MannKind Corporation
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2006
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission file number:
000-50865
MannKind Corporation
(Exact name of registrant as
specified in its charter)
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Delaware
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13-3607736
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification No.)
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28903 North Avenue
Paine
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91355
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Valencia, California
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(Zip Code)
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(Address of principal executive
offices)
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Registrants telephone number, including area code
(661) 775-5300
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, par value $0.01 per share
(Title of class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer or a non-accelerated
filer. See definition of accelerated filer and
large accelerated filer in
Rule 12b-2
of the Act. (Check one):
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
As of June 30, 2006, the aggregate market value of the
voting stock held by non-affiliates of the registrant, computed
by reference to the last sale price of such stock as of such
date on the Nasdaq Global Market, was approximately $538,945,000.
As of March 8, 2007, there were 73,402,052 shares of
the registrants Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrants definitive Proxy Statement for
the 2006 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission pursuant to
Regulation 14A not later than 120 days after the end
of the fiscal year covered by this
Form 10-K,
are incorporated by reference in Part III,
Items 10-14
of this
Form 10-K.
MANNKIND
CORPORATION
Annual Report on
Form 10-K
For the Fiscal Year Ended December 31, 2006
TABLE OF CONTENTS
2
Forward-Looking
Statements
Statements in this report that are not strictly historical in
nature are forward-looking statements. These statements include,
but are not limited to, statements about: the progress or
success of our research, development and clinical programs, the
timing of completion of enrollment in our clinical trials, the
timing of the interim analyses and the timing or success of the
commercialization of our Technosphere Insulin System, or any
other products or therapies that we may develop; our ability to
market, commercialize and achieve market acceptance for our
Technosphere Insulin System, or any other products or therapies
that we may develop; our ability to protect our intellectual
property and operate our business without infringing upon the
intellectual property rights of others; our estimates for future
performance; our estimates regarding anticipated operating
losses, future revenues, capital requirements and our needs for
additional financing; and scientific studies and the conclusions
we draw from them. In some cases, you can identify
forward-looking statements by terms such as
anticipates, believes,
could, estimates, expects,
goal, intends, may,
plans, potential, predicts,
projects, should, will,
would, and similar expressions intended to identify
forward-looking statements. These statements are only
predictions or conclusions based on current information and
expectations and involve a number of risks and uncertainties.
The underlying information and expectations are likely to change
over time. Actual events or results may differ materially from
those projected in the forward-looking statements due to various
factors, including, but not limited to, those set forth under
the caption Risks and Uncertainties That May Affect
Results and elsewhere in this report. Except as required
by law, we undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise.
Technosphere®
and
MedTone®
are our registered trademarks in the United States. We have also
applied for or registered company trademarks in other
jurisdictions, including Europe and Japan. This document also
contains trademarks and service marks of other companies that
are the property of their respective owners.
PART I
Unless the context requires otherwise, the words
MannKind, we, company,
us and our refer to MannKind Corporation
and its subsidiary.
OVERVIEW
MannKind Corporation is a biopharmaceutical company focused on
the discovery, development and commercialization of therapeutic
products for diseases such as diabetes and cancer. Our lead
investigational product candidate, the Technosphere Insulin
System, is currently in phase 3 clinical trials in the
United States, Europe and Latin America to study its safety and
efficacy in the treatment of diabetes. This dry powder therapy
consists of our proprietary Technosphere particles onto which
insulin molecules are loaded. These loaded particles are then
aerosolized and inhaled into the deep lung using our proprietary
MedTone inhaler. We believe that the performance
characteristics, unique kinetics, convenience and ease of use of
the Technosphere Insulin System may have the potential to change
the way diabetes is treated.
In particular, we have observed in our clinical trials to date
that the Technosphere Insulin System produces a profile of
insulin levels in the bloodstream that approximates the insulin
profile normally seen in healthy individuals immediately
following the beginning of a meal, but which is absent in
patients with diabetes. Specifically, Technosphere Insulin is
rapidly absorbed into the bloodstream following inhalation,
reaching peak levels within 12 to 14 minutes. As a
result of this rapid onset of action, most of the
glucose-lowering activity of Technosphere Insulin occurs within
the first three hours of administration which is
generally when glucose becomes available from a meal
instead of the much longer duration of action observed when
insulin is injected subcutaneously. We believe that the
relatively short duration of action of Technosphere Insulin
reduces the need for patients to snack between meals in order to
manage ongoing blood glucose excursions. In our clinical trials,
we have observed that patients using the Technosphere Insulin
System have achieved significant reductions in post-meal glucose
excursions and significant improvements in overall glucose
control, as measured by decreases in glycosylated hemoglobin, or
HbA1c, levels, without the weight gain typically associated with
insulin therapy.
3
In our clinical trials to date, we have observed no difference
in pulmonary function between patients treated with Technosphere
Insulin and patients treated with standard diabetes care.
However, the longest study that we have completed so far is a
six-month trial. In September 2006, we completed patient
enrollment in a pivotal, two-year, Phase 3 safety study of
the Technosphere Insulin System that will compare the pulmonary
function of diabetes patients randomized to either Technosphere
Insulin or standard diabetes care. We are continuing to enroll
patients in three other major Phase 3 clinical trials, two
of which are pivotal efficacy trials. Based on our discussions
with the Food and Drug Administration, or FDA, we plan to
accumulate two years of controlled safety data before we file a
new drug application for the Technosphere Insulin System. We
anticipate that our entire clinical trial program, including
several special population studies, will involve more than
4,500 patients. Larger populations and longer durations of
exposure may be necessary depending on the safety profile of our
product.
Our Technosphere Insulin System utilizes our proprietary
Technosphere formulation technology, which is based on a class
of organic molecules that are designed to self-assemble into
small particles onto which drug molecules can be loaded. We are
developing additional Technosphere-based products for the
delivery of other drugs. In addition to these products, we are
developing therapies for the treatment of solid tumor cancers.
We initiated Phase 1 clinical trials of a therapeutic
cancer vaccine in January 2007.
We were incorporated in the State of Delaware in 1991. Our
principal executive offices are located at 28903 North Avenue
Paine, Valencia, California 91355, and our telephone number at
that address is
(661) 775-5300.
Our website address is http://www.mannkindcorp.com. Our filings
with the Securities and Exchange Commission, or SEC, including
our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and any amendments to those reports are available free of charge
through our website as soon as reasonably practicable after
being electronically filed with or furnished to the SEC.
OVERVIEW
OF DIABETES
Diabetes is a major disease characterized by the bodys
inability to properly regulate levels of blood glucose, or blood
sugar. The cells of the body use glucose as fuel, which is
consumed 24 hours a day. Between meals, when glucose is not
being supplied from food, the liver releases glucose into the
blood to sustain adequate levels. Insulin is a hormone produced
by the pancreas that regulates the bodys blood glucose
levels. Patients with diabetes develop abnormally high levels of
glucose, a state known as hyperglycemia, either because they
produce insufficient levels of insulin or because they fail to
respond adequately to insulin produced by the body. Over time,
poorly controlled levels of blood glucose can lead to major
complications, including high blood pressure, blindness,
amputations, kidney failure, heart attack, stroke and death.
According to the United States Centers for Disease Control, or
CDC, approximately 20.8 million people in the United
States, or 7% of the population, suffered from diabetes as of
2005. The CDC estimated that 14.6 million cases of diabetes
were diagnosed and under treatment and that 1.5 million new
cases would be diagnosed in 2005. More troubling is the fact
that the incidence of diabetes is increasing. A study published
by Diabetes Care in 2006 projected that in 2050 there
would be 48.3 million people with diagnosed diabetes in the
United States. Diabetes extracts a heavy toll from those who
suffer from it. The CDC reported that diabetes was the sixth
leading cause of death listed on death certificates in 2002, but
that diabetes was likely to be underreported as a cause of
death. Overall, the CDC found that the risk of death among
people with diabetes is about twice that of people without
diabetes of similar age. The economic costs of diabetes are high
as well. The American Diabetes Association estimated that, in
2002, the total cost of diabetes in the United States was
$132 billion. This amount includes $12 billion of
direct costs for drug treatment for glucose control, of which
approximately $7 billion were for insulin and delivery
supplies and approximately $5 billion were for non-insulin
oral medications.
There are two major forms of diabetes, type 1 and type 2. Type 1
diabetes is an autoimmune disease characterized by a complete
lack of insulin secretion by the pancreas, so insulin must be
supplied from outside the body in order to sustain life. In type
2 diabetes, the pancreas continues to produce insulin; however,
insulin-dependent cells become resistant toward the insulin
effect. Over time, the pancreas becomes increasingly unable to
secrete adequate amounts of insulin to support metabolism.
According to the CDC, type 2 diabetes is the more prevalent form
of the disease, affecting approximately 90% to 95% of people
diagnosed with diabetes.
4
Challenges
of treating type 2 diabetes
Typically, the treatment of type 2 diabetes starts with
management of diet and exercise and progresses to treatment with
various oral medications and then to treatment with insulin.
Treatment with diet and exercise alone is not an effective
long-term solution for most patients with type 2 diabetes. Oral
medications which act predominantly by increasing
the amount of insulin produced by the pancreas, by increasing
the sensitivity of insulin-dependent cells or by reducing the
glucose output of the liver generally have
significant adverse effects and are limited in their ability to
manage the disease effectively.
Insulin therapy usually involves administering several
subcutaneous needle injections of insulin each day. Although
this treatment regimen is accepted as an effective means to
control glucose levels, it has limitations, including:
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the need for injections;
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the risk of severe hypoglycemia, abnormally low levels of blood
glucose that result from excessive insulin administration.
Hypoglycemia can result in loss of mental acuity, confusion,
increased heart rate, hunger, sweating and faintness and, at
very low glucose levels, loss of consciousness, seizures, coma
and death.
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the need for complex titration of insulin doses in connection
with meals;
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inadequate post-meal glucose control;
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the need for frequent glucose monitoring with finger
pricks; and
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the likelihood of weight gain.
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Particularly because of the dislike of injections and finger
pricks, patients tend not to comply adequately with the
prescribed treatment regimens and are often improperly
medicated. Moreover, even when properly administered,
subcutaneous injections of insulin do not replicate the natural
time-action profile of insulin. In a person without diabetes,
blood insulin levels rise within several minutes of the entry
into the bloodstream of glucose from a meal. By contrast,
injected insulin enters the bloodstream slowly, resulting in
peak insulin levels in about 120 to 180 minutes for regular
human insulin or
30-90
minutes for rapid-acting insulin analogs. The
consequence is for patients with diabetes to have inadequate
levels of insulin present at the initiation of a meal and to be
over-insulinized between meals. This lag in insulin delivery
results in hyperglycemia early after meal onset, followed by a
tendency for hypoglycemia to develop during the period between
meals. Physicians who treat patients with diabetes are concerned
about the risks of hypoglycemia and, as a result, tend to
undertreat the chronic hyperglycemia that is associated with the
disease. However, the resultant extensive hyperglycemia
significantly contributes to many of the long-term
cardiovascular and other serious complications of diabetes.
There are two components to the hyperglycemia concern. The first
component is related to the duration and magnitude of the
chronic sustained hyperglycemia associated with poorly
controlled diabetes. This component is assessed by measuring
HbA1c levels, which are a measure of the average blood glucose
levels over the preceding three or four months. HbA1c levels are
an indication of overall glucose control, and an important goal
of all diabetes therapies is to lower HbA1c levels. The second
component of hyperglycemia relates to the extent of acute
glucose fluctuations above and below the average level. These
fluctuations occur in response to meals and can be managed by
diabetes medications, including insulin. In a clinical setting,
this component is assessed by determining the mean amplitude of
glucose excursions that occur following the ingestion of a meal.
There is evidence that acute glucose fluctuations may be the
more significant factor contributing to the cardiovascular
complications of diabetes, which are thought to stem from the
activation of a mechanism known as oxidative stress that causes
cellular damage. A recent study of patients with type 2 diabetes
reported in the Journal of the American Medical Association
in April 2006 found that the urinary levels of a marker for
oxidative stress were significantly correlated with the mean
amplitude of glucose excursions during the post-meal period.
This study concluded that acute glucose fluctuations may trigger
oxidative stress, suggesting that doctors and patients should
emphasize the management of acute glucose fluctuations as well
as the goal of lowering HbA1c levels.
The results of a long-term study support the view that
controlling acute glucose fluctuations contributes to a reduced
risk for the cardiovascular complications of diabetes. In the
Diabetes Control and Complications Trial
5
(DCCT) conducted by the National Institutes of Health, a group
of patients treated using conventional insulin therapy (1-2
insulin injections per day along with daily urine glucose tests)
was compared to a group treated using intensive insulin therapy
(either an insulin pump or at least 3 insulin injections and at
least 4 blood glucose tests per day). In total,
1,441 patients were followed for an average of
6.5 years each. Intensive insulin therapy produced a
significant reduction in HbA1c levels compared to conventional
insulin therapy; the difference between treatment groups
remained evident for the duration of the study. Moreover, the
patients who had been intensively treated also showed
significant decreases in risk for kidney and eye damage compared
to the conventional treatment group. When these results were
reported, the DCCT was discontinued; however, a group of 1,375
of these subjects (half from each of the original treatment
groups) was subsequently followed in the Epidemiology of
Diabetes Interventions and Complications (EDIC) study. After
seven years in the EDIC study, the HbA1c levels of the former
conventional therapy group did not differ from the HbA1c levels
of the former intensive treatment group the HbA1c
levels of the former conventional therapy group had improved
from the DCCT while those of the former intensive group had
declined. However, the former conventional therapy group
continued to show an elevated risk of kidney and eye damage
compared to the former intensive therapy group, according a
report published in the Journal of the American Medical
Association in May 2002. These findings led to the
conclusion that intensive insulin therapy which
would be expected to reduce acute glucose
fluctuations can be beneficial for patients with
diabetes, even years after the therapy has been less
intensified. However, the EDIC also demonstrates how intensive
insulin therapy is difficult for many patients to implement in a
home setting.
Even if intensive insulin therapy is implemented, the available
insulin products are not able to enter the bloodstream fast
enough to replicate the tight coupling between changes in blood
glucose levels and the release of insulin by the pancreas that
is seen in healthy individuals without diabetes. The early
insulin response following glucose ingestion is an important
part of maintaining control over glucose levels during the
post-meal period. It is thought that the early surge of insulin
levels shuts off glucose production by the liver, which
otherwise would continue to release glucose into the bloodstream
at the same time that glucose is being absorbed from the meal.
This avoids hyperglycemia during mealtime and prevents the
pancreas from having to secrete an excessive amount of insulin
during the period between meals. Patients with diabetes,
however, have little or no ability to secrete insulin rapidly in
response to the onset of a meal. Without an adequate means to
deliver insulin to the bloodstream rapidly enough to approximate
the early insulin secretion seen in healthy individuals
following a meal, patients with diabetes end up experiencing an
endless series of glucose fluctuations, triggered by the meals
and the sluggish insulin they take to control meal-time glucose.
This shortcoming is a significant obstacle to the effectiveness
of currently available insulin therapy for the treatment of
diabetes.
THE
MANNKIND SOLUTION
Addresses
a core defect in diabetes in a manner unlike any other insulin
therapy
In our clinical studies to date, we have consistently observed
that the Technosphere Insulin System produces a profile of
insulin levels in the bloodstream that approximates the early
insulin secretion normally seen in healthy individuals
immediately following the beginning of a meal.
6
This performance characteristic distinguishes the Technosphere
Insulin System from other insulin therapies. A 2004 review
article in the British Journal of Diabetes and Vascular
Diseases surveyed the data published on pulmonary insulin
products in development and compared their glucose-lowering
activity to that of injectable rapid-acting insulin analogs. The
graph below from this article shows that most pulmonary insulin
formulations have comparable time-action profiles to injectable
rapid-acting insulin. The one exception was the Technosphere
Insulin System, which has been observed to have a much more
rapid onset of action than the other insulin therapies reviewed.
Time-action profiles
of inhaled insulin systems
compared
to a rapid-acting insulin analog
We believe the rapid action of Technosphere Insulin may be
related to the unique aspects of both the carrier molecule as
well as the way insulin is stabilized in our formulation. Our
Technosphere formulation technology is centered on a class of
pH-sensitive organic molecules that self-assemble into small
particles under mildly acidic conditions. Certain drugs, such as
insulin, can be loaded onto these particles by combining a
mildly acidic solution of the drug with a suspension of
Technosphere material, which is then dried to a powder. This
powder is then filled into plastic cartridges and packaged. To
administer Technosphere Insulin, a patient loads a cartridge
into our palm-sized inhaler. By inhaling through the inhaler,
air is pulled through the cartridge, which aerosolizes the
powder and pulls the particles into the air current and out
through the mouthpiece. The individual particles within this
aerosol are small and have aerodynamic properties that enable
them to fly deep into the lungs. When the particles contact the
moist lung surface with its neutral pH, the Technosphere
particles dissolve immediately, releasing the insulin molecules
to diffuse across a thin layer of cells into the bloodstream. We
believe that the insulin absorption step is a passive process
that occurs without any active assistance or enhancement and
without disruption of either cell membranes or the tight
junctions between cells.
Significantly, when the Technosphere particles dissociate, we
believe that the insulin that is released is in a form that can
be readily used by the body. In most pharmaceutical dosage
forms, regular human insulin exists as a hexamer, a complex of
six associated insulin molecules. In order to exert a
pharmacological effect, the hexamer must first dissociate into
three dimers complexes of two insulin
molecules which then further dissociate into
individual insulin molecules, or monomers. Only monomeric
insulin can attach to the insulin receptor and exert a
physiological effect. Rapid-acting insulin analogs are designed
to be fragile hexamers that dissociate more quickly, thereby
reducing the time required to achieve an effect but this is
still far slower than insulin that is released from a healthy
pancreas. However, the insulin released from Technosphere
particles is already largely in monomeric form. During the
manufacture of Technosphere Insulin, we cause hexameric insulin
to dissociate into monomeric insulin before being loaded onto
Technosphere particles. When Technosphere Insulin particles
dissolve in the deep lung, the insulin that is released diffuses
across a thin layer of cells to reach the bloodstream. Little
change is required before the insulin can start exerting its
glucose-lowering effect.
7
By virtue of these properties, the Technosphere Insulin System
is able to produce a rapid elevation in insulin levels that
peaks within 12 to 14 minutes of inhalation. This time-action
profile approximates the insulin profile normally seen in
healthy individuals immediately following the beginning of a
meal, but which is absent in patients with diabetes. The figure
below illustrates the normal insulin response in more detail.
The top panel of the figure below, from a study published in
Diabetes in May 2004, illustrates the normal insulin
response measured in 17 healthy subjects in response to a
standardized meal. Note that the insulin levels rise quickly in
response to the glucose stimulus from the meal.
Post-meal insulin
levels in healthy subjects
Post-meal insulin
levels with Technosphere
Insulin
in patients with type 2 diabetes
For comparison purposes, the lower panel of this figure shows
the average insulin response observed in 16 patients with
type 2 diabetes who inhaled a dose of Technosphere Insulin prior
to eating a standardized meal (Study 003B). This comparison
illustrates the degree to which our Technosphere Insulin System
approximates the insulin profile of healthy individuals
following meal onset.
For this reason, we currently believe that Technosphere Insulin
has the potential to address insulin deficiency in diabetes in a
manner unlike any other insulin therapy. We further believe that
our ability to produce a better approximation of normal insulin
physiology translates into better chronic and acute glucose
control, thereby giving our investigational product potential
clinical and commercial advantages.
8
More
natural insulin profile translates to better glucose
control
In our Phase 2 studies involving patients with type 2
diabetes, we observed that within a few weeks of treatment the
Technosphere Insulin System lowered HbA1c levels and
substantially reduced glucose fluctuations after a meal. For
example, in Study 003B, we compared the effect of mealtime doses
of Technosphere Insulin on blood glucose levels to the effect of
mealtime doses of subcutaneous insulin. This study employed a
cross-over design, so that patients were treated with either
Technosphere Insulin or subcutaneous injections of insulin at
mealtimes for approximately one week and then, after a washout
period, were treated with the other treatment for a further
week. At the end of each treatment period, patients were
administered a standardized meal and their blood insulin and
glucose levels were monitored for a
four-hour
period.
