompt pay discounts | $(3,750) | $(2,469) | | Less: Reserve for returns | $(6,798) | $(6,215) | | Less: Allowance for credit losses | $(157) | $(157) | | Total accounts receivable – commercial, net | $11,565 | $11,358 | | Accounts receivable – collaborations and services | $11,781 | $3,543 | | Total accounts receivable, net | $23,346 | $14,901 | - Three wholesale distributors represented approximately 84% of commercial accounts receivable and 70-71% of gross sales during the three and six months ended June 30, 2024[102] - United Therapeutics (UT) comprised 100% of collaboration and services net accounts receivable as of June 30, 2024, and December 31, 2023[103] Note 4. Inventories This note details the composition of inventories, including raw materials, work-in-process, and finished goods, and reports on inventory write-offs Inventories (in thousands) | Category | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Raw materials | $5,984 | $6,262 | | Work-in-process | $9,784 | $13,646 | | Finished goods | $8,985 | $8,637 | | Total inventory | $24,753 | $28,545 | - Inventory write-offs were $0.6 million for Q2 2024 (vs. $1.0 million for Q2 2023) and $1.6 million for H1 2024 (vs. $3.4 million for H1 2023)[105] Note 5. Property and Equipment This note presents the gross and net values of property and equipment, accumulated depreciation, and details depreciation expense and asset transfers Property and Equipment, Net (in thousands) | Category | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Total property and equipment, gross | $189,679 | $185,756 | | Less: Accumulated depreciation | $(104,535) | $(101,536) | | Total property and equipment, net | $85,144 | $84,220 | Depreciation Expense (in thousands) | Period | 2024 | 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Three Months Ended June 30 | $1,711 | $1,095 | | Six Months Ended June 30 | $3,052 | $2,133 | - During the six months ended June 30, 2024, $43.4 million was transferred from construction in progress to building improvements[107] Note 6. Goodwill and Other Intangible Asset This note outlines the carrying amounts of goodwill and other intangible assets, including developed technology, and their amortization - Goodwill remained at $1.9 million as of June 30, 2024, and December 31, 2023, resulting from the V-Go acquisition in May 2022[108] Other Intangible Asset (Developed technology, in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Cost | $1,200 | $1,200 | | Accumulated Amortization | $(167) | $(127) | | Net Book Value | $1,033 | $1,073 | Note 7. Accrued Expenses and Other Current Liabilities This note provides a detailed breakdown of various accrued expenses and other current liabilities, including salary, discounts, and interest Accrued Expenses and Other Current Liabilities (in thousands) | Category | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Salary and related expenses | $12,656 | $19,506 | | Discounts and allowances for commercial product sales | $10,965 | $9,541 | | Accrued interest | $6,165 | $2,153 | | Deferred lease liability | $1,812 | $1,423 | | Current portion of milestone rights liability | $1,391 | $752 | | Returns reserve for acquired product | $1,290 | $601 | | Professional fees | $656 | $979 | | State income tax liability | $424 | $1,561 | | Other | $5,593 | $5,520 | | Total | $40,952 | $42,036 | Note 8. Borrowings This note details the company's debt obligations, including senior convertible notes and credit facilities, and reports on debt extinguishments Total Debt – Net Carrying Amount (in thousands) | Category | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Senior convertible notes | $227,577 | $226,851 | | MidCap credit facility | $0 | $33,019 | | Mann Group convertible note | $0 | $8,829 | | Total debt – net carrying amount | $227,577 | $268,699 | - The MidCap credit facility was fully repaid on April 1, 2024, for $31.6 million, including an exit fee of $2.8 million and a prepayment fee of $0.3 million, resulting in a $3.3 million loss on extinguishment of debt[127] - The Mann Group convertible note was discharged and terminated on April 2, 2024, through the issuance of 1.5 million common shares and an $8.9 million cash payment, leading to a $3.7 million loss on extinguishment of debt[132] Note 9. Collaboration, Licensing and Other Arrangements This note details revenue generated from various collaboration and licensing agreements, including royalties and services, and key terms of these partnerships Revenue from Collaborations and Services (in thousands) | Arrangement | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | UT CSA | $25,978 | $10,933 | $50,442 | $22,097 | | UT License Agreement | $0 | $242 | $347 | $427 | | Cipla License and Distribution Agreement | $36 | $36 | $73 | $73 | | Total revenue | $26,014 | $11,211 | $50,862 | $22,597 | - MannKind receives a 10% royalty on net sales of Tyvaso DPI from United Therapeutics (UT), retaining 9% after selling a 1% royalty in December 2023[139] - Total revenue from UT for the six months ended June 30, 2024, was $99.03 million, an increase from $53.26 million in the prior