MANNKIND CORP (MNKD) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
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, 2023 compared to the year ended December 31, 2022 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, 2023, filed with the SEC on February 27, 2024, 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. 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 injections.
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.
Our pipeline of potential treatments for orphan lung diseases includes MNKD-101, a nebulized formulation of clofazimine, for the treatment of severe chronic and recurrent pulmonary infections, including NTM lung disease. We believe an orally inhaled formulation of clofazimine could potentially provide several clinical advantages over the current solid oral dosage form, including directly targeting the site of the infection while lowering the systemic exposure of patients to the drug. The FDA has designated MNKD-101 as both an orphan drug and as a qualified infectious disease product for the treatment of pulmonary NTM infections. It has also granted Fast Track designation to our development program. In June 2024, we initiated a Phase 3 clinical study of MNKD-101, with sites in the United States, Japan, South Korea, Taiwan and Australia. We expect enrollment of subjects into this study to continue into 2026.
The other major program in our pipeline is MNKD-201, a dry-powder formulation of nintedanib, for the treatment of 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. In 2024, we conducted a Phase 1 clinical study of MNKD-201, which met its primary objective of demonstrating positive safety results and good tolerability in healthy volunteers. We plan to meet with the FDA in the first half of 2025 to discuss the late-stage development of MNKD-201.
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.
As of December 31, 2024, we had cash, cash equivalents and investments of $202.7 million, an accumulated deficit of $3.2 billion and a total stockholders’ deficit of $78.8 million. We had net income of $27.6 million in the year ended December 31, 2024, and net loss of $11.9 million and $87.4 million in the years ended December 31, 2023 and 2022, 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,
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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, interest expense related to liability for sale of future royalties 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, 2024 and, therefore, the transaction price was not reduced further during the year ended December 31, 2024. 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. Our reserves for variable consideration related to our commercial products are reflected in our gross-to-net adjustments which were 40% of gross product revenue, or $53.8 million, for the year ended December 31, 2024, compared to 43% of gross product revenue, or $56.4 million, for the year ended December 31, 2023. 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 $1.7 million or a 1.2% change in the gross-to-net adjustment percentage for the year ended December 31, 2024.
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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.
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.
With respect to our significant collaboration and service agreement with UT, which was entered into in December 2022 and includes a long-term commercial supply agreement (as amended, the "CSA"), if there is a 10% difference in (i) the estimates used to determine the transaction price for the CSA or (ii) 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 $2.6 million for the year ended December 31, 2024.
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 intellectual property that was considered to be interdependent with the development activities that supported the approval of Tyvaso DPI.
Interest Expense – Liability for Sale of Future Royalties — In December 2023, we sold a portion of our rights to future royalties on UT’s sale of Tyvaso DPI. The upfront proceeds received from the royalty purchaser were recorded as a royalty liability in the consolidated balance sheets. As royalty payments are earned by and remitted to the royalty purchaser, the balance of the royalty liability will be effectively repaid as it is amortized over the life of the underlying purchase agreement. To amortize the royalty liability, we estimate the total amount of future royalty payments to be made to the royalty purchaser. The excess of those future estimated royalty payments over the upfront proceeds received is recognized in the consolidated statements of operations as non-cash interest expense utilizing an imputed effective interest rate. The effective interest rate is calculated based on the rate that would enable the debt to be repaid in full over the anticipated life of the arrangement. The interest rate may vary during the term of the agreement depending on a number of factors, including the amount and timing of forecasted royalty payments which affects the timing and ultimate amount of reductions to the liability.
The Company evaluates the effective interest rate periodically based on its forecasted royalty payments utilizing the prospective method. The Company periodically assesses the forecasted royalty payments using a combination of historical results, internal projections and forecasts from external sources. To the extent such payments, or the timing of such payments, are materially different than original estimates, the Company will prospectively adjust the effective interest rate and amortization of the royalty liability. If there is a 10% difference in the estimated future royalty payments, the impact to our interest expense with respect to our royalty liability would be $4.6 million for the year ended December 31, 2024.
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 $10.30 per unit for the Market RSUs granted during the year ended December 31, 2024, compared to $9.40 per unit for the Market RSUs granted during the year ended December 31, 2023. 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 $1.1 million for the year ended December 31, 2024.