The graphs below show mean blood levels of insulin and glucose
following administration of the meal to patients at the end of
each treatment period. The panel on the left shows the
characteristically rapid appearance of insulin in the
bloodstream when Technosphere Insulin is inhaled as compared to
the much slower increase following the subcutaneous injection of
insulin. The panel on the right shows the corresponding
post-meal excursions, or changes from baseline, of glucose
absorbed from the meal following administration of either
Technosphere Insulin or subcutaneous insulin. These data show
that Technosphere Insulin was able to limit the excursion of
blood glucose during the post-meal period in patients in this
trial to a greater extent than insulin administered
subcutaneously.
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Post-meal
insulin levels
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Post-meal
glucose excursions
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We quantified the total exposure to insulin and the excursion of
blood glucose levels by calculating the areas under the mean
insulin and glucose curves, respectively. The results of this
analysis are presented in the bar graph below. The bars on the
left show that the areas under the insulin curve were virtually
identical, indicating that patients in this trial received the
same total exposure to insulin over four hours, whether from
Technosphere Insulin or subcutaneous insulin. However, as shown
by the bars on the right, when these patients inhaled
Technosphere Insulin, there was a significant decrease in total
blood glucose excursions after a meal. Across all these
patients, the mean total excursion of post-meal glucose levels
following administration of Technosphere Insulin was 48% less
than the mean excursion observed following administration of
subcutaneous insulin.
9
Post-meal insulin
levels and glucose excursions
In subsequent trials, we studied the longer-term effects of
meal-time Technosphere Insulin on blood glucose levels in
patients with type 2 diabetes. In Studies 008 and 005, we
observed that the use of Technosphere Insulin produced a
statistically significant, dose-dependent reduction in HbA1c
levels over an 8 to 12 week period compared to meal-time
placebo. Patients in these studies received basal insulin or
oral medications as background treatment. In more recent
studies, we compared the effect of Technosphere Insulin on HbA1c
levels to that of a rapid-acting analog. In Study 101, a
three-month, Phase 2 study of 110 patients with type 1
diabetes, the significant HbA1c reductions were similar to the
reductions achieved using
Novolog®,
a rapid acting insulin analog. Similarly, in study 014, a
six-month Phase 3 study of 308 patients with type 2
diabetes, both patient groups achieved similar and statistically
significant improvements in HbA1c levels.
As described earlier, acute glucose fluctuations are becoming
recognized as an important factor underlying the cardiovascular
complications of diabetes. In Study 101, we measured blood
glucose in response to insulin administration at the beginning
of the standardized meal. The graph below shows that in the
group that received the rapid-acting insulin analog, there was a
sharp rise in blood glucose immediately after the meal, followed
by a gradual decline, reaching baseline in about four hours. In
the group that received Technosphere Insulin, there was a short
dip in blood glucose immediately after the dose; subsequent
glucose fluctuation were considerably lower than with the
rapid-acting insulin analog.
Post-meal glucose
levels after standard
meal
in patients with type 1 diabetes
10
In Studies 014 and 101, there was a statistically significant
difference in the weight change over the treatment period
between the groups that received the rapid-acting insulin analog
and the groups that received Technosphere Insulin. The graph
below illustrates the weight changes from baseline in these two
studies.
Weight Change
This graph shows how patients that received Technosphere Insulin
experienced weight loss while the group that received a
rapid-acting analog experienced weight gains. At the end of the
treatment period (12 weeks for Study 101;
24 weeks for Study 014), the mean weight difference
between groups was 1.0 kilograms (2.2 pounds) for Study 014 and
1.7 kilograms (3.7 pounds) for Study 101.
The observations of no weight gain, and even weight loss, in
patients using the Technosphere Insulin System to control their
blood glucose were initially surprising; however, we believe
these findings are a consequence of controlling blood glucose
levels after a meal more tightly than is possible with regular
or rapid-acting insulin. We believe that the synchronization of
Technosphere Insulin activity to meal digestion is the key to
understanding the weight data. Meal digestion is somewhat
variable, but lasts approximately three hours. The figure below,
taken from our clinical data, illustrates that over 80% of the
glucose-lowering activity of regular subcutaneous insulin is
exerted more than three hours after a meal. At this point,
patients run the risk of becoming hypoglycemic. We believe that
this situation encourages patients to eat snacks between meals,
contributing to the weight gain often associated with insulin
therapy. By contrast, approximately three-quarters of the action
of Technosphere Insulin occurs within the first three hours
after a meal. After this point, there is little insulin present
to cause hypoglycemia, thereby alleviating the need to snack. We
believe that this phenomenon may explain why we have seen no
therapy-related weight gain in our clinical trials to date.
11
Glucose lowering
activity over time
Favorable
safety profile in clinical trials to date
To date, our clinical trials indicate that the Technosphere
Insulin has a favorable safety profile. In some patients, we
have observed mild coughing, usually limited to the period when
they are learning to use the inhaler. Other adverse events
reported in our clinical trials including backache,
common cold, pneumonia, anemia and diarrhea were
either found to be unrelated to the administration of
Technosphere Insulin or could not be conclusively linked to its
usage. We have frequently observed in our clinical trials that
the use of Technosphere Insulin is associated with significantly
fewer mild, moderate and severe hypoglycemic episodes compared
to the incidence observed when other insulin products are used.
In our first reported Phase 3 clinical trial, Study 014, we
found that significantly fewer patients in the Technosphere
Insulin group (56 of 150 patients) experienced mild or
moderate hypoglycemia compared to the rapid-acting insulin
analog group (83 of 158 patients) and there were no severe
hypoglycemic episodes.
Beginning with Studies 008 and 005, we have assessed the
pulmonary function of patients that received Technosphere
Insulin. In these studies, we found that there was no clinically
or statistically significant difference between the baseline
values and the final test results for Technosphere Insulin
patients. In Studies 101 and 014, we compared pulmonary function
in patients that received Technosphere Insulin to that of
patients that received injections of rapid-acting insulin
analog. At the end of the treatment period in each study, there
was no difference between measures of pulmonary function for the
two groups of patients, as measured by forced expiratory volume
or
FEV1
(the volume of air that can be forced out in one second) and
forced vital capacity or FVC (a measure of pulmonary capacity).
In Study 101, we also included measurements of DLco (the
diffusion capacity for carbon monoxide) and, again, we observed
no difference between the two groups of patients at the end of
the treatment period. In Study 014, patients were followed for
an additional six months after the treatment period ended. When
FEV1
and FVC measures were obtained after the withdrawal period, we
again saw no difference between the two groups.
Many of the patients from our phase 2 studies have been
enrolled in a long-term safety study (Study 010), which should
permit us to evaluate pulmonary function over a longer period of
time. In addition, we are conducting Study 030 a
two-year, pivotal, Phase 3 safety study that incorporates
two design strategies. The first component is a randomized,
open-label trial comparing pulmonary function in two groups of
patients with diabetes. One group of approximately
625 patients is being treated with Technosphere Insulin and
the other group of approximately 625 patients is being
treated with existing oral
and/or
injectable therapies. The second component is a comparison of
pulmonary function in the patients with diabetes who are not
treated with Technosphere Insulin to a group of
125 subjects without any abnormalities in glucose control.
Enrollment for this study began in June 2005 and was fully
enrolled in September 2006.
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We have an ongoing program of safety surveillance and adverse
event reporting for the purpose of evaluating the ongoing safety
data related to the use of our Technosphere Insulin System. Our
safety data are necessarily preliminary until we have completed
longer-term safety studies.
Convenient
and easy to use
To facilitate the delivery of Technosphere-formulated drugs to
the deep lung, we developed an inhaler that utilizes single-use,
disposable, plastic cartridges containing drug-loaded powder.
Our MedTone inhaler is light and easy to use, and fits in the
palm of the patients hand, which we believe facilitates
patient compliance. To administer a dose, the patient opens the
device, inserts a cartridge of Technosphere Insulin powder into
the inhaler, inserts the mouthpiece into the mouth and takes a
deep breath, thereby drawing the aerosolized particles deep into
the lungs. The inhaler incorporates an airflow regulator that is
designed to ensure a sufficient airflow from use to use, even in
patients with restricted airflow capacity. In addition, the
inhaler is breath actuated, which means that the patient does
not need to coordinate a breath with any manipulation of the
device, such as priming or pumping. In our clinical trials of
our Technosphere Insulin System, patients have reported a high
level of satisfaction with the MedTone inhaler.
We believe the ease of use of the MedTone inhaler complements
the time-action profile of the Technosphere Insulin powder to
produce a highly convenient system. Because insulin is
transferred to the bloodstream rapidly with our therapy, we
believe that the optimal and most convenient time for patients
to take a dose of Technosphere Insulin is right at the start of
a meal. In contrast, with subcutaneous regular insulin it is
recommended that the user try to time an injection 15 to 45
minutes before the expected mealtime, raising issues such as
miscalculation of time or unanticipated change in meal
availability, which could result in adverse events.
CLINICAL
DEVELOPMENT ACTIVITIES
The
Technosphere Insulin System
We are currently conducting a number of studies of the safety
and efficacy of the Technosphere Insulin System in addition to
the safety studies described above, we are conducting the
following efficacy trials during 2007:
Study
009
This pivotal Phase 3 study compares the efficacy of
mealtime use of Technosphere Insulin to mealtime use of
rapid-acting subcutaneous insulin in a population of
approximately 500 patients with type 1 diabetes for a
12-month
period. Efficacy will be evaluated on the basis of changes in
HbA1c levels as well as changes in blood glucose levels after a
standardized meal. We began enrolling patients in this study in
the first quarter of 2006.
Study
102
This pivotal Phase 3 study compares the efficacy of
mealtime use of Technosphere Insulin to the twice-daily use of
premixed insulin (a mixture of long- and short-acting insulin)
in a population of approximately 500 patients with type 2
diabetes for a
12-month
period. Efficacy will be evaluated on the basis of changes in
HbA1c levels as well as changes in blood glucose levels after a
standardized mixed meal. We began enrolling patients in this
study in the first quarter of 2006.
Study
103
This Phase 3 study evaluates the efficacy of Technosphere
Insulin alone and in combination with metformin, an oral
diabetes medication, in approximately 420 patients with
type 2 diabetes who are not achieving desired glucose control
with a combination of metformin and sulphonylurea, another oral
diabetes medication. Efficacy will be evaluated on the basis of
changes in HbA1c levels after 26 weeks of treatment as well
as changes in blood glucose levels after a standardized mixed
meal. This not a pivotal study; rather it is intended to support
label expansion. We began enrolling patients in this study in
the second quarter of 2006.
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Special
population studies
We have two ongoing studies: one examining the impact of asthma
and another examining the impact of chronic obstructive
pulmonary disease on the pharmacokinetics associated with
Technosphere Insulin. Other special population studies that are
planned include a trial that will examine the elimination of
Technosphere Insulin in patients with kidney disease and a trial
that will examine the effect of Technosphere Insulin in patients
with liver disease.
Cancer
immunotherapy program
We are also developing therapies for the treatment of solid
tumor cancers. The lead product candidate in this program,
MKC1106-PP, is intended for the treatment of several solid-tumor
cancers, including ovarian, colorectal, pancreatic, renal,
breast and prostate carcinomas and melanoma. We commenced an
open label Phase 1 clinical trial of MKC1106-PP in January
2007, which is designed to evaluate the safety, tolerability and
pharmacological response of this investigational drug in cancer
patients with a variety of tumor types.
Our cancer therapy program utilizes the bodys immune
system to help eradicate tumor cells. The immune system is a
network of cells and organs that defends the body against
infection and abnormal cells, such as tumor cells. A key element
of the immune system is its ability to distinguish between
healthy cells and foreign or diseased cells that do not belong
in the body. The immune system accomplishes this task by
recognizing distinctive molecules called epitopes on the surface
of each cell as either normal or abnormal, and responding to
them appropriately. Any substance capable of being recognized by
the immune system is known as an antigen. An antigen can be all
or part of a pathogenic organism or it can be a by-product of
diseased cells. Certain specialized cells of the immune system
(antigen-presenting cells or APC) sample antigens found in the
body and present the epitopes associated with foreign antigens
to other cells of the immune system, known as T-cells, whose
function is to destroy any cell that expresses the same epitope;
this process is known as cell-mediated immunity. In this way,
the immune system can launch a very specific response to
infection or disease.
Our approach uses DNA- and peptide-based compounds that
correspond to tumor-associated antigens that are expressed in a
range of solid-tumors. The target antigens selected are either
molecules with a role in disease progression or molecules that
are very selectively expressed by tumor cells. A patients
immune system is first primed by DNA-based
compounds, or plasmids, that are injected directly into the
patients lymph nodes. This is designed to sensitize the
immune system to the tumor-associated antigens encoded by the
plasmids. After a period of time, the patients lymph nodes
are then injected with synthetic peptides that are designed to
boost or greatly amplify the immune response to the
target antigens. The immune response is maintained by repeated
immunization cycles. This prime-boost regimen is designed to
provoke a potent cell-mediated immune response that destroys
cancer cells along with the underlying blood supply to tumors.
MKC1106-PP consists of three components: a plasmid that encodes
pharmacological active elements from two tumor-associated
antigens, known as PRAME and PSMA, and two synthetic peptides,
one an analog of a PRAME epitope and one an analog of a PSMA
epitope. PRAME is an acronym for preferentially expressed
antigen on melanomas and PSMA is an acronym for prostate
specific membrane antigen. In addition to melanoma, PRAME is
expressed in carcinomas such as lung, breast, ovarian, renal,
pancreatic and colorectal. PSMA was originally isolated from
prostate carcinoma cells and later shown to be expressed in the
blood vessels that supply several types of carcinoma, including
breast, lung, ovarian, pancreatic, renal and colorectal
carcinoma and melanoma.
We believe that our therapeutic approach addresses several
deficiencies inherent in earlier approaches to cancer
immunotherapy, including:
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Specificity. Instead of targeting the dominant
epitopes expressed by cancerous cells to which the immune system
is tolerant, we preferentially target cancer epitopes to which
the immune system has not developed a tolerance. Our approach is
to identify the non-tolerated epitopes on the cancer cell
surface and design plasmid and peptide analogs to activate an
immune response against such epitopes.
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Administration. In contrast to the
conventional subcutaneous or intramuscular route of
administration, our compounds are delivered directly into the
patients lymph nodes, sites rich in T-cells and APC. We
believe that this delivery method ensures that T-cells are
exposed to greater concentrations of antigen for a longer
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period of time than would occur after immunization by other
routes, since cells within lymph nodes are ultimately
responsible for the induction, amplification and regulation of
an immune response. In our preclinical studies, we have observed
that intra-lymph node injection was superior to other routes of
administration, producing a larger number of specific T-cells
for a variety of target antigens. In addition, because the
plasmid is rapidly degraded before it reaches the circulatory
system from the lymphatic system, we believe that intranodal
administration yields plasmid distribution and uptake that is
highly selective for the APC within lymph nodes, thereby
improving not only the efficacy but also the safety of DNA
plasmid vaccination.
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Potency and duration of response. Because
T-cell responses are transient and relatively limited, the
potential window to induce a therapeutic immune response is
narrow. Our studies indicate that the magnitude of the T-cell
response can be modulated by the duration and the protocol for
achieving antigen exposure. We found that the most robust T-cell
responses were obtained when exposure to antigen persisted in
the lymph node and when different immunization regimens
(prime-boost approaches) were used. Specifically, repeated
administration of the plasmid, followed by the peptides,
produced greater proliferation of specific T-cells against PRAME
and PSMA than did other immunization schedules. To maintain a
therapeutic response, it is anticipated that at least two
treatment cycles with MCK1006-PP will need to be administered in
human subjects with PRAME- and PSMA-expressing tumors. However,
subjects may remain in the clinical trial for up to six
treatment cycles as long as signs of tumor progression are not
exhibited.
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Composition. In contrast to other approaches
based on tumor cells, immune cells, tumor lysates or microbes,
our strategy encompasses
off-the-shelf,
synthetic molecules that are not infective and cannot
self-replicate. Both recombinant DNA and peptides can be easily
manufactured, characterized and formulated as sterile, stable
materials suitable for clinical use.
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OUR
STRATEGY
Our objective is to develop products primarily in the major
therapeutic areas of diabetes and cancer. Our strategy is to
achieve this objective by doing the following:
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Commercialize our Technosphere Insulin System for the
insulin-using diabetes market. We intend to
advance our Technosphere Insulin System through Phase 3
clinical trials and then into commercialization, with the goal
of first establishing a significant presence for Technosphere
Insulin in the insulin-using diabetes market. We believe that
the market for insulin products has the potential to expand with
the introduction of
Exubera®
and the continued promotion of insulin analogues. We believe the
advantages in terms of safety, efficacy and convenience of the
Technosphere Insulin System, as compared to other subcutaneous
or inhaled insulin products, will enable us to capture a
significant portion of the existing and expanded insulin-using
diabetes market.
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Establish our Technosphere Insulin System as the preferred
drug therapy within the broader population of people with type 2
diabetes. Our target markets also include
patients with type 2 diabetes who are currently using
conventional therapies other than insulin, including:
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patients currently using diet and exercise therapy but who are
having difficulty achieving proper blood glucose control and who
otherwise would have started non-insulin oral
medications; and
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patients currently using non-insulin oral medications.
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Evaluate strategic collaborations for the development,
marketing and commercialization of our Technosphere Insulin
System. We are evaluating potential collaboration
opportunities with large pharmaceutical companies in the United
States, Europe and Japan to provide marketing, sales and
financial resources to commercialize and sell our Technosphere
Insulin System. We have not licensed or transferred any of our
rights to this product.
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Advance the clinical development of our cancer immunotherapy
program. We commenced clinical trials of our
investigational cancer immunotherapy product in January 2007.
Our intent is to evaluate the safety
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and efficacy of MKC1106-PP for the treatment of a range of
solid-tumor cancers, including ovarian, colorectal, pancreatic,
renal, breast and prostate carcinomas and melanoma.
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Expand our proprietary Technosphere formulation technology
for the delivery of other drugs. We are
developing additional applications for our proprietary
Technosphere formulation technology by formulating other drugs
for pulmonary delivery. We also believe our proprietary
Technosphere formulation technology can also be extended to
other forms of local administration, such as gastrointestinal
delivery, because of its apparent ability to stabilize drugs and
facilitate transport across cellular membranes without damage.
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SALES AND
MARKETING
We currently have no sales, marketing or distribution
capabilities and have no experience as a company in marketing or
selling pharmaceutical products. Our efforts to date have
primarily been directed at developing products for a number of
different markets. Assuming that we receive regulatory approval
for our product candidates, we anticipate that we will have to
pursue different sales and marketing strategies tailored to each
particular product and market segment. In order to commercially
market any of our products, we will also need either to develop
a sales and marketing infrastructure ourselves or collaborate
with third parties who have greater sales and marketing
capabilities and have access to potentially large markets.
Although we believe that establishing our own sales and
marketing organizations in North America would have substantial
advantages, we recognize that this may not be practical for some
of our products and that collaborating with companies with
established sales and marketing capabilities in a particular
market or markets may be a more effective alternative for some
products. To date, we have retained worldwide commercialization
rights for all of our products, including our lead product, the
Technosphere Insulin System. We believe that this will give us
flexibility if we enter into collaborations to provide the
necessary sales and marketing support.
We are evaluating potential collaboration opportunities to
assist us in the development and commercialization of our
Technosphere Insulin System in the United States, Europe and
Japan, and we may also create parallel
in-house
sales and marketing operations in certain key markets,
particularly in the United States.
MANUFACTURING
AND SUPPLY
We purchase recombinant human insulin under a long-term contract
with Diosynth B.V., a global producer of insulin and a
subsidiary of Akzo Nobel. This agreement has no specified
termination date, but under certain circumstances may be
terminated upon two-years advance notice by either party.