year period[139] Note 10. Fair Value of Financial Instruments This note provides the fair values of financial liabilities, including convertible notes and milestone rights, and the methodologies used for their valuation Fair Value of Financial Liabilities (in millions) | Financial Liability | June 30, 2024 Carrying Value | June 30, 2024 Fair Value (Level 3) | December 31, 2023 Carrying Value | December 31, 2023 Fair Value (Level 3) | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Senior convertible notes | $227.6 | $258.9 | $226.9 | $231.3 | | Milestone rights | $3.9 | $10.6 | $3.9 | $11.9 | | Contingent milestone liability | $0.3 | $0.3 | $0.3 | $0.3 | | Financing liability | $104.0 | $106.6 | $104.1 | $106.8 | | Liability for sale of future royalties | $147.5 | $163.9 | N/A | N/A | - Fair values are determined using discounted cash flow analysis and Monte Carlo simulations, with hypothetical yields and volatilities as key unobservable inputs[152][154] Note 11. Common and Preferred Stock This note details the company's authorized and outstanding common and preferred stock, and reports on equity issuance activities and proceeds - The company is authorized to issue 800 million common shares and 10 million undesignated preferred shares, with 274.5 million common shares outstanding as of June 30, 2024, and no preferred shares outstanding[157] - No sales occurred under the controlled equity offering sales agreement in H1 2024, compared to $2.8 million gross proceeds from 631,383 shares sold in H1 2023[158] - Proceeds from the market price stock purchase plan were $1.4 million for 416,099 shares in H1 2024, up from $0.2 million for 36,004 shares in H1 2023[159] Note 12. Earnings per Common Share This note provides the computations for basic and diluted earnings per common share, including the reconciliation of weighted average shares outstanding EPS Computations (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income (loss) | $(2,014) | $(5,265) | $8,616 | $(15,060) | | Weighted average common shares (basic) | 273,056 | 265,626 | 271,706 | 264,802 | | Net income (loss) per share – basic | $(0.01) | $(0.02) | $0.03 | $(0.06) | | Weighted average common shares (diluted) | 273,056 | 265,626 | 279,358 | 264,802 | | Net income (loss) per share – diluted | $(0.01) | $(0.02) | $0.03 | $(0.06) | - For the six months ended June 30, 2024, 7.8 million RSUs and Market RSUs, 1.9 million options and PNQs, and 44.1 million common shares from Senior convertible notes were excluded from diluted EPS as they were antidilutive[161][163] Note 13. Stock-Based Compensation Expense This note details the total stock-based compensation expense recognized for RSUs, options, and employee stock purchase plans, and unrecognized compensation Total Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | RSUs and options | $6,248 | $5,404 | $9,947 | $8,882 | | Employee stock purchase plan | $180 | $176 | $366 | $353 | | Total | $6,428 | $5,580 | $10,313 | $9,235 | - As of June 30, 2024, $28.2 million of unrecognized stock-based compensation expense related to RSUs (weighted average period of 2.84 years) and $31.4 million for Market RSUs (weighted average period of 2.22 years) remains[167] Note 14. Commitments and Contingencies This note outlines the company's various contractual obligations, including milestone rights, future royalty sales liabilities, and insulin supply agreement commitments - Milestone Rights: $55.0 million remains payable as of June 30, 2024, upon achievement of specified strategic and sales milestones; an Afrezza sales milestone in Q2 2024 resulted in a $4.2 million remeasurement recorded as interest expense[173][174] - Liability for Sale of Future Royalties: In December 2023, MannKind sold a 1% royalty on future net sales of Tyvaso DPI for $150.0 million upfront; the liability balance was $147.51 million as of June 30, 2024, with $8.52 million in non-cash interest expense for H1 2024[176][181] Insulin Supply Agreement Commitments (€ in millions) | Year | Remaining Purchase Commitments | Estimated Capacity Fees | | :-------------------------------- | :------------------------------- | :------------------------------- | | 2025 | — | 1.5 | | 2026 | 4.2 | 2.0 | | 2027 | 6.0 | 1.0 | | 2028 | 6.0 | 1.0 | | 2029 | 6.0 | 1.0 | | 2030 | 6.0 | 1.0 | | 2031 | 8.0 | 0.5 | | 2032 | 8.0 | 0.5 | | 2033 | 8.0 | 0.5 | | 2034 | 4.4 | 0.5 | | Total | 56.6 | 9.5 | Note 15. Income Taxes This note discusses income tax expense, the effective tax rate, and the impact of valuation allowances and potential legislative changes on the company's tax position - Income tax expense was $0.3 million for Q2 2024 and $0.6 million for H1 2024, related to state taxes, with no tax expense in the prior year periods[201] - The effective tax rate differs from the statutory 21% primarily due to valuation allowances against net deferred tax assets, which are fully reserved[201] - The company is evaluating the potential impact of California's Senate Bills 167 and 175, which suspend net operating losses and limit business credits for certain tax years[203] Note 16. Subsequent Events