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Results of Operations
Trends and Uncertainties
Our collaboration agreement with UT entitles us to receive a 10% royalty on net sales of Tyvaso DPI, subject to our sale of a 1% royalty on future net sales to a royalty purchaser (leaving us with a 9% royalty) in December 2023. 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.
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, 2024 and 2023
Revenues
The following table provides a comparison of the revenue categories for the years ended December 31, 2024 and 2023 (dollars in thousands):
| Year Ended December 31, | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Revenues | ||||||||||||||||
| Commercial product sales: | ||||||||||||||||
| Gross revenue from commercial product sales | $ | 136,127 | $ | 130,461 | $ | 5,666 | 4 | % | ||||||||
| Less: Wholesaler distribution fees, rebates and chargebacks, product returns and other discounts | 53,798 | 56,432 | $ | (2,634 | ) | (5 | %) | |||||||||
| Commercial product sales | $ | 82,329 | $ | 74,029 | $ | 8,300 | 11 | % | ||||||||
| Gross-to-net revenue adjustment percentage | 40 | % | 43 | % | ||||||||||||
| Collaborations and services | 100,840 | 52,954 | $ | 47,886 | 90 | % | ||||||||||
| Royalties | 102,335 | 71,979 | $ | 30,356 | 42 | % | ||||||||||
| Total revenues | $ | 285,504 | $ | 198,962 | $ | 86,542 | 43 | % |
Afrezza — Gross revenue from sales of Afrezza increased by $11.0 million, or 13%, for the year ended December 31, 2024 compared to the prior year. The increase was driven primarily by higher demand and price. The gross-to-net adjustment was 35% of gross revenue, or $34.9 million, for the year ended December 31, 2024 compared to 38% of gross revenue, or $33.0 million, for the prior year. The improved gross-to-net percentage was primarily attributable to a decrease in anticipated product returns (as a percentage of gross sales). As a result, net revenue from sales of Afrezza increased by $9.1 million, or 17%, for the year ended December 31, 2024 compared to the prior year.
V-Go — Gross revenue from sales of V-Go decreased by $5.3 million, or 13%, for the year ended December 31, 2024 compared to the prior year and was primarily a result of lower demand partially offset by increased price. The gross-to-net adjustment was 51% of gross revenue, or $18.9 million, for the year ended December 31, 2024 compared to 55% of gross revenue, or $23.4 million, for the prior year. The improved gross-to-net percentage was mainly attributable to a decrease in rebates. As a result, net revenue from sales of V-Go decreased by $0.8 million, or 4%, for the year ended December 31, 2024 compared to the prior year.
Collaborations and Services — Net revenue from collaborations and services increased by $47.9 million, or 90%, for the year ended December 31, 2024 compared to the prior year. The increase in revenue was primarily attributable to increased manufacturing volume for product sold to UT. Royalty revenue from UT increased by $30.4 million, or 42%, for the year ended December 31, 2024 compared to the prior year due to UT's increase in net revenue from sales of Tyvaso DPI due to higher patient demand.
See Note 11 – Collaborations, 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, 2024 and 2023
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(dollars in thousands):
| Year Ended December 31, | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Commercial product gross profit: | ||||||||||||||||
| Commercial product sales | $ | 82,329 | $ | 74,029 | $ | 8,300 | 11 | % | ||||||||
| Less: Cost of goods sold | 17,429 | 20,863 | $ | (3,434 | ) | (16 | %) | |||||||||
| Commercial product gross profit: | $ | 64,900 | $ | 53,166 | $ | 11,734 | 22 | % | ||||||||
| Gross margin | 79 | % | 72 | % |
Commercial product gross profit increased by $11.7 million, or 22%, for the year ended December 31, 2024 compared to the prior year. The increase in gross profit and gross margin was primarily attributable to an increase in Afrezza net revenue, improved gross-to-net adjustments related to V-Go rebates and decreased cost of goods sold as a result of reduced sales of V-Go and efficiencies gained from increased production volumes of all products manufactured at our Danbury facility.