In addition, Diosynth has agreed to support our regulatory
filings relating to the Technosphere Insulin System in the
United States and abroad. We believe Diosynth has sufficient
capacity to provide us with sufficient quantities of insulin to
support our needs through the initial stages of
commercialization. We must rely on our insulin supplier to
maintain compliance with relevant regulatory requirements
including current Good Manufacturing Practices, or cGMP.
We have a long-term supply agreement with Vaupell, Inc., an
independent third party, for the manufacture and supply of our
MedTone inhaler and the cartridges that are inserted into it. We
are in the process of qualifying a second manufacturer to supply
us with commercial quantities of these components. We rely on
our manufacturers to comply with relevant regulatory
requirements, including compliance with Quality System
Regulations, or QSRs. We believe our manufacturers have the
capacity to meet our Phase 3 clinical and commercial
requirements.
Currently, we obtain the raw material from which we produce
Technosphere particles from Degussa AG, a major chemical
manufacturer with facilities in Europe and North America. We
also have the capability of manufacturing this chemical
ourselves in our Danbury, Connecticut facility, which is now
treated as a back up facility. Like us, our third-party
manufacturers are subject to extensive governmental regulation.
We formulate and fill the Technosphere Insulin powder into
plastic cartridges and blister package the cartridges in a
manufacturing suite in our Danbury facility. We believe that our
Danbury facility has adequate capacity to meet our currently
anticipated clinical trial needs. We are continuing to increase
our filling and packaging capacity through the acquisition of
new equipment and the expansion of our clean rooms and other
manufacturing facilities. In October 2006, we broke ground on a
major expansion of our Danbury facility. When completed and
validated, the expanded facility is expected to have the
capacity to supply our anticipated needs for
16
the initial years of commercialization. We believe that our
building improvements to date have been adequately validated and
that the facility continues to substantially conform with cGMP.
We have also initiated the design and construction of a modular
filling and packaging system that will increase our filling and
packaging capacity. The new system is designed to operate at
high speeds in a very small space, and capacity can be expanded
by using multiple units.
INTELLECTUAL
PROPERTY AND PROPRIETARY TECHNOLOGY
Our success will depend in large measure on our ability to
obtain and enforce our intellectual property rights, effectively
maintain our trade secrets and avoid infringing the proprietary
rights of third parties. Our policy is to file patent
applications on what we deem to be important technological
developments that might relate to our product candidates or
methods of using our product candidates and to seek intellectual
property protection in the United States, Europe, Japan and
selected other jurisdictions for all significant inventions. We
have obtained, are seeking, and will continue to seek patent
protection on the compositions of matter, methods and devices
flowing from our research and development efforts. We have also
in-licensed certain technology.
With respect to our Technosphere Insulin System, our core
patents claim Technosphere particles as compositions of matter
as well as methods for manufacturing Technosphere particles that
incorporate drugs. The first of these patents expires in 2012,
but subsequent patents provide additional coverage for the
composition of matter and methods of use of the current product
until 2020. We also hold patents that claim methods of using
Technosphere particles for the pulmonary delivery of drugs.
These patents relating to Technosphere Insulin do not expire
until 2015. In addition, we are prosecuting patent applications
related to the MedTone inhaler device and the capsules that
contain the dry powder. We have filed and intend to continue to
file additional patent applications on improvements to the
Technosphere technology and its manufacture, as well as on
specific compositions of matter formed using this technology in
combination with drugs. To date, we have been issued 21 US and
foreign patents and have over 110 pending applications in
different jurisdictions claiming inventions related to the
Technosphere technology and dry powder inhaler.
Our cancer immunotherapy program is built on proprietary methods
for the selection, design and administration of epitopes. We
have over 110 pending patent applications relating to this
technology, both as methods of use and compositions of matter.
We are pursuing patents on the use of our administration method
to induce and maintain a cell-mediated immune response. The
prosecution is ongoing in many jurisdictions; however, we have
been granted seven patents related to this method, including two
in the United States, which do not expire until 2018. We also
have patent applications related to differential antigen
processing and product designs. Two patents from this group have
issued in the United States, which provides us with protection
until 2020. In addition to applications of these broad
technologies, we have filed and will continue to file patent
applications on specific compounds and the protocols for
administering them.
The fields of pulmonary drug delivery and cancer therapies are
crowded and a substantial number of patents have been issued in
these fields. In addition, because patent positions can be
highly uncertain and frequently involve complex legal and
factual questions, the breadth of claims obtained in any
application or the enforceability of issued patents cannot be
confidently predicted. Further, there can be substantial delays
in commercializing pharmaceutical products, which can partially
consume the statutory period of exclusivity through patents.
In addition, the coverage claimed in a patent application can be
significantly reduced before a patent is issued, either in the
United States or abroad. Statutory differences in patentable
subject matter may limit the protection we can obtain on some of
our inventions outside of the United States. For example,
methods of treating humans are not patentable in many countries
outside of the United States. These and other issues may limit
the patent protection we will be able to secure internationally.
Consequently, we do not know whether any of our pending or
future patent applications will result in the issuance of
patents or, to the extent patents have been issued or will be
issued, whether these patents will be subjected to further
proceedings limiting their scope, will provide significant
proprietary protection or competitive advantage, or will be
circumvented or invalidated. Furthermore, patents already issued
to us or our pending applications may become subject to disputes
that could be resolved against us. In addition, patent
applications in the United States filed before November 29,
2000 are currently maintained in secrecy until the patent
issues, although in certain countries, including the United
States, for applications filed on or after November 29,
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2000, applications are generally published 18 months after
the applications priority date. In any event, because
publication of discoveries in scientific or patent literature
often trails behind actual discoveries, we cannot be certain
that we were the first inventor of the subject matter covered by
our pending patent applications or that we were the first to
file patent applications on such inventions.
Although we own a number of domestic and foreign patents and
patent applications relating to our Technosphere Insulin System
and cancer vaccine products under development, we have
identified certain third-party patents having claims relating to
chemical compositions of matter and pulmonary insulin delivery
that may trigger an allegation of infringement upon the
commercial manufacture and sale of our Technosphere Insulin
System. We have also identified third-party patents disclosing
methods and compositions of matter related to DNA-based vaccines
that also may trigger an allegation of infringement upon the
commercial manufacture and sale of cancer therapy. We believe
that we are not infringing any valid claims of any patent owned
by a third party. However, if a court were to determine that our
inhaled insulin products or cancer therapies were infringing any
of these patent rights, we would have to establish with the
court that these patents were invalid in order to avoid legal
liability for infringement of these patents. Proving patent
invalidity can be difficult because issued patents are presumed
valid. Therefore, in the event that we are unable to prevail in
an infringement or invalidity action we will either have to
acquire the third-party patents outright or seek a
royalty-bearing license. Royalty-bearing licenses effectively
increase costs and therefore may materially affect product
profitability. Furthermore, should the patent holder refuse to
either assign or license us the infringed patents, it may be
necessary to cease manufacturing the product entirely
and/or
design around the patents. In either event, our business would
be harmed and our profitability could be materially adversely
impacted. If third parties file patent applications, or are
issued patents claiming technology also claimed by us in pending
applications, we may be required to participate in interference
proceedings in the US Patent and Trademark Office, or
USPTO, to determine priority of invention. We may be required to
participate in interference proceedings involving our issued
patents and pending applications.
We also rely on trade secrets and know-how, which are not
protected by patents, to maintain our competitive position. We
require our officers, employees, consultants and advisors to
execute proprietary information and invention and assignment
agreements upon commencement of their relationships with us.
These agreements provide that all confidential information
developed or made known to the individual during the course of
our relationship must be kept confidential, except in specified
circumstances. These agreements also provide that all inventions
developed by the individual on behalf of us must be assigned to
us and that the individual will cooperate with us in connection
with securing patent protection on the invention if we wish to
pursue such protection. There can be no assurance, however, that
these agreements will provide meaningful protection for our
inventions, trade secrets or other proprietary information in
the event of unauthorized use or disclosure of such information.
We also execute confidentiality agreements with outside
collaborators. However, disputes may arise as to the ownership
of proprietary rights to the extent that outside collaborators
apply technological information to our projects that are
developed independently by them or others, or apply our
technology to outside projects, and there can be no assurance
that any such disputes would be resolved in our favor. In
addition, any of these parties may breach the agreements and
disclose our confidential information or our competitors might
learn of the information in some other way. If any trade secret,
know-how or other technology not protected by a patent were to
be disclosed to or independently developed by a competitor, our
business, results of operations and financial condition could be
adversely affected.
COMPETITION
The pharmaceutical and biotechnology industries are highly
competitive and characterized by rapidly evolving technology and
intense research and development efforts. We expect to compete
with companies, including the major international pharmaceutical
companies, and other institutions that have substantially
greater financial, research and development, marketing and sales
capabilities and have substantially greater experience in
undertaking preclinical and clinical testing of products,
obtaining regulatory approvals and marketing and selling
biopharmaceutical products. We will face competition based on,
among other things, product efficacy and safety, the timing and
scope of regulatory approvals, ease of use and cost.
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We believe our Technosphere Insulin System provides us with
important competitive advantages in the delivery of insulin when
compared with currently known alternatives. However, new drugs
or further developments in alternative drug delivery methods may
provide greater therapeutic benefits, or comparable benefits at
lower cost, than our Technosphere Insulin System. There can be
no assurance that existing or new competitors will not introduce
products or processes competitive with or superior to our
product candidates.
We have set forth below more detailed information about certain
of our competitors. The following is based on information
currently available to us.
Inhaled
and oral insulin delivery systems
In January 2006, the FDA and the European Medicines Evaluation
Agency approved
Exubera®,
developed by Pfizer, Inc. in collaboration with Nektar
Therapeutics, for the treatment of adults with Type 1 and Type 2
diabetes.
Exubera®
has been launched in Germany, Ireland, the United Kingdom and,
to a limited extent, in the United States. Pfizer announced that
it will begin a
direct-to-consumer
campaign in the second half of 2007. In July 2005, Eli Lilly and
Company, in collaboration with Alkermes, Inc., initiated a
pivotal Phase 3 safety trial of their AIR inhaled insulin
system, which completed patient enrollment in June 2006. We
believe Lilly plans to submit a new drug application or NDA for
the AIR system in 2009. In September 2006, Novo Nordisk A.S.
began recruiting patients for two-year Phase 3 safety trial
of their AERx inhaled insulin system, after previously
suspending clinical trials of AERx.
There are also several companies, including Nobex Corporation,
Generex Biotechnology Corporation and Emisphere Technologies,
Inc. that are pursuing development of products involving the
oral delivery of insulin. We believe these products are
currently in clinical development but the timeline to
commercialization has not been made publicly available.
Non-insulin
medications
We expect that our Technosphere Insulin System will compete with
currently available non-insulin oral medications for type 2
diabetes. These products include the following:
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Sulfonylureas (including
Glucotrol®,
Diabeta®,
Glynase®,
Micronase®,
and
Amaryl®),
also called oral hypoglycemic agents, prompt the pancreas to
secrete insulin. This class of drugs is most effective in
individuals whose pancreas still have some working beta cells.
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Meglitinides (including
Prandin®
and
Starlix®)
are taken with meals and reduce the elevation in blood glucose
that generally follows eating. If these drugs are not taken with
meals, blood glucose will drop dramatically and inappropriately.
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Biguanides (including
Glucophage®,
Glucophage®
XR, and
Fortamet®)
lower blood glucose by improving the sensitivity of cells to
insulin (i.e., by diminishing insulin resistance).
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Thiazolidinedione (including
Avandia®
and
Actos®)
improves the uptake of glucose by cells in the body.
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Alpha-glucosidase inhibitors (including
Prandase®,
Precose®
and
Glyset®)
lower the amount of glucose absorbed from the intestines,
thereby reducing the rise in blood glucose that occurs after a
meal.
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Incretin mimetics
(Byetta®)
are a new class of drugs that work by several mechanisms
including stimulating the pancreas to secrete insulin when blood
glucose levels are high.
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Inhibitors of dipeptidyl peptidase IV
(Januvia®)
are another new class of drugs that work by blocking the
degradation of
GLP-1
(glucagon-like
peptide-1),
which is a naturally occurring incretin.
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Injected
insulin
In the subcutaneous insulin market, our competitors have made
considerable efforts in promoting rapid acting injectable
insulin formulations.
Humalog®,
which was developed by Eli Lilly and Company, and
NovoLog®,
which was developed by Novo Nordisk A/S, are the two principal
injectable insulin formulations with which we expect to compete.
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Immunotherapy
Over the last decade or so, a variety of companies have sought
to develop therapeutic compounds that provide a selective immune
response against cancer. Some of these companies, including
Dendreon Corporation, Antigenics Inc., CancerVax Corporation,
Cell Genesys Inc. and Corixa Corporation, have focused on
products derived from the patients own cancer or other
cells, or tumor cell lines, which can take the form of whole
cells or cell fragments, or on tumor antigens extracted from
cancerous cells. Other companies, including Glaxo Smithkline
Beecham, Progenics Pharmaceuticals, Inc., Therion Biologics
Corporation, Oxxon Therapeutics and Vical Incorporated, are
pursuing cell based or microbe-based therapies designed to work
across a broad spectrum of patients and tumor types.
GOVERNMENT
REGULATION AND PRODUCT APPROVAL
The FDA and comparable regulatory agencies in state, local and
foreign jurisdictions impose substantial requirements upon the
clinical development, manufacture and marketing of medical
devices and new drug products. These agencies, through
regulations that implement the Federal Food, Drug, and Cosmetic
Act, as amended, or FDCA, and other regulations, regulate
research and development activities and the development,
testing, manufacture, labeling, storage, shipping, approval,
advertising, promotion, sale and distribution of such products.
In addition, if our products are marketed abroad, they also are
subject to export requirements and to regulation by foreign
governments. The regulatory clearance process is generally
lengthy, expensive and uncertain. Failure to comply with
applicable FDA and other regulatory requirements can result in
sanctions being imposed on us or the manufacturers of our
products, including hold letters on clinical research, civil or
criminal fines or other penalties, product recalls, or seizures,
or total or partial suspension of production or injunctions,
refusals to permit products to be imported into or exported out
of the United States, refusals of the FDA to grant approval of
drugs or to allow us to enter into government supply contracts,
withdrawals of previously approved marketing applications and
criminal prosecutions.
The steps typically required before an unapproved new drug
product for use in humans may be marketed in the United States
include:
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Preclinical studies that include laboratory evaluation of
product chemistry and formulation, as well as animal studies to
assess the potential safety and efficacy of the product. Certain
preclinical tests must be conducted in compliance with good
laboratory practice regulations. Violations of these regulations
can, in some cases, lead to invalidation of the studies, or
requiring such studies to be repeated. In some cases, long-term
preclinical studies are conducted while clinical studies are
ongoing.
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Submission to the FDA of an investigational new drug
application, or IND, which must become effective before human
clinical trials may commence. The results of the preclinical
studies are submitted to the FDA as part of the IND. Unless the
FDA objects, the IND becomes effective 30 days following
receipt by the FDA.
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Approval of clinical protocols by independent investigational
review boards, or IRBs, at each of the participating clinical
centers conducting a study. The IRBs consider, among other
things, ethical factors, the potential risks to individuals
participating in the trials and the potential liability of the
institution. The IRB also approves the consent form signed by
the trial participants.
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Adequate and well-controlled human clinical trials to establish
the safety and efficacy of the product. Clinical trials involve
the administration of the drug to healthy volunteers or to
patients under the supervision of a qualified medical
investigator according to an approved protocol. The clinical
trials are conducted in accordance with protocols that detail
the objectives of the study, the parameters to be used to
monitor participant safety and efficacy or other criteria to be
evaluated. Each protocol is submitted to the FDA as part of the
IND. Human clinical trials are typically conducted in the
following four sequential phases that may overlap or be combined:
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In Phase 1, the drug is initially introduced into a small
number of individuals and tested for safety, dosage tolerance,
absorption, metabolism, distribution and excretion. Phase 1
clinical trials are often conducted in healthy human volunteers
and such cases do not provide evidence of efficacy. In the case
of severe or life-threatening diseases, the initial human
testing is often conducted in patients rather than healthy
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volunteers. Because these patients already have the target
disease, these studies may provide initial evidence of efficacy
traditionally obtained in Phase 2 clinical trials.
Consequently, these types of trials are frequently referred to
as Phase 1/2 clinical trials. The FDA receives reports on
the progress of each phase of clinical testing and it may
require the modification, suspension or termination of clinical
trials if it concludes that an unwarranted risk is presented to
patients or healthy volunteers.
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Phase 2 involves clinical trials in a limited patient
population to further identify any possible adverse effects and
safety risks, to determine the efficacy of the product for
specific targeted diseases and to determine dosage tolerance and
optimal dosage.
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Phase 3 clinical trials are undertaken to further evaluate
dosage, clinical efficacy and to further test for safety in an
expanded patient population at geographically dispersed clinical
study sites. Phase 3 clinical trials usually include a
broader patient population so that safety and efficacy can be
substantially established. Phase 3 clinical trials cannot
begin until Phase 2 evaluation demonstrates that a dosage
range of the product may be effective and has an acceptable
safety profile.
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Phase 4 clinical trials are performed if the FDA requires,
or a company pursues, additional clinical trials after a product
is approved. These clinical trials may be made a condition to be
satisfied after a drug receives approval. The results of
Phase 4 clinical trials can confirm the effectiveness of a
product candidate and can provide important safety information
to augment the FDAs voluntary adverse drug reaction
reporting system.
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Concurrent with clinical trials and preclinical studies,
companies also must develop information about the chemistry and
physical characteristics of the drug and finalize a process for
manufacturing the product in accordance with drug cGMP
requirements. The manufacturing process must be capable of
consistently producing quality batches of the product and the
manufacturer must develop methods for testing the quality,
purity, and potency of the final products. Additionally,
appropriate packaging must be selected and tested and chemistry
stability studies must be conducted to demonstrate that the
product does not undergo unacceptable deterioration over its
shelf-life.
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Submission to the FDA of a new drug application, or NDA, based
on the clinical trials. The results of pharmaceutical
development, preclinical studies, and clinical trials are
submitted to the FDA in the form of an NDA for approval of the
marketing and commercial shipment of the product. Under the
Pediatric Research Equity Act of 2003, or PREA, NDAs are
required to include an assessment, generally based on clinical
study data, of the safety and efficacy of drugs for all relevant
pediatric populations. The statute provides for waivers or
deferrals in certain situations but we can make no assurances
that such situations will apply to us or our product candidates.
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Medical products containing a combination of new drugs,
biological products, or medical devices are regulated as
combination products in the United States. A
combination product generally is defined as a product comprised
of components from two or more regulatory categories
(e.g., drug/device, device/biologic, drug/biologic). Each
component of a combination product is subject to the
requirements established by the FDA for that type of component,
whether a new drug, biologic, or device. In order to facilitate
premarket review of combination products, the FDA designates one
of its centers to have primary jurisdiction for the premarket
review and regulation of the overall product. The determination
whether a product is a combination product or two separate
products is made by the FDA on a
case-by-case
basis. We have had discussions with the FDA about the status of
our Technosphere Insulin System as a combination product and we
have been told that the FDA considers our product a combination
drug/device. There have been some indications from the FDA that
the review of any future marketing applications for our
Technosphere Insulin System will involve reviews within the
Division of Metabolism and Endocrinology Products and the
Division of Pulmonary and Allergy Products, both within the
Center for Drug Evaluation and Research, as well as review
within the Center for Devices and Radiological Health, the
Center within the FDA that reviews Medical Devices. Although the
FDA has not made a final decision in this regard, we currently
understand that the Division of Metabolic and Endocrine Products
will be the lead group and obtain consulting reviews from the
other two FDA groups if we submit an NDA.