This note reports on significant events occurring after the balance sheet date, including asset acquisitions and related financial arrangements - On July 8, 2024, MannKind acquired lab assets and assumed a R&D facility lease in Bedford, Massachusetts, from Pulmatrix, Inc., including an intellectual property cross-license agreement[204] - In June 2024, $0.7 million was transferred to a depository account as collateral for a letter of credit related to the assumed lease, reflected as long-term restricted cash[205] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and liquidity, highlighting key trends, uncertainties, and performance drivers for the periods presented, including detailed analysis of revenues, expenses, and capital resources OVERVIEW This overview introduces the company's biopharmaceutical focus, its commercialized products, pipeline developments, and key financial highlights including accumulated and stockholders' deficit - MannKind is a biopharmaceutical company focused on endocrine and orphan lung diseases, commercializing Afrezza and V-Go, and partnering with United Therapeutics for Tyvaso DPI[208][209][211] - The company's pipeline includes MNKD-101 (nebulized clofazimine for NTM lung disease) with a Phase 3 study initiated in June 2024, and MNKD-201 (dry-powder nintedanib for IPF) with a Phase 1 study initiated in June 2024[212][213][214] - As of June 30, 2024, the company had an accumulated deficit of $3.2 billion and a stockholders' deficit of $225.8 million, reporting a net loss of $2.0 million for Q2 2024 and net income of $8.6 million for H1 2024[215] CRITICAL ACCOUNTING POLICIES AND ESTIMATES This section refers to the detailed discussion of critical accounting policies and estimates found in the notes to the financial statements and the annual report - Critical accounting policies and estimates are detailed in Note 1 of the condensed consolidated financial statements and the Annual Report on Form 10-K[216] RESULTS OF OPERATIONS This section analyzes the company's financial performance, detailing changes in revenues, commercial product gross profit, and various operating and other expenses Revenues This subsection analyzes the company's total revenues, breaking down performance by commercial product sales, collaborations, services, and royalties Revenue Comparison (in thousands) | Category | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | % Change (YoY) | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------- | | Net revenue – commercial product sales | $20,780 | $18,345 | 13% | | Revenue – collaborations and services | $26,014 | $11,211 | 132% | | Royalties – collaboration | $25,592 | $19,055 | 34% | | Total revenues | $72,386 | $48,611 | 49% | | Category | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | % Change (YoY) | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------- | | Net revenue – commercial product sales | $39,544 | $35,907 | 10% | | Revenue – collaborations and services | $50,862 | $22,597 | 125% | | Royalties – collaboration | $48,243 | $30,733 | 57% | | Total revenues | $138,649 | $89,237 | 55% | - Afrezza net revenue increased by 20% ($2.8 million) in Q2 2024 and 18% ($4.8 million) in H1 2024, driven by price and higher demand, with gross-to-net adjustments decreasing[222] - V-Go net revenue decreased by 7% ($0.3 million) in Q2 2024 and 11% ($1.1 million) in H1 2024, primarily due to lower demand partially offset by increased price[223][224] Commercial product gross profit This subsection examines the gross profit and gross margin generated from commercial product sales, highlighting factors influencing profitability Commercial Product Gross Profit (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | % Change (YoY) | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------- | | Net revenue – commercial product sales | $20,780 | $18,345 | 13% | | Less: Cost of goods sold | $5,605 | $5,224 | 7% | | Commercial product gross profit | $15,175 | $13,121 | 16% | | Gross margin | 73% | 72% | 1 pp | | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | % Change (YoY) | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------- | | Net revenue – commercial product sales | $39,544 | $35,907 | 10% | | Less: Cost of goods sold | $9,424 | $10,754 | (12%) | | Commercial product gross profit | $30,120 | $25,153 | 20% | | Gross margin | 76% | 70% | 6 pp | - The increase in gross profit and gross margin was primarily attributable to an increase in Afrezza net revenue[228] Expenses This subsection analyzes the company's operating expenses, including cost of goods sold, R&D, selling, and general and administrative costs, and their period-over-period changes Expenses Comparison (in thousands) | Category | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | % Change (YoY) | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------- | | Cost of goods sold | $5,605 | $5,224 | 7% | | Cost of revenue – collaborations and services | $14,772 | $9,013 | 64% | | Research and development | $11,816 | $6,453 | 83% | | Selling | $11,495 | $14,002 | (18%) | | General and administrative | $12,617 | $11,947 | 6% | | (Gain) loss on foreign currency transaction | $(529) | $251 | * | | Total expenses | $55,776 | $46,890 | 19% | | Category | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | % Change (YoY) | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------- | | Cost of goods sold | $9,424 | $10,754 | (12%) | | Cost of revenue – collaborations and services | $29,551 | $19,696 | 50% | | Research and development | $21,829 | $12,058 | 81% | | Selling | $23,096 | $27,312 | (15%) | | General and administrative | $23,345 | $22,489 | 4% | | (Gain) loss on foreign currency transaction | $(1,928) | $1,205 | * | | Total expenses | $105,317 | $93,514 | 13% | - R&D expenses increased by 83% in Q2 2024 and 81% in H1 2024, primarily due to increased development activities for MNKD-101, INHALE-1, and MNKD-201 studies[233][234] - Selling expenses decreased by 18% in Q2 2024 and 15% in H1 2024, mainly due to sales force restructuring activities[234][235] Other Income (Expense) This subsection details non-operating income and expenses, such as interest income, interest expense, gains/losses on securities, and debt extinguishment losses Other Income (Expense) Comparison (in thousands) | Category | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | % Change (YoY) | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------- | | Interest income, net | $3,177 | $1,547 | 105% | | Interest expense on financing liability | $(2,444) | $(2,449) | (0%) | | Interest expense | $(6,051) | $(6,873) | (12%) | | Interest expense on liability for sale of future royalties | $(4,383) | $0 | * | | (Loss) gain on available-for-sale securities | $(1,550) | $932 | * | | Loss on extinguishment of debt | $(7,050) | $0 | * | | Other expense | $0 | $(143) | * | | Total other expense | $(18,301) | $(6,986) | 162% | | Category | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | % Change (YoY) | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------- | | Interest income, net | $6,611 | $2,849 | 132% | | Interest expense on financing liability | $(4,891) | $(4,873) | 0% | | Interest expense | $(8,618) | $(9,659) | (11%) | | Interest expense on liability for sale of future royalties | $(8,631) | $0 | * | | (Loss) gain on available-for-sale securities | $(1,550) | $932 | * | | Loss on extinguishment of debt | $(7,050) | $0 | * | | Other expense | $0 | $(32) | * | | Total other expense | $(24,129) | $(10,783) | 124% | - Interest income, net, increased by $1.6 million in Q2 2024 and $3.8 million in H1 2024, driven by higher yields and increased investments from the Tyvaso DPI royalty sale proceeds[239] - A $7.1 million loss on extinguishment of debt was incurred in Q2 and H1 2024 due to the repayment of the MidCap credit facility and Mann Group convertible note[242] Non-GAAP Measures This section presents non-GAAP adjusted net income and EPS, providing alternative performance metrics by excluding certain non-cash or non-recurring items Non-GAAP Adjusted Net Income (Loss) (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | GAAP reported net income (loss) | $(2,014) | $(5,265) | $8,616 | $(15,060) | | Non-GAAP adjusted net income (loss) | $14,309 | $(366) | $29,408 | $(5,552) | | Non-GAAP adjusted basic EPS | $0.05 | $0.00 | $0.11 | $(0.02) | - Non-GAAP adjustments include sold portion of royalty revenue, interest expense on liability for sale of future royalties, stock compensation, foreign currency transaction (gain) loss, (loss) gain on available-for-sale securities, and loss on extinguishment of debt[247] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's sources of liquidity, capital resources, and cash flow activities, assessing its ability to meet short-term and long-term financial obligations - Primary liquidity sources include cash, cash equivalents, investments, equity/convertible debt sales, collaboration payments, product sales (Afrezza, V-Go), royalties/manufacturing revenue (Tyvaso DPI), and proceeds from asset sales[248] - As of June 30, 2024, capital resources included $96.6 million in cash and cash equivalents, $151.1 million in short-term investments, and $13.4 million in long-term investments, with $230.0 million principal amount of outstanding Senior convertible notes[256] - Net cash provided by operating activities was $10.5 million for H1 2024, while net cash used in investing activities was $103.6 million and net cash used in financing activities was $48.0 million[253][254][255] Future Liquidity Needs This subsection outlines the company's expectations regarding future funding requirements, including operational expenditures and potential reliance on external financing - The company believes its resources are sufficient to fund operations for the next twelve months, based on current cash, investments, projected sales, and royalties[257] - Substantial expenditures are expected for manufacturing, sales and marketing, and R&D, with potential reliance on debt or equity financing for long-term needs[256] Contractual Obligations This subsection refers to the detailed discussion of material changes in contractual obligations found