Expenses
The following table provides a comparison of the expense categories for the years ended December 31, 2024 and 2023 (dollars in thousands):
| Year Ended December 31, | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Expenses: | ||||||||||||||||
| Cost of goods sold | $ | 17,429 | $ | 20,863 | $ | (3,434 | ) | (16 | %) | |||||||
| Cost of revenue – collaborations and services | 59,173 | 41,908 | $ | 17,265 | 41 | % | ||||||||||
| Research and development | 45,893 | 31,283 | $ | 14,610 | 47 | % | ||||||||||
| Selling, general and administrative | 94,329 | 94,314 | $ | 15 | 0 | % | ||||||||||
| (Gain) loss on foreign currency transaction | (3,907 | ) | 1,916 | $ | (5,823 | ) | * | |||||||||
| Total expenses | $ | 212,917 | $ | 190,284 | $ | 22,633 | 12 | % |
_________________________
* Not meaningful
Cost of revenue — collaborations and services increased by $17.3 million, or 41%, for the year ended December 31, 2024 compared to the prior year primarily as a result of increased manufacturing volume of Tyvaso DPI.
Research and development expenses increased by $14.6 million, or 47%, for the year ended December 31, 2024 compared to the prior year. The increase was primarily attributable to increased expenditures for development activities, including a Phase 3 clinical study of MNKD-101 and a Phase 1 clinical study of MNKD-201, and personnel costs primarily due to increased headcount as a result of the Pulmatrix Transaction.
Selling, general and administrative expenses for the year ended December 31, 2024 remained consistent compared to the prior year. This was primarily attributable to a loss of $1.4 million for estimated returns associated with sales of V-Go that pre-date our acquisition of the product and increases in personnel costs, professional fees and promotional activities, offset by a decrease in selling expenses related to sales force restructuring activities completed during the first quarter of 2024.
Gain on foreign currency transaction was $3.9 million for the year ended December 31, 2024 compared to a loss of $1.9 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 fluctuations in the Euro to U.S. dollar 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, 2024 and 2023 (dollars in thousands):
| Year Ended December 31, | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Interest income, net | $ | 12,615 | $ | 6,154 | $ | 6,461 | 105 | % | ||||||||
| Interest expense on liability for sale of future royalties | (16,172 | ) | (185 | ) | $ | (15,987 | ) | * | ||||||||
| Interest expense on financing liability | (9,828 | ) | (9,825 | ) | $ | 3 | 0 | % | ||||||||
| Interest expense | (11,981 | ) | (15,151 | ) | $ | (3,170 | ) | (21 | %) | |||||||
| Gain on bargain purchase | 5,259 | — | $ | 5,259 | * | |||||||||||
| Other income | 32 | 122 | $ | (90 | ) | (74 | %) | |||||||||
| Loss on settlement of debt | (20,444 | ) | — | $ | (20,444 | ) | * | |||||||||
| Loss on available-for-sale securities | (1,550 | ) | (170 | ) | $ | (1,380 | ) | * | ||||||||
| Total other expense | $ | (42,069 | ) | $ | (19,055 | ) | $ | 23,014 | 121 | % |
_________________________
* Not meaningful
Interest income, net, consisting of interest and accretion on investments net of amortization, increased by $6.5 million compared to the prior year primarily due to an increase in the underlying investments from the proceeds of the sale of 1% of our Tyvaso DPI royalties in December 2023 and higher yields on our securities portfolio.
Interest expense on liability for sale of future royalties was $16.2 million and $0.2 million for the years ended December 31, 2024 and 2023, respectively, and was attributable to imputed interest and amortization of debt issuance costs on the liability recorded in connection with the sale of 1% of our Tyvaso DPI royalties in December 2023. See Note 16 – Commitments and Contingencies.
Interest expense on financing liability was $9.8 million for each of the years ended December 31, 2024 and 2023, and represented interest incurred on the sale lease-back transaction for our manufacturing facility in Danbury, CT.
Interest expense decreased by $3.2 million for the year ended December 31, 2024 compared to the prior year. The decrease was primarily due to repayment of the MidCap credit facility and Mann Group convertible note in April 2024. See Note 10 – Borrowings.
Gain on bargain purchase of $5.3 million for the year ended December 31, 2024 was the result of the excess of net assets acquired over consideration paid in the Pulmatrix Transaction. See Note 3 – Pulmatrix Transaction.