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The testing and approval process requires substantial time,
effort and financial resources. We cannot be certain that any
approval of our products will be granted on a timely basis, if
at all. If any of our products are approved for marketing by the
FDA, we will be subject to continuing regulation by the FDA,
including record-keeping requirements, reporting of adverse
experiences with the product, submitting other periodic reports,
drug sampling and distribution requirements, notifying the FDA
and gaining its approval of certain manufacturing or labeling
changes, and complying with certain electronic records and
signature requirements. Prior to and following approval, if
granted, all manufacturing sites are subject to inspection by
the FDA and other national regulatory bodies and must comply
with cGMP, QSR and other requirements enforced by the FDA and
other national regulatory bodies through their facilities
inspection program. Foreign manufacturing establishments must
comply with similar regulations. In addition, our
drug-manufacturing facilities located in Danbury and the
facilities of our insulin supplier and the supplier of our
MedTone inhaler and cartridges are subject to federal
registration and listing requirements and, if applicable, to
state licensing requirements. Failure, including those of our
insulin and MedTone inhaler suppliers, to obtain and maintain
applicable federal registrations or state licenses, or to meet
the inspection criteria of the FDA or the other national
regulatory bodies, would disrupt our manufacturing processes and
would harm our business. In complying with standards set forth
in these regulations, manufacturers must continue to expend
time, money and effort in the area of production and quality
control to ensure full compliance. Currently, we believe we are
operating under all of the necessary guidelines and permits.
It is not yet clear to what extent we will be subject to
regulations governing premarket approval or clearances of
medical devices separate from approval requirements governing
drugs. We currently expect that our inhaler will be approved as
part of the NDA for our Technosphere Insulin System. No
assurances exist that we will not be required to obtain separate
device clearances or approval for use of our inhaler with our
Technosphere Insulin System. This may result in our being
subject to medical device review user fees and to other device
requirements to market our inhaler and may result in significant
delays in commercialization. Even if the device component is
approved as part of our NDA for the Technosphere Insulin System,
numerous device regulatory requirements still apply to the
device part of the drug-device combination. These include:
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product labeling regulations;
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general prohibition against promoting products for unapproved or
off-label uses;
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corrections and removals (e.g., recalls);
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establishment registration and device listing;
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general prohibitions against the manufacture and distribution of
adulterated and misbranded devices; and
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the Medical Device Reporting regulation, which requires that
manufacturers report to the FDA if their device may have caused
or contributed to a death or serious injury or malfunctioned in
a way that would likely cause or contribute to a death or
serious injury if it were to recur.
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Further, the company we have contracted to manufacture our
MedTone inhaler and cartridges will be subject to the QSR, which
requires manufacturers to follow elaborate design, testing,
control, documentation and other quality assurance procedures
during the manufacturing process of medical devices, among other
requirements.
Failure to adhere to regulatory requirements at any stage of
development, including the preclinical and clinical testing
process, the review process, or at any time afterward, including
after approval, may result in various adverse consequences.
These consequences include action by the FDA or other national
regulatory body that has the effect of delaying approval or
refusing to approve a product; suspending or withdrawing an
approved product from the market; seizing or recalling a
product; or imposing criminal penalties against the
manufacturer. In addition, later discovery of previously unknown
problems may result in restrictions on a product, its
manufacturer, or the NDA holder, or market restrictions
through labeling changes or product withdrawal. Also, new
government requirements may be established or they may change at
any time that could delay or prevent regulatory approval of our
products under development. For example, in response to recent
events regarding questions about the safety of certain approved
prescription products, including the lack of adequate warnings,
the FDA and Congress are currently considering new regulatory
and legislative approaches to advertising, monitoring and
assessing the safety of marketed drugs, including legislation
providing the FDA with authority to mandate labeling changes for
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approved pharmaceutical products, particularly those related to
safety. We also cannot be sure that the current Congressional
and FDA initiatives pertaining to ensuring the safety of
marketed drugs or other developments pertaining to the
pharmaceutical industry will not adversely affect our
operations. We cannot predict the likelihood, nature or extent
of adverse governmental regulation that might arise from future
legislative or administrative action, either in the United
States or abroad.
In addition, the FDA imposes a number of complex regulations on
entities that advertise and promote drugs, which include, among
other requirements, standards for and regulations of
direct-to-consumer
advertising, off-label promotion, industry sponsored scientific
and educational activities, and promotional activities involving
the Internet. Such advertising and promotional activities are
also being scrutinized by the FDA and Congress as a result of
recent concerns that have been raised about the safety of
marketed drugs. The FDA has very broad enforcement authority
under the FDCA, and failure to comply with these regulations can
result in penalties, including the issuance of a warning letter
directing us to correct deviations from FDA standards, a
requirement that future advertising and promotional materials be
pre-cleared by the FDA, and state and federal civil and criminal
investigations and prosecutions.
Products manufactured in the United States and marketed outside
the United States are subject to certain FDA regulations,
as well as regulation by the country in which the products are
to be sold. We also would be subject to foreign regulatory
requirements governing clinical trials and drug product sales if
products are marketed abroad. Whether or not FDA approval has
been obtained, approval of a product by the comparable
regulatory authorities of foreign countries usually must be
obtained prior to the marketing of the product in those
countries. The approval process varies from jurisdiction to
jurisdiction and the time required may be longer or shorter than
that required for FDA approval.
Product development and approval within this regulatory
framework take a number of years, involve the expenditure of
substantial resources and are uncertain. Many drug products
ultimately do not reach the market because they are not found to
be safe or effective or cannot meet the FDAs other
regulatory requirements. In addition, there can be no assurance
that the current regulatory framework will not change or that
additional regulation will not arise at any stage of our product
development that may affect approval, delay the submission or
review of an application or require additional expenditures by
us. There can be no assurance that we will be able to obtain
necessary regulatory clearances or approvals on a timely basis,
if at all, for any of our product candidates under development,
and delays in receipt or failure to receive such clearances or
approvals, the loss of previously received clearances or
approvals, or failure to comply with existing or future
regulatory requirements could have a material adverse effect on
our business and results of operations.
Under European Union regulatory systems, marketing
authorizations may be submitted either under a centralized or
decentralized procedure. The centralized procedure provides for
the grant of a single marketing authorization that is valid for
all European Union member states. The decentralized procedure
provides for mutual recognition of national approval decisions.
Under this latter procedure, the holder of a national marketing
authorization may submit an application to the remaining member
states. Within 90 days of receiving the application and
assessment report, each member state must decide whether to
recognize approval. We plan to choose the appropriate route of
European regulatory filing in an attempt to accomplish the most
rapid regulatory approvals. However, the chosen regulatory
strategy may not secure regulatory approvals or approvals of the
chosen product indications. In addition, these approvals, if
obtained, may take longer than anticipated.
We cannot assure you that any of our product candidates will
prove to be safe or effective, will receive regulatory
approvals, or will be successfully commercialized.
In addition to the foregoing, we are subject to numerous
federal, state and local laws relating to such matters as
laboratory practices, the experimental use of animals, the use
and disposal of hazardous or potentially hazardous substances,
controlled drug substances, safe working conditions,
manufacturing practices, environmental protection and fire
hazard control. We may incur significant costs to comply with
those laws and regulations now or in the future.
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Patent
restoration and marketing exclusivity
The Drug Price Competition and Patent Term Restoration Act of
1984, known as the Hatch-Waxman Amendments to the Federal Food,
Drug, and Cosmetic Act, permits the FDA to approve abbreviated
NDAs, or ANDAs, for generic versions of innovator drugs and also
provides certain patent restoration and market exclusivity
protections to innovator drug manufacturers. The ANDA process
permits competitor companies to obtain marketing approval for a
new drug with the same active ingredient for the same uses,
dosage form and strength as an innovator drug but does not
require the conduct and submission of preclinical or clinical
studies demonstrating safety and efficacy for that product.
Instead of providing completely new safety and efficacy data,
the ANDA applicant only need to submit manufacturing information
and clinical data demonstrating that the copy is bioequivalent
to the innovators product in order to gain marketing
approval from the FDA.
Another type of marketing application allowed by the
Hatch-Waxman Amendments, a Section 505(b)(2) application,
may be permitted where a company does not own or have a right to
reference all the data required for approval.
Section 505(b)(2) NDAs are often submitted for drug
products that contain the same active ingredient as those in
first approved drug products and where additional studies are
required for approval, such as for changes in routes of
administration or dosage forms.
Once an NDA is approved, the product covered thereby becomes a
listed drug which can, in turn, be cited by
potential competitors in support of approval of an ANDA or a
505(b)(2) application.
The Hatch-Waxman Amendments provide for a period of three years
exclusivity following approval of a listed drug that contains
previously approved active ingredients but is approved in a new
dosage, dosage form, route of administration or combination, or
for a new use, the approval of which was required to be
supported by new clinical trials conducted by or for the
sponsor. During this period of exclusivity, FDA cannot grant
effective approval of an ANDA or a 505(b)(2) application based
on that listed drug.
The Hatch-Waxman Amendments also provide a period of five years
exclusivity following approval of a drug containing no
previously approved active ingredients. During this period of
exclusivity, ANDAs or 505(b)(2) applications based upon those
drugs cannot be submitted unless the submission accompanies a
challenge to a listed patent, in which case the submission may
be made four years following the original product approval.
Additionally, in the event that the sponsor of the listed drug
has informed FDA of patents covering its listed drug and FDA
lists those patents in the Orange Book, applicants submitting an
ANDA or a 505(b)(2) application referencing that drug are
required to certify whether they intend to market their generic
products prior to expiration of those patents. If an ANDA
applicant certifies that it believes one or more listed patents
is invalid or not infringed, it is required to provide notice of
its filing to the NDA sponsor and the patent holder. If either
party then initiates a suit for patent infringement against the
ANDA sponsor within 45 days of receipt of the notice, FDA
cannot grant effective approval of the ANDA until either
30 months has passed or there has been a court decision
holding that the patent in question is invalid or not infringed.
If the ANDA applicant certifies that it does not intend to
market its generic product before some or all listed patents on
the listed drug expire, then FDA cannot grant effective approval
of the ANDA until those patents expire. The first ANDA applicant
submitting substantially complete applications certifying that
listed patents for a particular product are invalid or not
infringed may qualify for a period of 180 days after a
court decision of invalidity or non-infringement or after it
begins marketing its product, whichever occurs first. During
this 180 day period, subsequently submitted ANDAs cannot be
granted effective approval.
The FDA Modernization Act of 1997 included a pediatric
exclusivity provision that was extended by the Best
Pharmaceuticals for Children Act of 2002. Pediatric exclusivity
is designed to provide an incentive to manufacturers for
conducting research about the safety and efficacy of their
products in children. Pediatric exclusivity, if granted,
provides an additional six months of market exclusivity in the
United States for new or currently marketed drugs if certain
pediatric studies requested by the FDA are completed by the
applicant and the applicant has other existing patent or
exclusivity protection for the drug. To obtain this additional
six months of exclusivity, it would be necessary for us to first
receive a written request from the FDA to conduct pediatric
studies and then to conduct the requested studies according to a
previously agreed timeframe and submit the report of the study.
There can be no assurances that we would receive a written
request from the FDA and if so that we would complete the
studies in
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accordance with the requirements for this six-month exclusivity.
The current pediatric exclusivity provision is scheduled to end
on October 1, 2007, and there can be no assurances that it
will be reauthorized.
EMPLOYEES
As of December 31, 2006, we had 545 full-time
employees, all of whom are employed at-will. One hundred seven
of these employees were engaged in research and development, 138
in manufacturing, 204 in clinical, regulatory affairs and
quality assurance and 96 in administration, finance, management,
information systems, marketing, corporate development and human
resources. Fifty-three of these employees have a Ph.D. degree
and/or M.D.
degree and are engaged in activities relating to research and
development, manufacturing, quality assurance and business
development. None of our employees is subject to a collective
bargaining agreement. We believe relations with our employees
are good.
SCIENTIFIC
ADVISORS
We seek advice from a number of leading scientists and
physicians on scientific, technical and medical matters. These
advisors are leading scientists in the areas of pharmacology,
chemistry, immunology and biology. Our scientific advisors are
consulted regularly to assess, among other things:
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our research and development programs;
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the design and implementation of our clinical programs;
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our patent and publication strategies;
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market opportunities from a clinical perspective;
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new technologies relevant to our research and development
programs; and
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specific scientific and technical issues relevant to our
business.
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The following are our scientific advisors and their primary
affiliations:
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Name
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Primary Affiliation
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Richard Bergenstal, M.D.
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International Diabetes Center
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William Boswell, M.D., FACR
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University of Southern California
School of Medicine
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James Bryan, M.D.
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Pharmaceutical Product
Development, Inc.
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Alexander Fleming, M.D.
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Kinexum Corporation
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Martin Kast, Ph.D.
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Norris Comprehensive Cancer
Center, University of Southern California
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Thomas Kundig, M.D.
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University of Zurich
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Harold E. Lebovitz, M.D., FACE
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State University of New
York Brooklyn
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Frederick Levy, Ph.D.
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Ludwig Institute for Cancer
Research
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Robert
Morgan, Jr., M.D., FACP
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City of Hope National Medical
Center
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Robert
Ozols, M.D., Ph.D.
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Fox Chase Cancer Center
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Daniel Porte, M.D.
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University of California,
San Diego
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Philip Raskin, M.D., FACE,
FACP
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University of Texas Southwestern
Medical Center
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Robert Rizza, M.D.
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Mayo Clinic
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Julio Rosenstock, M.D.
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Dallas Diabetes and Endocrine
Center
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Jesse Roth, M.D.
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North Shore Long Island Jewish
Medical Center
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Jay S. Skyler, M.D.
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University of Miami Diabetes
Research Institute
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Rolf
Zinkernagel, M.D., Ph.D., Nobel Laureate
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University of Zurich
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Bernie Zinman, M.D.
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Mount Sinai Hospital, Toronto
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EXECUTIVE
OFFICERS
The following table sets forth our current executive officers
and their ages as of December 31, 2006:
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Name
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Age
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Position(s)
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Alfred E. Mann
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81
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Chairman of the Board of Directors
and Chief Executive Officer
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Hakan S. Edstrom
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56
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President, Chief Operating Officer
and Director
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Richard L. Anderson
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67
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Corporate Vice President and Chief
Financial Officer
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Dr. Peter C. Richardson
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47
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Corporate Vice President and Chief
Scientific Officer
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Juergen A.
Martens, Ph.D.
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51
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Corporate Vice President,
Operations
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David
Thomson, Ph.D., J.D.
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40
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Corporate Vice President, General
Counsel and Corporate Secretary
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Diane M. Palumbo
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53
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Corporate Vice President, Human
Resources
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Alfred E. Mann has been one of our directors since April
1999, our Chairman of the Board since December 2001 and our
Chief Executive Officer since October 2003. He founded and
formerly served as Chairman and Chief Executive Officer of
MiniMed, Inc., a publicly traded company focused on diabetes
therapy and microinfusion drug delivery that was acquired by
Medtronic, Inc. in August 2001. Mr. Mann also founded and,
from 1972 through 1992, served as Chief Executive Officer of
Pacesetter Systems, Inc. and its successor, Siemens Pacesetter,
Inc., a manufacturer of cardiac pacemakers, now the Cardiac
Rhythm Management Division of St. Jude Medical Corporation.
Mr. Mann founded and since 1993, has served as Chairman and
Co-Chief Executive Officer of Advanced Bionics Corporation, a
medical device manufacturer focused on neurostimulation to
restore hearing to the deaf and to treat chronic pain and other
neural deficits, that was acquired by Boston Scientific
Corporation in June 2004. Mr. Mann has also founded and is
non-executive Chairman of Second Sight, which is developing a
visual prosthesis for the blind and Quallion, which produces
batteries for medical products and for the military and
aerospace industries. Mr. Mann is also non-executive
Chairman of the Alfred Mann Foundation and Alfred Mann Institute
at the University of Southern California, and the Alfred Mann
Foundation for Biomedical Engineering, which is establishing
additional institutes at other research universities.
Mr. Mann holds a bachelors and masters degree
in Physics from the University of California at Los Angeles,
honorary doctorates from Johns Hopkins University, the
University of Southern California, Western University and the
Technion-Israel Institute of Technology and is a member of the
National Academy of Engineering.
Hakan S. Edstrom has been our President and Chief
Operating Officer since April 2001 and has served as one of our
directors since December 2001. Mr. Edstrom was with
Bausch & Lomb, Inc., a health care product company,
from January 1998 to April 2001, advancing to the position of
Senior Corporate Vice President and President of
Bausch & Lomb, Inc. Americas Region. From 1981 to 1997,
Mr. Edstrom was with Pharmacia Corporation, where he held
various executive positions, including President and Chief
Executive Officer of Pharmacia Opthalmics Inc. Mr. Edstrom
is currently a director of Q-Med AB, a biotechnology and medical
device company. Mr. Edstrom was educated in Sweden and
holds a masters degree in business administration from the
Stockholm School of Economics.
Richard L. Anderson has been our Corporate Vice President
and Chief Financial Officer since October 2002. From January
1997 to September 2002, Mr. Anderson held various executive
positions at NeoRx Corporation, a Seattle-based publicly traded
biotechnology company, including President, Chief Operating
Officer, Chief Financial Officer and Senior Vice President,
Finance and Operations. Mr. Anderson holds a masters
degree in Management from Johns Hopkins University, a
masters degree in solid state physics from the University
of Maryland and a bachelors degree in physics from
Bucknell University.
Dr. Peter C. Richardson has been our Corporate Vice
President and Chief Scientific Officer since October 2005. From
1991 to October 2005, he was employed by Novartis
Pharmaceuticals Corporation, which is the U.S. affiliate of
Novartis AG, a world leader in healthcare, most recently as
Senior Vice President, Global Head of Development Alliances.
From 2003 until 2005, he was Senior Vice President and Head of
Development of Novartis
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Pharmaceuticals KK Japan. He earlier practiced as an
endocrinologist. Dr. Richardson holds a B.Med.Sci (Hons.)
and a BM.BS (Hons.) from University of Nottingham Medical
School; an MRCP (UK) from the Royal College of Physicians, UK; a
Certificate in Pharmaceutical Medicine from Universities of
Freibourg, Strasbourg and Basle; and a Diploma in Pharmaceutical
Medicine from the Royal College of Physicians Faculty of
Pharmaceutical Medicine.
Juergen A. Martens, Ph.D. has been our Corporate
Vice President of Operations since September 2005. From 2000 to
August 2005, he was employed by Nektar Therapeutics, Inc., most
recently as Vice President of Pharmaceutical Technology
Development Previously, he held technical management positions
at Aerojet Fine Chemicals from 1998 to 2000 and at FMC
Corporation from 1996 to 1998. From 1987 to 1996,
Dr. Martens held a variety of management positions with
increased responsibility in R&D, plant management, and
business process development at Lonza, in Switzerland and in the
United States. Dr. Martens holds a BS in chemical
engineering from the Technical College Mannheim/Germany, a BS/MS
in chemistry and a doctorate in physical chemistry from the
University of Marburg/Germany.
David Thomson, Ph.D., J.D. has been our
Corporate Vice President, General Counsel and Corporate
Secretary since January 2002. Prior to joining us, he practiced
corporate/commercial and securities law at the Toronto law firm
of Davies Ward Phillips & Vineberg LLP from May 1999
through December 2001, except for a period from May to December
2000, when he served as Vice President, Business Development for
CTL ImmunoTherapies Corp. From March 1994 to August 1996,
Dr. Thomson held a post-doctoral position at the
Rockefeller University, where he conducted medical research in
the Laboratory of Neurophysiology. Dr. Thomson obtained his
bachelors degree, masters degree and Ph.D. degree
from Queens University and obtained his J.D. degree from the
University of Toronto.
Diane M. Palumbo has been our Corporate Vice President of
Human Resources since November 2004. From July 2003 to November
2004, she was President of her own human resources consulting
company. From June 1991 to July 2003, Ms. Palumbo held
various positions with Amgen, Inc., a California-based
biopharmaceutical company, including Senior Director, Human
Resources. In addition, Ms. Palumbo has held Human
Resources positions with Unisys and Mitsui Bank Ltd. of Tokyo.
She holds a masters degree in business administration from
St. Johns University, NY and a bachelor of science degree,
magna cum laude, also from St. Johns University, NY.
Executive officers serve at the discretion of the Board of
Directors. There are no family relationships between any of the
directors and executive officers of MannKind.