in specific notes to the financial statements - Material changes in contractual obligations are discussed in Note 8 – Borrowings and Note 14 – Commitments and Contingencies[258] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, specifically interest rate risk and foreign currency exchange risk, and their potential impact on financial performance and pre-tax income Interest Rate Risk This subsection explains the company's exposure to interest rate fluctuations, particularly concerning its fixed-rate senior convertible notes - The Senior convertible notes have a fixed interest rate of 2.50%, which means the associated interest expense is not exposed to changes in market interest rates[259] Foreign Currency Exchange Risk This subsection describes the company's exposure to foreign currency exchange rate fluctuations, primarily due to Euro-denominated supply obligations - The company incurs significant expenditures for Euro-denominated insulin supply obligations, leading to foreign currency exchange risk[260] - A $1.9 million currency gain was realized for the six months ended June 30, 2024[260] - A 10% change in the U.S. dollar to Euro exchange rate could result in an approximate $6.0 million impact on pre-tax income[261] Item 4. Controls and Procedures This section outlines management's evaluation of the effectiveness of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Disclosure Controls and Procedures This subsection confirms management's assessment of the effectiveness of the company's disclosure controls and procedures as of the reporting date - Management, with the participation of the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[262][263] Changes in Internal Control over Financial Reporting This subsection reports on any material changes in the company's internal control over financial reporting during the most recent fiscal quarter - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[264] PART II: OTHER INFORMATION This section covers additional information not included in the financial statements, such as legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings This section states that the company is involved in legal proceedings and claims in the ordinary course of business but does not anticipate a material adverse effect on its financial position, results of operations, or cash flows - The company is subject to legal proceedings and claims arising in the ordinary course of its business[266] - Management does not anticipate that the final disposition of these matters will have a material adverse effect on the company's financial position, results of operations, or cash flows[266] Item 1A. Risk Factors This comprehensive section outlines various factors that make an investment in the company's common stock speculative or risky, categorized into business, government regulation, common stock, and general risks Summary Risk Factors This summary highlights key risks including commercial success limitations, manufacturing challenges, reliance on suppliers, capital needs, IT vulnerabilities, and financial performance volatility - Commercial success of products (company's and partners') may be limited, and manufacturing risks could reduce gross margin and profitability[269][270] - Reliance on suppliers, lack of third-party payer coverage, and the need to raise additional capital pose significant financial risks[270] - Risks include compromised IT systems, fluctuating operating results, a history of operating losses, inability to service debt, and adverse effects from health pandemics or geopolitical conditions[270][274] RISKS RELATED TO OUR BUSINESS This section details business-specific risks, including challenges in product commercialization, manufacturing, supply chain, capital raising, and cybersecurity - Successful commercialization of therapeutic products is subject to many risks, including market acceptance, effectiveness of sales efforts, manufacturing capabilities, and competition[276][277][278] - Manufacturing risks, including scaling production, complying with regulations (cGMP/QSR), and reliance on single-source suppliers, could adversely affect production and profitability[279][280][281][285][286][287] - The company may need to raise additional capital, and failure to do so on favorable terms could lead to delays, curtailment of projects, or cessation of operations[294][295][296][297][298] - Information technology systems are vulnerable to cyber-attacks and security incidents, which could result in data loss, business disruptions, regulatory actions, and reputational harm[299][300][301][304][305][306] - A history of operating losses and the inability to generate sufficient cash to service indebtedness and commitments pose significant financial risks, potentially leading to liquidity problems or bankruptcy[309][310][311] RISKS RELATED TO GOVERNMENT REGULATION This section outlines risks associated with regulatory approvals, ongoing compliance, healthcare legislation, and data privacy laws, which could impact product development and commercialization - Product candidates must undergo costly and