Loss on settlement of debt includes repayment of a portion of the senior convertible notes pursuant to private exchange agreements with certain note holders in December 2024, resulting in an inducement expense of $13.4 million. Additionally, in April 2024, a loss on early extinguishment of debt of $7.0 million was incurred for the year ended December 31, 2024 in connection with the repayment of the MidCap credit facility and Mann Group convertible note. See Note 10 – Borrowings.
Loss on available-for-sale securities for the year ended December 31, 2024 was $1.6 million as a result of modification of the Thirona investment. Loss on available-for-sale securities for the year ended December 31, 2023 was $0.2 million as a result of the change in the fair value of the investment that related to credit risk.
Non-GAAP Measures
To supplement our consolidated financial statements presented under GAAP, we are presenting 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
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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 for net income (loss) and net income (loss) per share ("EPS") for basic weighted average shares as reported in our consolidated statement of operations to a non-GAAP presentation:
| Year Ended December 31, | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | |||||||||||||||||||||
| Net Income | Basic EPS | Net Loss | Basic EPS | Net Loss | Basic EPS | ||||||||||||||||||
| (In thousands except per share data) | |||||||||||||||||||||||
| GAAP reported net income (loss) | $ | 27,588 | $ | 0.10 | $ | (11,938 | ) | $ | (0.04 | ) | $ | (87,400 | ) | $ | (0.34 | ) | |||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Sold portion of royalty revenue (1) | (10,234 | ) | (0.04 | ) | (2,103 | ) | (0.01 | ) | — | — | |||||||||||||
| Interest expense on liability for sale of future royalties | 16,172 | 0.06 | 185 | — | — | — | |||||||||||||||||
| Stock compensation | 21,358 | 0.08 | 17,649 | 0.07 | 13,447 | 0.05 | |||||||||||||||||
| (Gain) loss on foreign currency transaction | (3,907 | ) | (0.01 | ) | 1,916 | 0.01 | (4,811 | ) | (0.02 | ) | |||||||||||||
| Gain on bargain purchase | (5,259 | ) | (0.02 | ) | — | — | — | — | |||||||||||||||
| Loss on settlement of debt | 20,444 | 0.07 | — | — | — | — | |||||||||||||||||
| Loss on available-for-sale securities | 1,550 | 0.01 | 170 | — | 932 | — | |||||||||||||||||
| Non-GAAP adjusted net income (loss) | $ | 67,712 | $ | 0.25 | $ | 5,879 | $ | 0.03 | $ | (77,832 | ) | $ | (0.31 | ) | |||||||||
| Weighted average shares used to compute net income (loss) per share – basic | 274,415 | 267,014 | 257,092 |
_________________________
(1)
Represents the non-cash portion of the 1% royalty on net sales of Tyvaso DPI earned during the year ended December 31, 2024 and 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 year ended December 31, 2024 and fourth quarter of 2023 totaled $102.3 million and $21.0 million, respectively, of which $10.2 million and $2.1 million, respectively, is 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 selling, general and administrative expenses, and principal and interest payments on our financing liability and debt.
Historically, 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 proceeds from the sale of certain assets and the sale of a portion of our future royalties that we receive from UT. More recently, sales of Afrezza and V-Go, and royalties and manufacturing revenue from UT, have become a more significant source of funding for our operations. In combination with our cash, cash equivalents and investments on hand, we believe that these sources of revenue, as well as the potential financing sources currently available to us, will allow us to meet our liquidity needs over the next 12 months and in the longer term.
We believe we will be able to meet our liquidity needs over the next 12 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, 2024 associated with contractual commitments for future periods (in thousands, except footnotes):
| 2025 | 2026 - 2027 | 2028 - 2029 | Thereafter | Total | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Financing liability(1) | $ | 10,269 | $ | 21,382 | $ | 22,684 | $ | 165,769 | $ | 220,104 | |||||||||
| Senior convertible notes(2) | 908 | 36,773 | — | — | 37,681 | ||||||||||||||
| Insulin purchase agreement(3) | — | 10,470 | 12,147 | 34,554 | 57,171 | ||||||||||||||
| Insulin purchase capacity fees(3) | 1,554 | 3,108 | 2,072 | 3,108 | 9,842 | ||||||||||||||
| Bedford, MA facility operating lease(4) | 1,328 | 2,770 | 2,930 | 6,236 | 13,264 | ||||||||||||||
| Total material cash requirements | $ | 14,059 | $ | 74,503 | $ | 39,833 | $ | 209,667 | $ | 338,062 |
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(1)
$106.4 million principal amount of indebtedness under the Sale-Leaseback Transaction, plus $113.7 million of imputed interest. 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
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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 9.0%
(2)
$36.3 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.