You should consider carefully the following information about
the risks described below, together with the other information
contained in this report, before you decide to buy or maintain
an investment in our common stock. We believe the risks
described below are the risks that are material to us as of the
date of this annual report. Additional risks and uncertainties
not presently known to us or that we currently deem immaterial
may also affect our business. If any of the following risks
actually occur, our business, financial condition, results of
operations and future growth prospects would likely be
materially and adversely affected. In these circumstances, the
market price of our common stock could decline, and you may lose
all or part of the money you paid to buy our common stock.
RISKS
RELATED TO OUR BUSINESS
We
have a history of operating losses, we expect to continue to
incur losses and we may never become profitable.
We are a development stage company with no commercial products.
All of our product candidates are still being developed, and all
but our Technosphere Insulin System are still in early stages of
development. Our product candidates will require significant
additional development, clinical trials, regulatory clearances
and additional investment before they can be commercialized. We
anticipate that our Technosphere Insulin System will not be
commercially available for several years, if at all.
We have never been profitable and, as of December 31, 2006,
we had an accumulated deficit of $787.8 million. The
accumulated deficit has resulted principally from costs incurred
in our research and development programs, the
27
write-off of goodwill and general operating expenses. We expect
to make substantial expenditures and to incur increasing
operating losses in the future in order to further develop and
commercialize our product candidates, including costs and
expenses to complete clinical trials, seek regulatory approvals
and market our product candidates. This accumulated deficit may
increase significantly as we expand development and clinical
trial efforts.
Our losses have had, and are expected to continue to have, an
adverse impact on our working capital, total assets and
stockholders equity. Our ability to achieve and sustain
profitability depends upon obtaining regulatory approvals for
and successfully commercializing our Technosphere Insulin
System, either alone or with third parties. We do not currently
have the required approvals to market any of our product
candidates, and we may not receive them. We may not be
profitable even if we succeed in commercializing any of our
product candidates. As a result, we cannot be sure when we will
become profitable, if at all.
If we
fail to raise additional capital, our financial condition and
business would suffer.
It is costly to develop therapeutic product candidates and
conduct clinical trials for these product candidates. Although
we currently are focusing on our Technosphere Insulin System as
our lead product candidate, we may in the future conduct
clinical trials for a number of additional product candidates.
Our future revenues may not be sufficient to support the expense
of these activities.
On December 12, 2006, we closed the sale of
20,000,000 shares of our common stock at a public offering
price of $17.42 per share and on December 19, 2006,
closed the sale of an additional 3,000,000 shares of our
common stock at a public offering price of $17.42 per share
pursuant to an over-allotment option granted to the underwriters
of the offering. The resulting aggregate net proceeds to us from
this common stock offering was approximately $384.7 million
after expenses. On December 12, 2006, we also sold
$115.0 million aggregate principal amount of
3.75% Senior Convertible Notes due 2013, which included
$15.0 million aggregate principal amount of the notes sold
to cover over-allotments. The resulting aggregate net proceeds
to us from this note offering was approximately
$111.3 million after expenses.
In August 2006, we entered into a $150.0 million loan
arrangement with our principal stockholder, which was amended on
October 30, 2006. Under this arrangement, we can borrow
funds in one or more advances at any time through August 2,
2007 should our cash balance fall below our projected cash
requirements for the subsequent three months, provided that each
advance be no less than $10.0 million and provided that at
no time shall the total principal amount borrowed exceed
$150.0 million. Principal repayment is due and payable one
year from the date of each advance. As of December 31,
2006, there are no amounts borrowed and outstanding under this
loan arrangement with our principal stockholder.
Based upon our current expectations, we believe that our
existing capital resources, including the net proceeds from our
sale of common stock and senior convertible notes in December
2006 and the loan agreement with our principal stockholder, will
enable us to continue planned operations into the first quarter
of 2008. However, we cannot assure you that our plans will not
change or that changed circumstances will not result in the
depletion of our capital resources more rapidly than we
currently anticipate. Accordingly, we plan to raise additional
capital, either through the sale of equity
and/or debt
securities, a strategic business collaboration or the
establishment of other funding facilities, in order to continue
the development and commercialization of our Technosphere
Insulin System and other product candidates and to support our
other ongoing activities. The amount of additional funds we need
will depend on a number of factors, including:
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the rate of progress and costs of our clinical trials and
research and development activities, including costs of
procuring clinical materials and expanding our own manufacturing
facilities;
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our success in establishing strategic business collaborations
and the timing and amount of any payments we might receive from
any collaboration we are able to establish;
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actions taken by the FDA and other regulatory authorities
affecting our products and competitive products;
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our degree of success in commercializing our Technosphere
Insulin System or our other product candidates;
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the emergence of competing technologies and products and other
adverse market developments;
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the timing and amount of payments we might receive from
potential licensees;
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the costs of preparing, filing, prosecuting, maintaining and
enforcing patent claims and other intellectual property rights
or defending against claims of infringement by others; and
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the costs of discontinuing projects and technologies or
decommissioning existing facilities, if we undertake those
activities.
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We have raised capital in the past primarily through the sale of
equity securities and most currently through the sale of equity
and debt securities. We may in the future pursue the sale of
additional equity
and/or debt
securities, or the establishment of other funding facilities.
Issuances of additional debt or equity securities or the
conversion of any of our currently outstanding convertible debt
securities into shares of our common stock could impact your
rights as a holder of our common stock and may dilute your
ownership percentage. Moreover, the establishment of other
funding facilities may impose restrictions on our operations.
These restrictions could include limitations on additional
borrowing and specific restrictions on the use of our assets, as
well as prohibitions on our ability to create liens, pay
dividends, redeem our stock or make investments.
We also may seek to raise additional capital by pursuing
opportunities for the licensing, sale of certain intellectual
property and other assets, including our Technosphere technology
platform. We cannot offer assurances, however, that any
strategic collaborations, sales of securities or sales or
licenses of assets will be available to us on a timely basis or
on acceptable terms, if at all. We may be required to enter into
relationships with third parties to develop or commercialize
products or technologies that we otherwise would have sought to
develop independently, and any such relationships may not be on
terms as commercially favorable to us as might otherwise be the
case.
In the event that sufficient additional funds are not obtained
through strategic collaboration opportunities, sales of
securities, licensing arrangements
and/or asset
sales on a timely basis, we may be required to reduce expenses
through the delay, reduction or curtailment of our projects,
including our Technosphere Insulin System development
activities, or further reduction of costs for facilities and
administration.
We
depend heavily on the successful development and
commercialization of our lead product candidate, the
Technosphere Insulin System, which is still in clinical
development, and our other product candidates, most of which are
still in preclinical development.
To date, we have not completed the development of any product
candidates through to commercialization. Our Technosphere
Insulin System is currently undergoing clinical trials, while
our other product candidates are generally in research or
preclinical development. We anticipate that in the near term,
our ability to generate revenues will depend solely on the
successful development and commercialization of our Technosphere
Insulin System.
We have expended significant time, money and effort in the
development of our lead product candidate, the Technosphere
Insulin System, which has not yet received regulatory approval
and which may never be commercialized. Before we can market and
sell our Technosphere Insulin System, we will need to advance
our Technosphere Insulin System through Phase 3 clinical
trials and demonstrate in these trials that our Technosphere
Insulin System is safe and effective. We have initiated all of
our pivotal Phase 3 clinical trials as well as several
special population studies for our Technosphere Insulin System,
all of which will require additional time and substantial
expenditure of resources. We must also receive the necessary
approvals from the FDA and similar foreign regulatory agencies
before this product candidate can be marketed in the United
States or elsewhere. Even if we were to receive regulatory
approval, we ultimately may be unable to gain market acceptance
of our Technosphere Insulin System for a variety of reasons,
including the treatment and dosage regimen, potential adverse
effects, the availability of alternative treatments and cost
effectiveness. If we fail to commercialize our Technosphere
Insulin System, our business, financial condition and results of
operations will be materially and adversely affected.
We are seeking to develop and expand our portfolio of product
candidates through our internal research programs and through
licensing or otherwise acquiring the rights to therapeutics in
the areas of cancer and other indications. All of these product
candidates will require additional research and development and
significant
29
preclinical, clinical and other testing prior to seeking
regulatory approval to market them. Accordingly, these product
candidates will not be commercially available for a number of
years, if at all.
A significant portion of the research that we are conducting
involves new and unproven compounds and technologies, including
our Technosphere Insulin System, Technosphere platform
technology and immunotherapy product candidates. Research
programs to identify new product candidates require substantial
technical, financial and human resources. Even if our research
programs identify candidates that initially show promise, these
candidates may fail to progress to clinical development for any
number of reasons, including discovery upon further research
that these candidates have adverse effects or other
characteristics that indicate they are unlikely to be effective.
In addition, the clinical results we obtain at one stage are not
necessarily indicative of future testing results. If we fail to
successfully complete the development and commercialization of
our Technosphere Insulin System or develop or expand our other
product candidates, or are significantly delayed in doing so,
our business and results of operations will be harmed and the
value of our stock could decline.
If we
do not achieve our projected development goals in the timeframes
we announce and expect, our business would be harmed and the
market price of our common stock could decline.
For planning purposes, we estimate the timing of the
accomplishment of various scientific, clinical, regulatory and
other product development goals, which we sometimes refer to as
milestones. These milestones may include the commencement or
completion of scientific studies and clinical trials and the
submission of regulatory filings. From time to time, we publicly
announce the expected timing of some of these milestones. All of
these milestones are based on a variety of assumptions. The
actual timing of the achievement of these milestones can vary
dramatically compared to our estimates, in many cases for
reasons beyond our control, depending on numerous factors,
including:
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the rate of progress, costs and results of our clinical trial
and research and development activities, which will be impacted
by the level of proficiency and experience of our clinical staff;
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our ability to identify and enroll patients who meet clinical
trial eligibility criteria;
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our ability to access sufficient, reliable and affordable
supplies of components used in the manufacture of our product
candidates, including insulin and other materials for our
Technosphere Insulin System;
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the costs of expanding and maintaining manufacturing operations,
as necessary;
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the extent of scheduling conflicts with participating clinicians
and clinical institutions;
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the receipt of approvals by our competitors and by us from the
FDA and other regulatory agencies; and
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other actions by regulators.
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In addition, if we do not obtain sufficient additional funds
through sales of securities, strategic collaborations or the
license or sale of certain of our assets on a timely basis, we
may be required to reduce expenses by delaying, reducing or
curtailing our Technosphere Insulin System or other product
development activities, which would impact our ability to meet
milestones. If we fail to commence or complete, or experience
delays in or are forced to curtail, our proposed clinical
programs or otherwise fail to adhere to our projected
development goals in the timeframes we announce and expect, our
business and results of operations will be harmed and the market
price of our common stock may decline.
We
face substantial competition in the development of our product
candidates and may not be able to compete successfully, and our
product candidates may be rendered obsolete by rapid
technological change.
We initially are focusing on the development of our Technosphere
Insulin System for the treatment of diabetes, and we face
intense competition in this area. In January 2006, the FDA and
the European Commission approved Exubera, developed by Pfizer,
Inc. in collaboration with Nektar Therapeutics, for the
treatment of adults with type 1 and type 2 diabetes. Exubera has
been launched in Germany, Ireland, the United Kingdom and, to a
limited extent, the United States. Pfizer has announced that it
will begin a
direct-to-consumer
campaign in the second half of 2007.
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In July 2005, Eli Lilly and Company, in collaboration with
Alkermes, Inc., initiated a pivotal Phase 3 safety trial of
their AIR inhaled insulin system, which completed patient
enrollment in June 2006. We believe Lilly plans to submit a New
Drug Application, or NDA, for the AIR inhaled insulin system in
2009. In September 2006, Novo Nordisk A.S. began recruiting
patients for a two-year Phase 3 safety trial of their AERx
inhaled insulin system, after previously suspending clinical
trials of the AERx product. In addition, a number of established
pharmaceutical companies have or are developing technologies for
the treatment of diabetes. We also face substantial competition
for the development of our other product candidates.
Many of our existing or potential competitors have, or have
access to, substantially greater financial, research and
development, production, and sales and marketing resources than
we do and have a greater depth and number of experienced
managers. As a result, our competitors may be better equipped
than we are to develop, manufacture, market and sell competing
products.
The rapid rate of scientific discoveries and technological
changes could result in one or more of our product candidates
becoming obsolete or noncompetitive. Our competitors may develop
or introduce new products that render our technology and our
Technosphere Insulin System less competitive, uneconomical or
obsolete. Pfizer, the first to commercialize an inhaled insulin
system, will have an advantage in being able to gain reputation
and market share as well as set parameters for the inhaled
insulin market such as pricing and reimbursement strategies. Our
future success will depend not only on our ability to develop
our product candidates but to improve them and to keep pace with
emerging industry developments. We cannot assure you that we
will be able to do so.
We also expect to face increasing competition from universities
and other non-profit research organizations. These institutions
carry out a significant amount of research and development in
the areas of diabetes and cancer. These institutions are
becoming increasingly aware of the commercial value of their
findings and are more active in seeking patent and other
proprietary rights as well as licensing revenues.
If we
fail to enter into a strategic collaboration with respect to our
Technosphere Insulin System, we may not be able to execute on
our business model.
We are currently evaluating potential collaborations with
respect to our Technosphere Insulin System. If we are not able
to enter into a collaboration on terms that are favorable to us,
we could be required to undertake and fund product development,
clinical trials, manufacturing and marketing activities solely
at our own expense. We currently estimate that the cost to
continue the development of our Technosphere Insulin System over
the next 12 months would be up to $300 million.
However, this estimate may change based on how the program
proceeds. Failure to enter into a collaboration with respect to
our Technosphere Insulin System could substantially increase our
requirements for capital, which might not be available on
favorable terms, if at all. Alternatively, we would have to
substantially reduce our development efforts, which would delay
or otherwise impede the commercialization of our Technosphere
Insulin System.
We will face similar challenges as we seek to develop our other
product candidates. Our current strategy for developing,
manufacturing and commercializing our other product candidates
includes evaluating the potential for collaborating with
pharmaceutical and biotechnology companies at some point in the
drug development process and for these collaborators to
undertake the advanced clinical development and
commercialization of our product candidates. It may be difficult
for us to find third parties that are willing to enter into
collaborations on economic terms that are favorable to us, or at
all. Failure to enter into a collaboration with respect to any
other product candidate could substantially increase our
requirements for capital and force us to substantially reduce
our development effort.
If we
enter into collaborative agreements with respect to our
Technosphere Insulin System and if our third-party collaborators
do not perform satisfactorily or if our collaborations fail,
development or commercialization of our Technosphere Insulin
System may be delayed and our business could be
harmed.
We currently rely on clinical research organizations and
hospitals to conduct, supervise or monitor some or all aspects
of clinical trials involving our Technosphere Insulin System.
Further, we may also enter into license agreements, partnerships
or other collaborative arrangements to support the financing,
development and marketing
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of our Technosphere Insulin System. We may also license
technology from others to enhance or supplement our
technologies. These various collaborators may enter into
arrangements that would make them potential competitors. These
various collaborators also may breach their agreements with us
and delay our progress or fail to perform under their
agreements, which could harm our business.
If we enter into collaborative arrangements, we will have less
control over the timing, planning and other aspects of our
clinical trials, and the sale and marketing of our Technosphere
Insulin System and our other product candidates. We cannot offer
assurances that we will be able to enter into satisfactory
arrangements with third parties as contemplated or that any of
our existing or future collaborations will be successful.
Testing
of our Technosphere Insulin System or another product candidate
may not yield successful results, and even if it does, we may
still be unable to commercialize that product
candidate.
Our research and development programs are designed to test the
safety and efficacy of our Technosphere Insulin System and our
other product candidates through extensive preclinical and
clinical testing. We may experience numerous unforeseen events
during, or as a result of, the testing process that could delay
or prevent commercialization of our Technosphere Insulin System
or any of our other product candidates, including the following:
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safety and efficacy results obtained in our preclinical and
initial clinical testing may be inconclusive or may not be
predictive of results obtained in later-stage clinical trials or
following long-term use, and we may as a result be forced to
stop developing product candidates that we currently believe are
important to our future;
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the data collected from clinical trials of our product
candidates may not be sufficient to support FDA or other
regulatory approval;
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after reviewing test results, we or any potential collaborators
may abandon projects that we previously believed were
promising; and
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our product candidates may not produce the desired effects or
may result in adverse health effects or other characteristics
that preclude regulatory approval or limit their commercial use
if approved.
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We have initiated a pivotal Phase 3 safety study of our
Technosphere Insulin System to evaluate pulmonary function over
a period of two years. Our Technosphere Insulin System is
intended for multiple uses per day. Due to the size and
timeframe over which existing and planned clinical trials are
conducted, the results of clinical trials, including our
existing Phase 3 trials, may not be indicative of the
effects of the use of our Technosphere Insulin System over
longer terms. If long-term use of our Technosphere Insulin
System results in adverse health effects or reduced efficacy or
both, the FDA or other regulatory agencies may terminate our
ability to market and sell our Technosphere Insulin System, may
narrow the approved indications for use or otherwise require
restrictive product labeling or marketing, or may require
further clinical trials, which may be time-consuming and
expensive and may not produce favorable results.
As a result of any of these events, the FDA, other regulatory
authorities, any collaborator or we may suspend or terminate
clinical trials or marketing of our Technosphere Insulin System
at any time. Any suspension or termination of our clinical
trials or marketing activities may harm our business and results
of operations and the market price of our common stock may
decline.
If we
are unable to transition successfully from an early-stage
development company to a company that commercializes
therapeutics, our operations would suffer.
We are at a critical juncture in our development, having
transitioned from an early-stage development company to one with
multiple Phase 3 clinical trials. Phase 3 development
of our Technosphere Insulin System is far more complex than the
earlier phases. Overall, we plan to support a significant number
of studies in the near term. We have not previously implemented
the range of studies contemplated for our Phase 3 clinical
program. Moreover, as a company, we have no previous experience
in the Phase 3-through-NDA stage of product development.
We require a well-structured plan to make this transition. In
the past year, we have added a significant number of new
executive personnel, particularly in clinical development,
regulatory and manufacturing production,
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including personnel with significant
Phase 3-to-commercialization
experience. We have aligned our management structure to
accommodate the increasing complexity of our operations, and we
are implementing the following measures, among others, to
accommodate our transition, complete development of our
Technosphere Insulin System and successfully implement our
commercialization strategy for our Technosphere Insulin System:
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expand our manufacturing capabilities;
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develop comprehensive and detailed commercialization, clinical
development and regulatory plans; and
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implement standard operating procedures.
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If we are unable to accomplish these measures in a timely
manner, we would be at considerable risk of failing to:
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complete our Phase 3 clinical trial program in a deliberate
fashion, on time and within budget; and
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develop through our Phase 3 trials the key clinical data
needed to obtain regulatory approval and compete successfully in
the marketplace.
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If our
suppliers fail to deliver materials and services needed for the
production of our Technosphere Insulin System in a timely and
sufficient manner, or they fail to comply with applicable
regulations, our business and results of operations would be
harmed and the market price of our common stock could
decline.
For our Technosphere Insulin System to be commercially viable,
we need access to sufficient, reliable and affordable supplies
of insulin, our MedTone inhaler, the related cartridges and
other materials. We currently have a long-term supply agreement
with Diosynth B.V., now N.V. Organon, an independent supplier of
insulin and a subsidiary of Akzo Nobel, which is currently our
sole supplier for insulin. We are aware of at least five other
suppliers of bulk insulin but to date we have not entered into a
commercial relationship with any of the five. Currently we
obtain our Technosphere pre-cursor raw material from Degussa AG,
a major chemical manufacturer with facilities in Europe and
North America. We utilize our in-house chemical manufacturing
plant as a back up facility. We believe Degussa AG has the
capacity to supply our current clinical and future commercial
requirements. We entered into a long-term supply agreement with
Vaupell, Inc., the supplier of our MedTone inhaler and
cartridges. We must rely on our suppliers to comply with
relevant regulatory and other legal requirements, including the
production of insulin in accordance with current drug Good
Manufacturing Practices, or cGMP, and the production of MedTone
inhaler and related cartridges in accordance with device Quality
System Regulations, or QSR. The supply of all of these materials
may be limited or the manufacturers may not meet relevant
regulatory requirements, and if we are unable to obtain these
materials in sufficient amounts, in a timely manner and at
reasonable prices, or if we should encounter delays or
difficulties in our relationships with manufacturers or
suppliers, the development or manufacturing of our Technosphere
Insulin System may be delayed. Any such events would delay the
submission of our Technosphere Insulin System for regulatory
approval or market introduction and subsequent sales and, if so,
our business and results of operations will be harmed and the
market price of our common stock may decline.