time-consuming nonclinical and clinical testing to obtain regulatory approval, with uncertain outcomes and potential for delays or rejections[352][353] - Approved products are subject to extensive and ongoing regulatory requirements (manufacturing, labeling, distribution, cGMP/QSR), and non-compliance can lead to severe penalties, market withdrawal, or criminal prosecution[357] - Healthcare legislation, such as the PPACA and IRA, can significantly impact revenues by changing reimbursement policies, drug pricing, and patient programs, potentially reducing profitability[364][365][366][367] - Failure to comply with federal and state healthcare laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA) could result in substantial penalties, exclusion from federal programs, and reputational damage[368][369] - Stringent and changing data privacy and security laws (e.g., GDPR, CCPA) expose the company to regulatory investigations, litigation, fines, and business disruptions if not complied with[370][371][373][375][376] RISKS RELATED TO INTELLECTUAL PROPERTY This section discusses risks concerning the protection of intellectual property, including patent challenges, infringement litigation, and the safeguarding of trade secrets - Commercial success depends on protecting intellectual property through patents, trade secrets, and confidentiality agreements, but patents may be challenged, narrowed, or invalidated[385][386][387][389] - Competitors may infringe patents, leading to expensive and time-consuming litigation that could result in injunctions, damages, or the need for licenses on unfavorable terms[391][394][395][396] - Reliance on unpatented technology and trade secrets carries the risk of unauthorized disclosure or independent development by competitors, harming business operations[390] RISKS RELATED TO OUR COMMON STOCK This section addresses risks specific to the company's common stock, such as price volatility, potential dilution from future equity sales, and anti-takeover provisions - The company's stock price is volatile, influenced by product sales, clinical study results, economic conditions, geopolitical events, and competitor announcements[403][404] - Future sales of common stock, including from equity offerings or conversion of convertible debt, could depress the stock price and dilute existing stockholders' ownership[410][411][412] - Anti-takeover provisions in charter documents and Delaware law could make an acquisition more difficult, even if beneficial to stockholders, and may prevent changes in management[406] - The company does not expect to pay dividends in the foreseeable future, requiring stockholders to rely solely on stock appreciation for any return on investment[409] GENERAL RISK FACTORS This section covers broad risks stemming from unstable market, economic, and geopolitical conditions that could adversely affect the company's operations and financial health - Unstable market, economic, and geopolitical conditions (e.g., global conflicts, inflation) can have serious adverse consequences on business, financial condition, and stock price, disrupting supply chains and capital access[415][416] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the issuance of common stock to Mann Group in April 2024 to settle a convertible note, utilizing an exemption from registration under the Securities Act of 1933 - In April 2024, the company discharged approximately $3.8 million of principal under the Mann Group convertible note by issuing 1,500,000 shares of common stock to Mann Group[418] - The issuance of these shares was made pursuant to an exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933[418] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reported period - There were no defaults upon senior securities[418] Item 4. Mine Safety Disclosures This section indicates that the disclosure requirements for mine safety are not applicable to the company - Mine Safety Disclosures are not applicable to the registrant[418] Item 5. Other Information This section discloses that an executive officer adopted a Rule 10b5-1 trading plan for the orderly disposition of company securities - Stuart A. Tross, EVP Chief People and Workplace Officer, adopted a Rule 10b5-1 trading plan on May 31, 2024[420] - The plan covers the disposition of 409,020 shares of common stock and has an expiration date of May 30, 2025[420] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, material agreements, and certifications - Exhibits include corporate documents (e.g., Amended and Restated Certificate of Incorporation, Bylaws), key agreements (e.g., Milestone Rights Purchase Agreement, Indenture for Senior Convertible Notes), and certifications (e.g., CEO and CFO certifications)[422] - Interactive Data Files (Inline XBRL) are also included as an exhibit[422] SIGNATURES This section confirms the official signing of the report by the Chief Executive Officer and Chief Financial Officer on the specified date - The report was duly signed on August 7, 2024, by Michael E. Castagna, Chief Executive Officer, and Christopher B. Prentiss, Chief Financial Officer[423]