(3)
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.
(4)
$13.3 million remaining lease payments under an operating lease of a building located in Bedford, Massachusetts (the "Bedford Lease"). In July 2024, the Company assumed the Bedford Lease in connection with the Pulmatrix Transaction. The monthly base rent payments of $101,282 are subject to 3% annual increases, plus the estimated cost of maintaining the property and common areas by the landlord. The Company also assumed from Pulmatrix a $0.7 million obligation to repay landlord-funded tenant improvements at a rate of $6,000 per month through the end of the lease term in November 2033. The Company has the right to extend the lease term for an additional five-year term. Interest expense is calculated using an incremental borrowing rate of approximately 7.3%.
To date, we have been able to timely make our required interest payments on our indebtedness. 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 an adverse effect on our business, results of operations and financial condition. We may from time to time seek to retire or purchase our outstanding debt, including the remaining 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, $50.0 million of which remain payable as of December 31, 2024. See Note 9 – Accrued Expenses and Other Current Liabilities 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 CF 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 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, 2024. The foregoing registration statement expired on February 24, 2025. On February 27, 2025, we and Cantor Fitzgerald amended and restated the CF Sales Agreement.
During the year ended December 31, 2024, we generated $42.5 million of cash from our operating activities, which consisted primarily of $261.2 million in cash receipts from customers (net of approximately $14.1 million of non-cash collaborations and services revenue which was previously deferred, $10.2 million of non-cash revenue for the 1% sold portion of our royalties and $1.1 million in milestone revenue for which we had not received payment as of December 31, 2024), partially offset by $81.1 million of selling, general and administrative expenses, $78.7 million of cost of goods sold, $42.1 million of research and development and $14.2 million of net cash paid for interest.
During the year ended December 31, 2023, we generated $34.1 million of cash from our operating activities, which consisted primarily of $241.3 million in cash receipts from customers (net of approximately $40.0 million of non-cash collaborations and services revenue which was previously deferred), partially offset by $84.1 million of cost of goods sold, $80.1 million of selling, general and administrative expenses, $28.1 million of research and development and $18.3 million of net cash paid for interest.
Cash used in investing activities of $96.6 million for the year ended December 31, 2024 was primarily due to the purchase of $273.8 million of held-to-maturity securities, $9.7 million of property and equipment and $7.0 of available-for-sale securities, partially offset by the maturity of $135.3 million of held-to-maturity debt securities and $58.1 million of available-for-sale securities.
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Cash used in investing activities of $2.0 million for the year ended December 31, 2023 was primarily due to the purchase of $79.1 million of held-to-maturity securities and $42.4 million of property and equipment, partially offset by the maturity of $119.2 million of held-to-maturity securities.
Cash used in financing activities of $137.3 million for the year ended December 31, 2024 was primarily due to principal and early extinguishment payments on the senior convertible notes of $87.7 million, MidCap credit facility of $36.6 million, and Mann Group convertible note of $8.9 million and $6.1 million of payments to taxing authorities from equity withheld upon vesting of RSUs and stock options, partially offset by $3.1 million in proceeds from the market price stock purchase plan ("MPSPP") and ESPP.
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.
Future Liquidity Needs
Although we have not generated net income or cash flows from operating activities on a consistent basis, 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. 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, 2024, we had cash, cash equivalents and investments of $202.7 million, which was comprised of capital resources of $46.3 million in cash and cash equivalents, $150.9 million in short-term investments and $5.5 million in long-term investments, and total principal amount of outstanding borrowings of $36.3 million.
We believe our resources will be sufficient to fund our operations for the next 12 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, 2024.