We
have never manufactured our Technosphere Insulin System or any
other product candidate in commercial quantities, and if we fail
to develop an effective manufacturing capability for our product
candidates or to engage third-party manufacturers with this
capability, we may be unable to commercialize these
products.
We currently obtain our Technosphere pre-cursor raw material
primarily from Degussa AG. We use our Danbury, Connecticut
facility to formulate Technosphere Insulin, fill plastic
cartridges with Technosphere Insulin and blister package the
cartridges for our clinical trials. We are currently increasing
our formulation, fill and finishing capabilities at Danbury in
order to accommodate our activities through initial
commercialization. This expansion will involve a number of
third-party suppliers of equipment and materials as well as
engineering and construction services. Our suppliers may not
deliver all of the required equipment, materials and services in
a timely manner or at reasonable prices. If we encounter
difficulties in our relationships with these suppliers, or if a
supplier
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becomes unable to provide us with goods or services at the
agreed-upon
price, our facilities expansion could be delayed or its costs
increased.
We have never manufactured our Technosphere Insulin System or
any other product candidate in commercial quantities. As our
product candidates move through the regulatory process, we will
need to either develop the capability of manufacturing on a
commercial scale or engage third-party manufacturers with this
capability, and we cannot offer assurances that we will be able
to do either successfully. The manufacture of pharmaceutical
products requires significant expertise and capital investment,
including the development of advanced manufacturing techniques
and process controls. Manufacturers of pharmaceutical products
often encounter difficulties in production, especially in
scaling up to commercial production. These problems include
difficulties with production costs and yields, quality control
and assurance and shortages of qualified personnel, as well as
compliance with strictly enforced federal, state and foreign
regulations. In addition, before we would be able to produce
commercial quantities of Technosphere Insulin at our Danbury
facility, it would have to undergo a pre-approval inspection by
the FDA. The expansion process and preparation for the
FDAs pre-approval inspection for commercial production at
the Danbury facility could take an additional six months or
longer. If we use a third-party supplier to formulate
Technosphere Insulin or produce raw material, the transition
could also require significant
start-up
time to qualify and implement the manufacturing process. If we
engage a third-party manufacturer, our third-party manufacturer
may not perform as agreed or may terminate its agreement with us.
Any of these factors could cause us to delay or suspend clinical
trials, regulatory submissions, required approvals or
commercialization of our product candidates, entail higher costs
and result in our being unable to effectively commercialize our
products. Furthermore, if we or a third-party manufacturer fail
to deliver the required commercial quantities of any product on
a timely basis and at commercially reasonable prices, and we
were unable to promptly find one or more replacement
manufacturers capable of production at a substantially
equivalent cost, in substantially equivalent volume and on a
timely basis, we would likely be unable to meet demand for such
products and we would lose potential revenues.
We
deal with hazardous materials and must comply with environmental
laws and regulations, which can be expensive and restrict how we
do business.
Our research and development work involves the controlled
storage and use of hazardous materials, including chemical,
radioactive and biological materials. In addition, our
manufacturing operations involve the use of
CBZ-lysine,
which is stable and non-hazardous under normal storage
conditions, but may form an explosive mixture under certain
conditions. Our operations also produce hazardous waste
products. We are subject to federal, state and local laws and
regulations governing how we use, manufacture, store, handle and
dispose of these materials. Moreover, the risk of accidental
contamination or injury from hazardous materials cannot be
completely eliminated, and in the event of an accident, we could
be held liable for any damages that may result, and any
liability could fall outside the coverage or exceed the limits
of our insurance. Currently, our general liability policy
provides coverage up to $1 million per occurrence and
$2 million in the aggregate and is supplemented by an
umbrella policy that provides a further $4 million of
coverage; however, our insurance policy excludes pollution
coverage and we do not carry a separate hazardous materials
policy. In addition, we could be required to incur significant
costs to comply with environmental laws and regulations in the
future. Finally, current or future environmental laws and
regulations may impair our research, development or production
efforts.
When we purchased the facilities located in Danbury, Connecticut
in 2001, there was a soil cleanup plan in process. As part of
the purchase, we obtained an indemnification from the seller
related to the remediation of the soil for all known
environmental conditions that existed at the time the seller
acquired the property. The seller is, in turn, indemnified for
these known environmental conditions by the previous owner. We
initiated the final stages of the soil cleanup plan which we
estimate will cost approximately $1.5 to $3.0 million to
complete by the end of 2007. We also received an indemnification
from the seller for environmental conditions created during its
ownership of the property and for environmental problems unknown
at the time that the seller acquired the property. These
additional indemnities are limited to the purchase price that we
paid for the Danbury facilities. In the event that any cleanup
costs are imposed on us and we are unable to collect the full
amount of these costs and expenses from the seller or the party
responsible for the contamination, we may be required to pay
these costs and our business and results of operations may be
harmed.
34
If we
fail to enter into collaborations with third parties, we would
be required to establish our own sales, marketing and
distribution capabilities, which could impact the
commercialization of our products and harm our
business.
A broad base of physicians, including primary care physicians,
internists and endocrinologists, treat patients with diabetes. A
large sales force will be required in order to educate and
support these physicians. Therefore, we plan to enter into
collaborations with one or more pharmaceutical companies to
market, distribute and sell our Technosphere Insulin System, if
it is approved. If we fail to enter into collaborations, we
would be required to establish our own direct sales, marketing
and distribution capabilities. Establishing these capabilities
can be time-consuming and expensive and we estimate that
establishing a specialty sales force would cost more than
$35 million. Because of our size, we would be at a
disadvantage to our potential competitors, all of which either
are or have collaborated with large pharmaceutical companies
that have substantially more resources than we do. As a result,
we would not initially be able to field a sales force as large
as our competitors or provide the same degree of market research
or marketing support. In addition, our competitors would have a
greater ability to devote research resources toward expansion of
the indications for their products. We cannot assure you that we
will succeed in entering into acceptable collaborations, that
any such collaboration will be successful or, if not, that we
will successfully develop our own sales, marketing and
distribution capabilities.
If any
product that we may develop does not become widely accepted by
physicians, patients, third-party payers and the healthcare
community, we may be unable to generate significant revenue, if
any.
Technosphere Insulin System and our other product candidates are
new and unproven. Even if any of our product candidates obtain
regulatory approvals, it may not gain market acceptance among
physicians, patients, third-party payers and the healthcare
community. Failure to achieve market acceptance would limit our
ability to generate revenue and would adversely affect our
results of operations.
The degree of market acceptance of our Technosphere Insulin
System and our other product candidates will depend on many
factors, including the:
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claims for which FDA approval can be obtained, including
superiority claims;
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perceived advantages and disadvantages of competitive products;
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willingness and ability of patients and the healthcare community
to adopt new technologies;
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ability to manufacture the product in sufficient quantities with
acceptable quality and at an acceptable cost;
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perception of patients and the healthcare community, including
third-party payers, regarding the safety, efficacy and benefits
of the product compared to those of competing products or
therapies;
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convenience and ease of administration of the product relative
to existing treatment methods;
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pricing and reimbursement of the product relative to existing
treatment therapeutics and methods; and
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marketing and distribution support for the product.
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Physicians will not recommend a product until clinical data or
other factors demonstrate the safety and efficacy of the product
as compared to other treatments. Even if the clinical safety and
efficacy of our product candidates is established, physicians
may elect not to recommend these product candidates for a
variety of factors, including the reimbursement policies of
government and third-party payers and the effectiveness of our
competitors in marketing their therapies. Because of these and
other factors, any product that we may develop may not gain
market acceptance, which would materially harm our business,
financial condition and results of operations.
If
third-party payers do not reimburse customers for our products,
our products might not be used or purchased, which would
adversely affect our revenues.
Our future revenues and potential for profitability may be
affected by the continuing efforts of governments and
third-party payers to contain or reduce the costs of healthcare
through various means. For example, in certain foreign markets
the pricing of prescription pharmaceuticals is subject to
governmental control. In the United States,
35
there has been, and we expect that there will continue to be, a
number of federal and state proposals to implement similar
governmental controls. We cannot be certain what legislative
proposals will be adopted or what actions federal, state or
private payers for healthcare goods and services may take in
response to any healthcare reform proposals or legislation. Such
reforms may make it difficult to complete the development and
testing of our Technosphere Insulin System and our other product
candidates, and therefore may limit our ability to generate
revenues from sales of our product candidates and achieve
profitability. Further, to the extent that such reforms have a
material adverse effect on the business, financial condition and
profitability of other companies that are prospective
collaborators for some of our product candidates, our ability to
commercialize our product candidates under development may be
adversely affected.
In the United States and elsewhere, sales of prescription
pharmaceuticals still depend in large part on the availability
of reimbursement to the consumer from third-party payers, such
as governmental and private insurance plans. Third-party payers
are increasingly challenging the prices charged for medical
products and services. In addition, because each third-party
payer individually approves reimbursement, obtaining these
approvals is a time-consuming and costly process. We would be
required to provide scientific and clinical support for the use
of any product to each third-party payer separately with no
assurance that approval would be obtained. This process could
delay the market acceptance of any product and could have a
negative effect on our future revenues and operating results.
Even if we succeed in bringing one or more products to market,
we cannot be certain that any such products would be considered
cost-effective or that reimbursement to the consumer would be
available, in which case our business and results of operations
would be harmed and the market price of our common stock could
decline.
If
product liability claims are brought against us, we may incur
significant liabilities and suffer damage to our
reputation.
The testing, manufacturing, marketing and sale of our
Technosphere Insulin System and our other product candidates
expose us to potential product liability claims. A product
liability claim may result in substantial judgments as well as
consume significant financial and management resources and
result in adverse publicity, decreased demand for a product,
injury to our reputation, withdrawal of clinical trial
volunteers and loss of revenues. We currently carry worldwide
clinical trial liability insurance in the amount of
$10 million. We believe these limits are reasonable to
cover us from potential damages arising from current and
previous clinical trials of our Technosphere Insulin System. In
addition, we carry local policies per trial in each country in
which we conduct clinical trials that require us to carry
coverage based on local statutory requirements. We intend to
obtain product liability coverage for commercial sales in the
future if our Technosphere Insulin System is approved. However,
we may not be able to obtain insurance coverage that will be
adequate to satisfy any liability that may arise, and because
insurance coverage in our industry can be very expensive and
difficult to obtain, we cannot assure you that we will be able
to obtain sufficient coverage at an acceptable cost, if at all.
If losses from such claims exceed our liability insurance
coverage, we may ourselves incur substantial liabilities. If we
are required to pay a product liability claim, we may not have
sufficient financial resources to complete development or
commercialization of any of our product candidates and, if so,
our business and results of operations would be harmed and the
market price of our common stock may decline.
If we
lose any key employees or scientific advisors, our operations
and our ability to execute our business strategy could be
materially harmed.
In order to commercialize our product candidates successfully,
we will be required to expand our work force, particularly in
the areas of manufacturing, clinical trials management,
regulatory affairs, business development, and sales and
marketing. These activities will require the addition of new
personnel, including management, and the development of
additional expertise by existing personnel. We face intense
competition for qualified employees among companies in the
biotechnology and biopharmaceutical industries. Our success
depends upon our ability to attract, retain and motivate highly
skilled employees. We may be unable to attract and retain these
individuals on acceptable terms, if at all.
The loss of the services of any principal member of our
management and scientific staff could significantly delay or
prevent the achievement of our scientific and business
objectives. All of our employees are at will and we
currently do not have employment agreements with any of the
principal members of our management or scientific
36
staff, and we do not have key person life insurance to cover the
loss of any of these individuals. Replacing key employees may be
difficult and time-consuming because of the limited number of
individuals in our industry with the skills and experience
required to develop, gain regulatory approval of and
commercialize our product candidates successfully.
We have relationships with scientific advisors at academic and
other institutions to conduct research or assist us in
formulating our research, development or clinical strategy.
These scientific advisors are not our employees and may have
commitments to, and other obligations with, other entities that
may limit their availability to us. We have limited control over
the activities of these scientific advisors and can generally
expect these individuals to devote only limited time to our
activities. Failure of any of these persons to devote sufficient
time and resources to our programs could harm our business. In
addition, these advisors are not prohibited from, and may have
arrangements with, other companies to assist those companies in
developing technologies that may compete with our product
candidates.
If our
Chief Executive Officer is unable to devote sufficient time and
attention to our business, our operations and our ability to
execute our business strategy could be materially
harmed.
Alfred Mann, our Chairman and Chief Executive Officer, is also
serving as the Chairman and Co-Chief Executive Officer of
Advanced Bionics Corporation, a wholly owned subsidiary of
Boston Scientific Corporation. Mr. Mann is involved in many
other business and charitable activities. As a result, the time
and attention Mr. Mann devotes to the operation of our
business varies, and he may not expend the same time or focus on
our activities as other, similarly situated chief executive
officers. If Mr. Mann is unable to devote the time and
attention necessary to running our business, we may not be able
to execute our business strategy and our business could be
materially harmed.
We
have been sued by our former Chief Medical Officer. As a result
of this litigation, we may incur material costs and suffer other
consequences, which may adversely affect us.
In May 2005, Dr. Cheatham filed a complaint against us in
the California Superior Court. The complaint alleges causes of
action for wrongful termination in violation of public policy,
breach of contract and retaliation in connection with the
termination of Dr. Cheathams employment. In the
complaint, Dr. Cheatham seeks compensatory, punitive and
exemplary damages in excess of $2.0 million as well as
reimbursement of attorneys fees. In June 2005, we answered
the complaint and also filed a cross-complaint against
Dr. Cheatham, alleging claims for libel per se, trade
libel, breach of contract, breach of the implied covenant of
good faith and fair dealing and breach of the duty of loyalty.
In July 2005, Dr. Cheatham filed a demurrer and motion to
strike our cross-complaint under Californias anti-SLAPP
statute. In September 2005, the California Superior Court
overruled Dr. Cheathams demurrer and denied his
motion to strike our cross-complaint. In November 2005,
Dr. Cheatham appealed the Courts ruling denying his
motion to strike. In July 2006, we filed a motion for summary
judgment , or in the alternative, for summary adjudication,
requesting dismissal before trial of Dr, Cheathams claims
against us. In October 2006, the Superior Court denied the
motion. In December 2006, the Court of Appeal affirmed in part
and reversed in part the Superior Courts order denying
Dr. Cheathams motion to strike. Subsequently,
Dr. Cheatham filed a notice of dismissal of the retaliation
cause of action, and we filed a notice of dismissal of the
remaining claims under the cross-complaint. This case is
scheduled for trial to commence on April 30, 2007.
The litigation will result in costs and divert managements
attention and resources, any of which could adversely affect our
business, results of operations or financial position. We are
also concerned that, despite the findings by an independent
counsel following an investigation and despite the endorsement
of the independent counsels report by our board of
directors, investors could give undue weight to
Dr. Cheathams allegations, resulting in damage to our
reputation, or the FDA could begin an investigation, either of
which could adversely affect the trading price of our common
stock. To date, we have not been notified of any investigation
by the FDA. If we are not successful in this litigation, we
could be forced to make a significant settlement or judgment
payment to Dr. Cheatham, which could adversely affect our
business, results of operations or financial position.
37
Our
facilities that are located in Southern California may be
affected by man-made or natural disasters.
Our headquarters and some of our research and development
activities are located in Southern California, where they are
subject to a risk of man-made disasters such as terrorism and an
enhanced risk of natural and other disasters such as power and
telecommunications failures, mudslides, fires and earthquakes.
An act of terrorism, fire, earthquake or other catastrophic loss
that causes significant damage to our facilities or interruption
of our business could harm our business. We do not carry
insurance to cover losses caused by earthquakes, and the
insurance coverage that we carry for fire damage and for
business interruption may be insufficient to compensate us for
any losses that we may incur.
If our
internal controls over financial reporting are not considered
effective, our business and stock price could be adversely
affected.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us
to evaluate the effectiveness of our internal controls over
financial reporting as of the end of each fiscal year, and to
include a management report assessing the effectiveness of our
internal controls over financial reporting in our annual report
on
Form 10-K
for that fiscal year. Section 404 also requires our
independent registered public accounting firm to attest to, and
report on, managements assessment of our internal controls
over financial reporting. Our management has concluded, and our
independent registered public accounting firm has attested, that
our internal control over financial reporting was effective as
of December 31, 2006.
Our management, including our Chief Executive Officer and Chief
Financial Officer, does not expect that our internal controls
over financial reporting will prevent all error and all fraud. A
control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the
control systems objectives will be met. Further, the
design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and
instances of fraud involving a company have been, or will be,
detected. The design of any system of controls is based in part
on certain assumptions about the likelihood of future events,
and we cannot assure you that any design will succeed in
achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of
changes in conditions or deterioration in the degree of
compliance with policies or procedures. Because of the inherent
limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected. We cannot
assure you that we or our independent registered public
accounting firm will not identify a material weakness in our
internal controls in the future. A material weakness in our
internal controls over financial reporting would require
management and our independent registered public accounting firm
to evaluate our internal controls as ineffective. If our
internal controls over financial reporting are not considered
effective, we may experience a loss of public confidence, which
could have an adverse effect on our business and on the market
price of our common stock.
RISKS
RELATED TO REGULATORY APPROVALS
Our
product candidates must undergo rigorous preclinical and
clinical testing and we must obtain regulatory approvals, which
could be costly and time-consuming and subject us to
unanticipated delays or prevent us from marketing any
products.
Our research and development activities, as well as the
manufacturing and marketing of our product candidates, including
our Technosphere Insulin System, are subject to regulation,
including regulation for safety, efficacy and quality, by the
FDA in the United States and comparable authorities in other
countries. FDA regulations and the regulation of comparable
foreign regulatory authorities are wide-ranging and govern,
among other things:
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product design, development, manufacture and testing;
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product labeling;
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product storage and shipping;
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pre-market clearance or approval;
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advertising and promotion; and
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product sales and distribution.
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Clinical testing can be costly and take many years, and the
outcome is uncertain and susceptible to varying interpretations.
We expect, based on our discussions with the FDA and on our
understanding of the interactions between the FDA and other
pharmaceutical companies developing inhaled insulin delivery
systems, that we will need safety data covering at least two
years from patients treated with our Technosphere Insulin System
and that we must complete a two-year carcinogenicity study and
an additional six-month carcinogenicity study of Technosphere
Insulin in rodents to obtain approval, among other requirements.
We cannot be certain when or under what conditions we will
undertake further clinical trials. The clinical trials of our
product candidates may not be completed on schedule, the FDA or
foreign regulatory agencies may order us to stop or modify our
research, or these agencies may not ultimately approve any of
our product candidates for commercial sale. The data collected
from our clinical trials may not be sufficient to support
regulatory approval of our various product candidates, including
our Technosphere Insulin System. Even if we believe the data
collected from our clinical trials are sufficient, the FDA has
substantial discretion in the approval process and may disagree
with our interpretation of the data. For example, even if we
meet the statistical criteria for non-inferiority with respect
to the primary endpoint in a pivotal clinical study
(102) of our Technosphere Insulin System, the FDA may deem
the results uninterpretable because of issues related to the
open-label, non-inferiority design of the study. Our failure to
adequately demonstrate the safety and efficacy of any of our
product candidates would delay or prevent regulatory approval of
our product candidates, which could prevent us from achieving
profitability.
The requirements governing the conduct of clinical trials and
manufacturing and marketing of our product candidates, including
our Technosphere Insulin System, outside the United States vary
widely from country to country. Foreign approvals may take
longer to obtain than FDA approvals and can require, among other
things, additional testing and different clinical trial designs.
Foreign regulatory approval processes include all of the risks
associated with the FDA approval processes. Some of those
agencies also must approve prices of the products. Approval of a
product by the FDA does not ensure approval of the same product
by the health authorities of other countries. In addition,
changes in regulatory policy in the United States or in foreign
countries for product approval during the period of product
development and regulatory agency review of each submitted new
application may cause delays or rejections.
The process of obtaining FDA and other required regulatory
approvals, including foreign approvals, is expensive, often
takes many years and can vary substantially based upon the type,
complexity and novelty of the products involved. We are not
aware of any precedent for the successful commercialization of
products based on our technology. On January 26, 2006, the
FDA approved the first pulmonary insulin product, Exubera. This
may impact the development and registration of our Technosphere
Insulin System in many ways, including: the approval of Exubera
may increase the difficulty of enrolling patients in our
clinical trials; Exubera may be viewed as standard of care by
the FDA and used as a reference for the safety/efficacy
evaluations of our Technosphere Insulin System; and the approval
standards set for Exubera may be applied to other products that
follow including our Technosphere Insulin System.
The FDA has advised us that it will regulate our Technosphere
Insulin System as a combination product because of
the complex nature of the system that includes the combination
of a new drug (Technosphere Insulin) and a new medical device
(the MedTone inhaler used to administer the insulin). The FDA
indicated that the review of a future drug marketing application
for our Technosphere Insulin System will involve three separate
review groups of the FDA: (1) the Metabolic and Endocrine
Drug Products Division; (2) the Pulmonary Drug Products
Division; and (3) the Center for Devices and Radiological
Health within the FDA that reviews medical devices. We currently
understand that the Metabolic and Endocrine Drug Products
Division will be the lead group and will obtain consulting
reviews from the other two FDA groups. The FDA has not made an
official final decision in this regard, however, and we can make
no assurances at this time about what impact FDA review by
multiple groups will have on the review and approval of our
product or whether we are correct in our understanding of how
our Technosphere Insulin System will be reviewed and approved.
Also, questions that have been raised about the safety of
marketed drugs generally, including pertaining to the lack of
adequate labeling, may result in increased cautiousness by the
FDA in reviewing new drugs based on safety,
39
efficacy, or other regulatory considerations and may result in
significant delays in obtaining regulatory approvals. Such
regulatory considerations may also result in the imposition of
more restrictive drug labeling or marketing requirements as
conditions of approval, which may significantly affect the
marketability of our drug products. FDA review of our
Technosphere Insulin System as a combination product therapy may
lengthen the product development and regulatory approval
process, increase our development costs and delay or prevent the
commercialization of our Technosphere Insulin System.
We are developing our Technosphere Insulin System as a new
treatment for diabetes utilizing unique, proprietary components.
As a combination product, any changes to either the MedTone
inhaler, the Technosphere material or the insulin, including new
suppliers, could possibly result in FDA requirements to repeat
certain clinical studies. This means, for example, that
switching to an alternate delivery system could require us to
undertake additional clinical trials and other studies, which
could significantly delay the development and commercialization
of our Technosphere Insulin System. Our product candidates that
are currently in development for the treatment of cancer also
face similar obstacles and costs.
We currently expect that our inhaler will be reviewed for
approval as part of the NDA for our Technosphere Insulin System.
No assurances exist that we will not be required to obtain
separate device clearances or approval for use of our inhaler
with our Technosphere Insulin System. This may result in our
being subject to medical device review user fees and to other
device requirements to market our inhaler and may result in
significant delays in commercialization. Even if the device
component is approved as part of our NDA for our Technosphere
Insulin System, numerous device regulatory requirements still
apply to the device part of the drug-device combination.
We
have only limited experience in filing and pursuing applications
necessary to gain regulatory approvals, which may impede our
ability to obtain timely approvals from the FDA or foreign
regulatory agencies, if at all.
We will not be able to commercialize our Technosphere Insulin
System or any other product candidates until we have obtained
regulatory approval. We have no experience as a company in
late-stage regulatory filings, such as preparing and submitting
NDAs, which may place us at risk of delays, overspending and
human resources inefficiencies. Any delay in obtaining, or
inability to obtain, regulatory approval could harm our business.
If we
do not comply with regulatory requirements at any stage, whether
before or after marketing approval is obtained, we may be
subject to criminal prosecution, fined or forced to remove a
product from the market or experience other adverse
consequences, including restrictions or delays in obtaining
regulatory marketing approval.
Even if we comply with regulatory requirements, we may not be
able to obtain the labeling claims necessary or desirable for
product promotion. We may also be required to undertake
post-marketing trials. In addition, if we or other parties
identify adverse effects after any of our products are on the
market, or if manufacturing problems occur, regulatory approval
may be withdrawn and a reformulation of our products, additional
clinical trials, changes in labeling of, or indications of use
for, our products
and/or
additional marketing applications may be required. If we
encounter any of the foregoing problems, our business and
results of operations will be harmed and the market price of our
common stock may decline.
Even
if we obtain regulatory approval for our product candidates,
such approval may be limited and we will be subject to
stringent, ongoing government regulation.
Even if regulatory authorities approve any of our product
candidates, they could approve less than the full scope of uses
or labeling that we seek or otherwise require special warnings
or other restrictions on use or marketing. Regulatory
authorities may limit the segments of the diabetes population to
which we or others may market our Technosphere Insulin System or
limit the target population for our other product candidates.
Based on currently available clinical studies, we believe that
our Technosphere Insulin System may have certain advantages over
currently approved insulin products including its approximation
of the natural early insulin secretion normally seen in healthy
individuals following the beginning of a meal. Nonetheless,
there are no assurances that these and other advantages, if any,
of our Technosphere Insulin System have clinical significance or
can be confirmed in
40
head-to-head
clinical trials against appropriate approved comparator insulin
drug products. Such comparative clinical trials are required to
make these types of superiority claims in labeling or
advertising. These aforementioned observations and others may
therefore not be capable of substantiation in comparative
clinical trials prior to our NDA submission, if at all, or
otherwise may not be suitable for inclusion in product labeling
or advertising and, as a result, our Technosphere Insulin System
may not have competitive advantages when compared to other
insulin products.
The manufacture, marketing and sale of these product candidates
will be subject to stringent and ongoing government regulation.
The FDA may also withdraw product approvals if problems
concerning safety or efficacy of the product occur following
approval. In response to questions that have been raised about
the safety of certain approved prescription products, including
the lack of adequate warnings, the FDA and U.S. Congress
are currently considering new regulatory and legislative
approaches to advertising, monitoring and assessing the safety
of marketed drugs, including legislation providing the FDA with
authority to mandate labeling changes for approved
pharmaceutical products, particularly those related to safety.
We also cannot be sure that the current FDA and
U.S. Congressional initiatives pertaining to ensuring the
safety of marketed drugs or other developments pertaining to the
pharmaceutical industry will not adversely affect our operations.
We also are required to register our establishments and list our
products with the FDA and certain state agencies. We and any
third-party manufacturers or suppliers must continually adhere
to federal regulations setting forth requirements, known as cGMP
(for drugs) and QSR (for medical devices), and their foreign
equivalents, which are enforced by the FDA and other national
regulatory bodies through their facilities inspection programs.
If our facilities, or the facilities of our manufacturers or
suppliers, cannot pass a preapproval plant inspection, the FDA
will not approve the marketing of our product candidates. In
complying with cGMP and foreign regulatory requirements, we and
any of our potential third-party manufacturers or suppliers will
be obligated to expend time, money and effort in production,
record-keeping and quality control to ensure that our products
meet applicable specifications and other requirements. QSR
requirements also impose extensive testing, control and
documentation requirements. State regulatory agencies and the
regulatory agencies of other countries have similar
requirements. In addition, we will be required to comply with
regulatory requirements of the FDA, state regulatory agencies
and the regulatory agencies of other countries concerning the
reporting of adverse events and device malfunctions, corrections
and removals (e.g., recalls), promotion and advertising and
general prohibitions against the manufacture and distribution of
adulterated and misbranded devices. Failure to comply with these
regulatory requirements could result in civil fines, product
seizures, injunctions
and/or
criminal prosecution of responsible individuals and us. Any such
actions would have a material adverse effect on our business and
results of operations.
Our
insulin supplier does not yet supply human recombinant insulin
for an FDA-approved product and will likely be subject to an FDA
preapproval inspection before the agency will approve a future
marketing application for our Technosphere Insulin
System.
Our insulin supplier sells its product outside of the United
States. However, we can make no assurances that our insulin
supplier will be acceptable to the FDA. If we were required to
find a new or additional supplier of insulin, we would be
required to evaluate the new suppliers ability to provide
insulin that meets our specifications and quality requirements,
which would require significant time and expense and could delay
the manufacturing and future commercialization of our
Technosphere Insulin System. We also depend on suppliers for
other materials that comprise our Technosphere Insulin System,
including our MedTone inhaler and cartridges. All of our device
suppliers must comply with relevant regulatory requirements
including QSR. It also is likely that major suppliers will be
subject to FDA preapproval inspections before the agency will
approve a future marketing application for our Technosphere
Insulin System. At the present time our insulin supplier is
certified to the ISO9001:2000 Standard. There can be no
assurance, however, that if the FDA were to conduct a
preapproval inspection of our insulin supplier or other
suppliers, that the agency would find that the supplier
substantially complies with the QSR or cGMP requirements, where
applicable. If we or any potential third-party manufacturer or
supplier fails to comply with these requirements or comparable
requirements in foreign countries, regulatory authorities may
subject us to regulatory action, including criminal
prosecutions, fines and suspension of the manufacture of our
products.
41
Any regulatory approvals that we receive for our product
candidates may also be subject to limitations on the indicated
uses for which the product candidate may be marketed or contain
requirements for potentially costly post-marketing
follow-up
clinical trials.
Reports
of side effects or safety concerns in related technology fields
or in other companies clinical trials could delay or
prevent us from obtaining regulatory approval or negatively
impact public perception of our product
candidates.
At present, there are a number of clinical trials being
conducted by us and other pharmaceutical companies involving
insulin delivery systems. If we discover that our lead product
candidate is associated with a significantly increased frequency
of adverse events, or if other pharmaceutical companies announce
that they observed frequent adverse events in their trials
involving the pulmonary delivery of insulin, we could encounter
delays in the timing of our clinical trials or difficulties in
obtaining the approval of our Technosphere Insulin System. As
well, the public perception of our lead product candidates might
be adversely affected, which could harm our business and results
of operations and cause the market price of our common stock to
decline, even if the concern relates to another companys
products or product candidates.
There are also a number of clinical trials being conducted by
other pharmaceutical companies involving compounds similar to,
or competitive with, our other product candidates. Adverse
results reported by these other companies in their clinical
trials could delay or prevent us from obtaining regulatory
approval or negatively impact public perception of our product
candidates, which could harm our business and results of
operations and cause the market price of our common stock to
decline.
RISKS
RELATED TO INTELLECTUAL PROPERTY
If we
are unable to protect our proprietary rights, we may not be able
to compete effectively, or operate profitably.
Our commercial success depends, in large part, on our ability to
obtain and maintain intellectual property protection for our
technology. Our ability to do so will depend on, among other
things, complex legal and factual questions, and it should be
noted that the standards regarding intellectual property rights
in our fields are still evolving. We attempt to protect our
proprietary technology through a combination of patents, trade
secrets, know-how and confidentiality agreements. We own a
number of domestic and international patents, have a number of
domestic and international patent applications pending and have
licenses to additional patents. We cannot assure you that our
patents and licenses will successfully preclude others from
using our technologies, and we could incur substantial costs in
seeking enforcement of our proprietary rights against
infringement. Even if issued, the patents may not give us an
advantage over competitors with similar alternative technologies.
Moreover, the issuance of a patent is not conclusive as to its
validity or enforceability and it is uncertain how much
protection, if any, will be afforded by our patents. A third
party may challenge the validity or enforceability of a patent
after its issuance by various proceedings such as oppositions in
foreign jurisdictions or re-examinations in the United States.
If we attempt to enforce our patents, they may be challenged in
court where they could be held invalid, unenforceable, or have
their breadth narrowed to an extent that would destroy their
value.
We also rely on unpatented technology, trade secrets, know-how
and confidentiality agreements. We require our officers,
employees, consultants and advisors to execute proprietary
information and invention and assignment agreements upon
commencement of their relationships with us. We also execute
confidentiality agreements with outside collaborators. There can
be no assurance, however, that these agreements will provide
meaningful protection for our inventions, trade secrets or other
proprietary information in the event of unauthorized use or
disclosure of such information. If any trade secret, know-how or
other technology not protected by a patent were to be disclosed
to or independently developed by a competitor, our business,
results of operations and financial condition could be adversely
affected.
42
If we
become involved in lawsuits to protect or enforce our patents or
the patents of our collaborators or licensors, we would be
required to devote substantial time and resources to prosecute
or defend such proceedings.
Competitors may infringe our patents or the patents of our
collaborators or licensors. To counter infringement or
unauthorized use, we may be required to file infringement
claims, which can be expensive and time-consuming. In addition,
in an infringement proceeding, a court may decide that a patent
of ours is not valid or is unenforceable, or may refuse to stop
the other party from using the technology at issue on the
grounds that our patents do not cover its technology. A court
may also decide to award us a royalty from an infringing party
instead of issuing an injunction against the infringing
activity. An adverse determination of any litigation or defense
proceedings could put one or more of our patents at risk of
being invalidated or interpreted narrowly and could put our
patent applications at risk of not issuing.
Interference proceedings brought by the U.S. Patent and
Trademark Office, or USPTO, may be necessary to determine the
priority of inventions with respect to our patent applications
or those of our collaborators or licensors. Litigation or
interference proceedings may fail and, even if successful, may
result in substantial costs and be a distraction to our
management. We may not be able, alone or with our collaborators
and licensors, to prevent misappropriation of our proprietary
rights, particularly in countries where the laws may not protect
such rights as fully as in the United States. We may not prevail
in any litigation or interference proceeding in which we are
involved. Even if we do prevail, these proceedings can be very
expensive and distract our management.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation,
there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. In
addition, during the course of this kind of litigation, there
could be public announcements of the results of hearings,
motions or other interim proceedings or developments. If
securities analysts or investors perceive these results to be
negative, the market price of our common stock may decline.
If our
technologies conflict with the proprietary rights of others, we
may incur substantial costs as a result of litigation or other
proceedings and we could face substantial monetary damages and
be precluded from commercializing our products, which would
materially harm our business.
Over the past three decades the number of patents issued to
biotechnology companies has expanded dramatically. As a result
it is not always clear to industry participants, including us,
which patents cover the multitude of biotechnology product
types. Ultimately, the courts must determine the scope of
coverage afforded by a patent and the courts do not always
arrive at uniform conclusions.
A patent owner may claim that we are making, using, selling or
offering for sale an invention covered by the owners
patents and may go to court to stop us from engaging in such
activities. Such litigation is not uncommon in our industry. For
example, in August 2006, Novo Nordisk filed a lawsuit against
Pfizer claiming that Pfizers product Exubera infringes
certain patents owned by Novo Nordisk that cover inhaled insulin
treatment for diabetes. In its lawsuit, Novo Nordisk is seeking
compensatory damages and permanent injunctive relief. Novo
Nordisk had also filed a motion for a preliminary injunction,
and while it was not granted, it could have substantially
impacted Pfizers ability to commercialize Exubera while
the lawsuit is in progress had it been granted.
Patent lawsuits can be expensive and would consume time and
other resources. There is a risk that a court would decide that
we are infringing a third partys patents and would order
us to stop the activities covered by the patents, including the
commercialization of our products. In addition, there is a risk
that we would have to pay the other party damages for having
violated the other partys patents (which damages may be
increased, as well as attorneys fees ordered paid, if
infringement is found to be willful), or that we will be
required to obtain a license from the other party in order to
continue to commercialize the affected products, or to design
our products in a manner that does not infringe a valid patent.
We may not prevail in any legal action, and a required license
under the patent may not be available on acceptable terms or at
all, requiring cessation of activities that were found to
infringe a valid patent. We also may not be able to develop a
non-infringing product design on commercially reasonable terms,
or at all.
43
Although we own a number of domestic and foreign patents and
patent applications relating to our Technosphere Insulin System
and cancer vaccine products under development, we have
identified certain third-party patents having claims relating to
chemical compositions of matter and pulmonary insulin delivery
that may trigger an allegation of infringement upon the
commercial manufacture and sale of our Technosphere Insulin
System. We have also identified third-party patents disclosing
methods of use and compositions of matter related to DNA-based
vaccines that also may trigger an allegation of infringement
upon the commercial manufacture and sale of our cancer therapy.
If a court were to determine that our insulin products or cancer
therapies were infringing any of these patent rights, we would
have to establish with the court that these patents were invalid
or unenforceable in order to avoid legal liability for
infringement of these patents. However, proving patent
invalidity or unenforceability can be difficult because issued
patents are presumed valid. Therefore, in the event that we are
unable to prevail in an infringement or invalidity action we
will have to either acquire the third-party patents outright or
seek a royalty-bearing license. Royalty-bearing licenses
effectively increase production costs and therefore may
materially affect product profitability. Furthermore, should the
patent holder refuse to either assign or license us the
infringed patents, it may be necessary to cease manufacturing
the product entirely
and/or
design around the patents, if possible. In either event, our
business would be harmed and our profitability could be
materially adversely impacted.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation,
there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. In
addition, during the course of this kind of litigation, there
could be public announcements of the results of hearings,
motions or other interim proceedings or developments. If
securities analysts or investors perceive these results to be
negative, the market price of our common stock may decline.
In addition, patent litigation may divert the attention of key
personnel and we may not have sufficient resources to bring
these actions to a successful conclusion. At the same time, some
of our competitors may be able to sustain the costs of complex
patent litigation more effectively than we can because they have
substantially greater resources. An adverse determination in a
judicial or administrative proceeding or failure to obtain
necessary licenses could prevent us from manufacturing and
selling our products or result in substantial monetary damages,
which would adversely affect our business and results of
operations and cause the market price of our common stock to
decline.
We may
not obtain trademark registrations for our potential trade
names.
We have not selected trade names for some of our products and
product candidates; therefore, we have not filed trademark
registrations for our potential trade names for those products
in all jurisdictions, nor can we assure that we will be granted
registration of those potential trade names for which we have
filed. Although we intend to defend any opposition to our
trademark registrations, no assurance can be given that any of
our trademarks will be registered in the United States or
elsewhere or that the use of any of our trademarks will confer a
competitive advantage in the marketplace. Furthermore, even if
we are successful in our trademark registrations, the FDA has
its own process for drug nomenclature and its own views
concerning appropriate proprietary names. It also has the power,
even after granting market approval, to request a company to
reconsider the name for a product because of evidence of
confusion in the marketplace. We cannot assure you that the FDA
or any other regulatory authority will approve of any of our
trademarks or will not request reconsideration of one of our
trademarks at some time in the future.
RISKS
RELATED TO OUR COMMON STOCK
Our
stock price is volatile.
The stock market, particularly in recent years, has experienced
significant volatility particularly with respect to
pharmaceutical and biotechnology stocks, and this trend may
continue. The volatility of pharmaceutical and biotechnology
stocks often does not relate to the operating performance of the
companies represented by the stock. Our business and the market
price of our common stock may be influenced by a large variety
of factors, including:
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the progress and results of our clinical trials;
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announcements by us or our competitors concerning their clinical
trial results, acquisitions, strategic alliances, technological
innovations and newly approved commercial products;
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44
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the availability of critical materials used in developing and
manufacturing our Technosphere Insulin System or other product
candidates;
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developments or disputes concerning our patents or proprietary
rights;
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developments in our litigation with our former Chief Medical
Officer;
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the expense and time associated with, and the extent of our
ultimate success in, securing regulatory approvals;
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changes in securities analysts estimates of our financial
and operating performance;
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general market conditions and fluctuations for emerging growth
and pharmaceutical market sectors;
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sales of large blocks of our common stock, including sales by
our executive officers, directors and significant stockholders;
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discussion of our Technosphere Insulin System, our other product
candidates, competitors products, or our stock price by
the financial and scientific press, the healthcare community and
online investor communities such as chat rooms; and
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general economic, political or stock market conditions.
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Any of these risks, as well as other factors, could cause the
market price of our common stock to decline.
If
other biotechnology and biopharmaceutical companies or the
securities markets in general encounter problems, the market
price of our common stock could be adversely
affected.
Public companies in general and companies included on the Nasdaq
Global Market in particular have experienced extreme price and
volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those
companies. There has been particular volatility in the market
prices of securities of biotechnology and other life sciences
companies, and the market prices of these companies have often
fluctuated because of problems or successes in a given market
segment or because investor interest has shifted to other
segments. These broad market and industry factors may cause the
market price of our common stock to decline, regardless of our
operating performance. We have no control over this volatility
and can only focus our efforts on our own operations, and even
these may be affected due to the state of the capital markets.
In the past, following periods of large price declines in the
public market price of a companys securities, securities
class action litigation has often been initiated against that
company. Litigation of this type could result in substantial
costs and diversion of managements attention and
resources, which would hurt our business. Any adverse
determination in litigation could also subject us to significant
liabilities.
Our
Chief Executive Officer and principal stockholder can
individually control our direction and policies, and his
interests may be adverse to the interests of our other
stockholders. After his death, his stock will be left to his
funding foundations for distribution to various charities, and
we cannot assure you of the manner in which those entities will
manage their holdings.
Mr. Mann has been our primary source of financing to date.
At December 31, 2006, Mr. Mann beneficially owned
approximately 41.1% of our outstanding shares of capital stock.
We believe members of Mr. Manns family beneficially
owned at least an additional 1.4% of our outstanding shares of
common stock, although Mr. Mann does not have voting or
investment power with respect to these shares. By virtue of his
holdings, Mr. Mann can and will continue to be able to
effectively control the election of the members of our board of
directors, our management and our affairs and prevent corporate
transactions such as mergers, consolidations or the sale of all
or substantially all of our assets that may be favorable from
our standpoint or that of our other stockholders or cause a
transaction that we or our other stockholders may view as
unfavorable.
Subject to compliance with U.S. federal and state
securities laws, Mr. Mann is free to sell the shares of our
stock he holds at any time. Upon his death, we have been advised
by Mr. Mann that his shares of our capital stock will be
left to the Alfred E. Mann Medical Research Organization, or
AEMMRO, and AEM Foundation for
45
Biomedical Engineering, or AEMFBE,
not-for-profit
medical research foundations that serve as funding organizations
for Mr. Manns various charities, including the Alfred
Mann Foundation, or AMF, and the Alfred Mann Institute at the
University of Southern California and at the Technion-Israel
Institute of Technology, and that may serve as funding
organizations for any other charities that he may establish. The
AEMMRO is a membership foundation consisting of six members,
including Mr. Mann, his wife, three of his children and
Dr. Joseph Schulman, the chief scientist of the AEMFBE. The
AEMFBE is a membership foundation consisting of five members,
including Mr. Mann, his wife, and the same three of his
children. Although we understand that the members of AEMMRO and
AEMFBE have been advised of Mr. Manns objectives for
these foundations, once Mr. Manns shares of our
capital stock become the property of the foundations, we cannot
assure you as to how those shares will be distributed or how
they will be voted.
The
future sale of our common stock or the conversion of our senior
convertible notes into common stock could negatively affect our
stock price.
As of December 31, 2006, we had approximately
73.4 million shares of common stock outstanding.
Substantially all of these shares are available for public sale,
subject in some cases to volume and other limitations or
delivery of a prospectus. If our common stockholders sell
substantial amounts of common stock in the public market, or the
market perceives that such sales may occur, the market price of
our common stock may decline. Likewise the issuance of
additional shares of our common stock upon the conversion of
some or all of our senior convertible notes could adversely
affect the trading price of our common stock. In addition, the
existence of these notes may encourage short selling of our
common stock by market participants. Furthermore, if we were to
include in a company-initiated registration statement shares
held by our stockholders pursuant to the exercise of their
registrations rights, the sale of those shares could impair our
ability to raise needed capital by depressing the price at which
we could sell our common stock.
In addition, we will need to raise substantial additional
capital in the future to fund our operations. If we raise
additional funds by issuing equity securities or additional
convertible debt, the market price of our common stock may
decline and our existing stockholders may experience significant
dilution.
Anti-takeover
provisions in our charter documents and under Delaware law could
make an acquisition of us, which may be beneficial to our
stockholders, more difficult and may prevent attempts by our
stockholders to replace or remove our current
management.
We are incorporated in Delaware. Certain anti-takeover
provisions under Delaware law and in our certificate of
incorporation and amended and restated bylaws, as currently in
effect, may make a change of control of our company more
difficult, even if a change in control would be beneficial to
our stockholders. Our anti-takeover provisions include
provisions such as a prohibition on stockholder actions by
written consent, the authority of our board of directors to
issue preferred stock without stockholder approval, and
supermajority voting requirements for specified actions. In
addition, we are governed by the provisions of Section 203
of the Delaware General Corporation Law, which generally
prohibits stockholders owning 15% or more of our outstanding
voting stock from merging or combining with us in certain
circumstances. These provisions may delay or prevent an
acquisition of us, even if the acquisition may be considered
beneficial by some of our stockholders. In addition, they may
frustrate or prevent any attempts by our stockholders to replace
or remove our current management by making it more difficult for
stockholders to replace members of our board of directors, which
is responsible for appointing the members of our management.
Because
we do not expect to pay dividends in the foreseeable future, you
must rely on stock appreciation for any return on your
investment.
We have paid no cash dividends on any of our capital stock to
date, and we currently intend to retain our future earnings, if
any, to fund the development and growth of our business. As a
result, we do not expect to pay any cash dividends in the
foreseeable future, and payment of cash dividends, if any, will
also depend on our financial condition, results of operations,
capital requirements and other factors and will be at the
discretion of our board of directors. Furthermore, we may in the
future become subject to contractual restrictions on, or
prohibitions against, the payment of dividends. Accordingly, the
success of your investment in our common stock will likely
depend entirely upon any future appreciation. There is no
guarantee that our common stock will appreciate in value after
the
46
offering or even maintain the price at which you purchased your
shares, and you may not realize a return on your investment in
our common stock.
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Item 1B.
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Unresolved
Staff Comments.
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This item is not applicable.
In 2001, we acquired a facility in Danbury, Connecticut that
includes two buildings comprising approximately
190,000 square feet and currently house our research and
development, administrative and manufacturing functions,
primarily for Technosphere Insulin formulation, filling and
packaging. We believe that our facility in Danbury has
sufficient space to contain additional Technosphere Insulin
manufacturing capacity necessary to satisfy potential commercial
demand for the launch of our Technosphere Insulin System and,
with the expansion in progress, the first few years thereafter
for our Technosphere Insulin System and other
Technosphere-related products.
We own and occupy approximately 147,000 square feet of
laboratory, office and manufacturing space in Valencia,
California. The facility contains our principal executive
offices and houses our research and development laboratories for
our cancer and other programs. We also use this facility to
provide support for the development of our Technosphere programs.
We lease approximately 48,000 square feet of office space
in Paramus, New Jersey pursuant to a lease that ends in January
2009.
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Item 3.
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Legal
Proceedings
|
In May 2005, our former Chief Medical Officer filed a complaint
against us in the California Superior Court, County of Los
Angeles, Wayman Wendell Cheatham, M.D. v. MannKind
Corporation, Case No. BC333845. The complaint alleges
causes of action for wrongful termination in violation of public
policy, breach of contract and retaliation in connection with
our termination of Dr. Cheathams employment. In the
complaint, Dr. Cheatham seeks compensatory, punitive and
exemplary damages in excess of $2.0 million, as well as
reimbursement of attorneys fees. In June 2005, we answered
the complaint, generally denying each of
Dr. Cheathams allegations and asserting various
defenses. We believe the allegations in the complaint are
without merit and intend to vigorously defend against them. We
also filed a cross-complaint against Dr. Cheatham, alleging
claims for libel per se, trade libel, breach of contract, breach
of the implied covenant of good faith and fair dealing and
breach of the duty of loyalty. The libel claims allege that
Dr. Cheatham made certain false and malicious statements
about us in a letter to the FDA with regard to a request by us
to hold a meeting with the FDA. The remaining causes of action
in the cross-complaint arise out of our allegations that
Dr. Cheatham had an undisclosed consulting relationship
with a competitor during his employment with us, in violation of
our agreement. In July 2005, Dr. Cheatham filed a demurrer
and motion to strike our cross-complaint under Californias
anti-SLAPP statute. In September 2005, the California Superior
Court overruled Dr. Cheathams demurrer and denied his
motion to strike our cross-complaint. Dr. Cheatham then
filed a notice of appeal of the Courts ruling denying his
motion to strike. In November 2005, Dr. Cheatham appealed
the Courts ruling denying his motion to strike. In July
2006, we filed a motion for summary judgment, or in the
alternative, for summary adjudication, requesting dismissal
before trial of Dr. Cheathams claims against us. In
October 2006, the Superior Court denied the motion. In December
2006, the Court of Appeal affirmed in part and reversed in part
the Superior Courts order denying Dr. Cheathams
motion to strike. Subsequently, Dr. Cheatham filed a notice
of dismissal of the retaliation cause of action, and we filed a
notice of dismissal of the remaining claims under the
cross-complaint. This case is scheduled for trial to commence on
April 30, 2007. We believe that the ultimate resolution of
this matter will not have a material impact on our financial
position or results of operations.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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No matters were submitted to a vote of our security holders
during the quarter ended December 31, 2006.
47
PART II
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Item 5.
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Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchase of Equity Securities
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Common
Stock Market Price
Our common stock has been traded on the Nasdaq Global Market
(and its predecessor the Nasdaq National Market) under the
symbol MNKD since July 28, 2004. The following
table sets forth for the quarterly periods indicated, the high
and low sales prices for our common stock as reported by the
Nasdaq Global Market.
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High
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Low
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Year ended December 31, 2004
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Third quarter (from July 28,
2004)
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$
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24.31
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$
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10.71
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Fourth quarter
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$
|
20.40
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$
|
14.32
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Year ended December 31, 2005
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First quarter
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$
|
16.15
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$
|
11.67
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Second quarter
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$
|
16.00
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|
$
|
8.58
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Third quarter
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$
|
14.48
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$
|
8.42
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Fourth quarter
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$
|
13.85
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|
$
|
10.60
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Year ended December 31, 2006
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First quarter
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|
$
|
22.00
|
|
|
$
|
11.05
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Second quarter
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|
$
|
21.74
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|
$
|
16.42
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Third quarter
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|
$
|
21.48
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|
$
|
15.50
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Fourth quarter
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|
$
|
21.68
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$
|
15.73
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The closing sales price of our common stock on the Nasdaq Global
Market was $15.58 on March 8, 2007 and there were
185 registered holders of record as of that date.
48
Performance
Measurement Comparison
The material in this section is not soliciting
material, is not deemed filed with the SEC and
shall not be incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing
of MannKind under the Securities Act or the Exchange Act, except
to the extent MannKind specifically incorporates this section by
reference.
The following graph illustrates a comparison of the cumulative
total stockholder return (change in stock price plus reinvested
dividends) of our common stock with (i) the Nasdaq
Composite Index and (ii) the Nasdaq Biotechnology Index.
The comparisons in the graph are required by the SEC and are not
intended to forecast or be indicative of possible future
performance of our common stock.
Assumes a $100 investment, on July 28, 2004, in
(i) our common stock, (ii) the securities comprising
the Nasdaq Composite Index and (iii) the securities
comprising the Nasdaq Biotechnology Index.
Dividend
Policy
We have never declared or paid any cash dividends on our common
stock. We currently intend to retain all available funds and any
future earnings for use in the operation and expansion of our
business. Accordingly, we do not anticipate paying any cash
dividends on our common stock in the foreseeable future. Any
future determination to pay dividends will be at the discretion
of our board of directors.
Securities
Authorized for Issuance Under Equity Compensation
Plans
The information required to be disclosed by Item 201(d) of
Regulation S-K
is incorporated herein by reference to the proxy Statement.
49
Recent
Sales of Unregistered Securities
There were no sales of equity securities by us that were not
registered under the Securities Act of 1933, as amended, during
the fourth quarter of 2006.
Use of
Proceeds
None.
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Item 6.
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Selected
Financial Data
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The following selected consolidated financial data should be
read in conjunction with MannKind consolidated financial
statements and notes thereto and with Managements
Discussion and Analysis of Financial Condition and Results of
Operations, which are included elsewhere in this report.
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Year Ended December 31,
|
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Statement of Operations Data:
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
|
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(In thousands, except per share amounts)
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|
|
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
42,724
|
|
|
|
45,613
|
|
|
|
59,406
|
|
|
|
95,347
|
|
|
|
191,796
|
|
General and administrative
|
|
|
13,215
|
|
|
|
20,699
|
|
|
|
17,743
|
|
|
|
22,775
|
|
|
|
42,001
|
|
Goodwill impairment
|
|
|
151,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total operating expenses
|
|
|
207,367
|
|
|
|
66,312
|
|
|
|
77,149
|
|
|
|
118,122
|
|
|
|
233,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(207,367
|
)
|
|
|
(66,312
|
)
|
|
|
(77,149
|
)
|
|
|
(118,122
|
)
|
|
|
(233,697
|
)
|
Other income
|
|
|
487
|
|
|
|
36
|
|
|
|
226
|
|
|
|
78
|
|
|
|
208
|
|
Interest expense on note payable
to principal stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on senior
convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
617
|
|
|
|
398
|
|
|
|
932
|
|
|
|
3,707
|
|
|
|
4,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income
taxes
|
|
|
(206,263
|
)
|
|
|
(65,878
|
)
|
|
|
(75,991
|
)
|
|
|
(114,337
|
)
|
|
|
(230,543
|
)
|
Income tax
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(206,265
|
)
|
|
|
(65,879
|
)
|
|
|
(75,992
|
)
|
|
|
(114,338
|
)
|
|
|
(230,548
|
)
|
Deemed dividends related to
beneficial conversion feature of convertible preferred stock
|
|
|
(1,421
|
)
|
|
|
(1,017
|
)
|
|
|
(19,822
|
)
|
|
|
|
|
|
|
|
|
Accretion on redeemable preferred
stock
|
|
|
(251
|
)
|
|
|
(253
|
)
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common
stockholders
|
|
$
|
(207,937
|
)
|
|
$
|
(67,149
|
)
|
|
$
|
(95,874
|
)
|
|
$
|
(114,338
|
)
|
|
$
|
(230,548
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per
share
|
|
$
|
(15.43
|
)
|
|
$
|
(3.63
|
)
|
|
$
|
(3.80
|
)
|
|
$
|
(2.87
|
)
|
|
$
|
(4.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute basic and
diluted net loss per share
|
|
|
13,472
|
|
|
|
18,488
|
|
|
|
25,221
|
|
|
|
39,871
|
|
|
|
50,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
Balance Sheet Data:
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash, cash equivalents and
marketable securities
|
|
$
|
31,052
|
|
|
$
|
55,945
|
|
|
$
|
90,533
|
|
|
$
|
145,634
|
|
|
$
|
436,479
|
|
Working capital
|
|
|
24,171
|
|
|
|
49,097
|
|
|
|
82,837
|
|
|
|
128,507
|
|
|
|
404,588
|
|
Total assets
|
|
|
104,773
|
|
|
|
125,876
|
|
|
|
163,483
|
|
|
|
228,371
|
|
|
|
539,737
|
|
Deferred compensation and other
liabilities
|
|
|
207
|
|
|
|
404
|
|
|
|
76
|
|
|
|
29
|
|
|
|
24
|
|
Senior convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,267
|
|
Redeemable convertible preferred
stock
|
|
|
4,935
|
|
|
|
5,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit accumulated during the
development stage
|
|
|
(301,092
|
)
|
|
|
(366,971
|
)
|
|
|
(442,963
|
)
|
|
|
(557,301
|
)
|
|
|
(787,849
|
)
|
Total stockholders equity
|
|
|
90,773
|
|
|
|
111,577
|
|
|
|
150,363
|
|
|
|
206,977
|
|
|
|
383,487
|
|
|
|
Item 7.
|
Managements
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 report.
OVERVIEW
We are a biopharmaceutical company focused on the discovery,
development and commercialization of therapeutic products for
diseases such as diabetes and cancer. We are currently in
Phase 3 clinical trials in the United States, Europe and
Latin America of our lead product, the Technosphere Insulin
System, to study its safety and efficacy in the treatment of
diabetes. This dry powder therapy consists of our proprietary
Technosphere particles onto which insulin are loaded. These
loaded particles are then aerosolized and inhaled into the deep
lung using our proprietary inhaler. We believe that the
combination of the performance characteristics, unique kinetics,
convenience and ease of use of the Technosphere Insulin System
may have the potential to change the way diabetes is treated. We
are developing additional applications for our proprietary
Technosphere platform technology by formulating other drugs for
pulmonary delivery. We are also developing therapies for the
treatment of solid-tumor cancers. Our other product candidates
are in research and pre-clinical development.
We are a development stage enterprise and have incurred
significant losses since our inception in 1991. As of
December 31, 2006, we have incurred a cumulative net loss
of $787.8 million. To date, we have not generated any
product revenues and have funded our operations primarily
through the sale of equity securities.
We do not anticipate sales of any product prior to regulatory
approval and commercialization of our Technosphere Insulin
System. We currently do not have the required approvals to
market any of our product candidates, and we may not receive
such approvals. We may not be profitable even if we succeed in
commercializing any of our product candidates. We expect to make
substantial and increasing expenditures and to incur additional
operating losses for at least the next several years as we:
|
|
|
|
|
continue the clinical development and commercialization of our
Technosphere Insulin System for the treatment of diabetes;
|
|
|
|
expand our manufacturing operations for our Technosphere Insulin
System to meet our currently anticipated commercial production
needs;
|
|
|
|
expand our other research, discovery and development programs;
|
|
|
|
expand our proprietary Technosphere platform technology and
develop additional applications for the pulmonary delivery of
other drugs; and
|
|
|
|
enter into sales and marketing collaborations with other
companies, if available on commercially reasonable terms, or
develop these capabilities ourselves.
|
51
Our business is subject to significant risks, including but not
limited to the risks inherent in our ongoing clinical trials and
the regulatory approval process, the results of our research and
development efforts, competition from other products and
technologies and uncertainties associated with obtaining and
enforcing patent rights.
RESEARCH
AND DEVELOPMENT EXPENSES
Our research and development expenses consist mainly of costs
associated with the clinical trials of our product candidates
which have not yet received regulatory approval for marketing
and for which no alternative future use has been identified.
This includes the salaries, benefits and stock-based
compensation of research and development personnel, laboratory
supplies and materials, facility costs, costs for consultants
and related contract research, licensing fees, and depreciation
of laboratory equipment. We track research and development costs
by the type of cost incurred. We partially offset research and
development expenses with the recognition of estimated amounts
receivable from the State of Connecticut pursuant to a program
under which we can exchange qualified research and development
income tax credits for cash.
Our research and development staff conducts our internal
research and development activities, which include research,
product development, clinical development, manufacturing and
related activities. This staff is located in our facilities in
Valencia, California; Paramus, New Jersey; and Danbury,
Connecticut. We expense the majority of research and development
costs as we incur them.
Clinical development timelines, likelihood of success and total
costs vary widely. We are focused primarily on advancing the
Technosphere Insulin System through Phase 3 clinical trials
and regulatory filings. We plan to commercialize our lead
product as a treatment for diabetes. Based on the results of
preclinical studies, we plan to develop additional applications
of our Technosphere technology. Additionally, we anticipate that
we will continue to determine which research and development
projects to pursue, and how much funding to direct to each
project, on an ongoing basis, in response to the scientific and
clinical success of each product candidate. We cannot be certain
when any revenues from the commercialization of our products
will commence.
At this time, due to the risks inherent in the clinical trial
process and given the early stage of development of our product
candidates other than the Technosphere Insulin System, we are
unable to estimate with any certainty the costs we will incur in
the continued development of our product candidates for
commercialization. The costs required to complete the
development of our Technosphere Insulin System will be largely
dependent on the scope of our clinical trials, the cost and
efficiency of our manufacturing process and discussions with the
FDA on its requirements. We anticipate that our research and
development expenses, particularly for the Technosphere Insulin
System, will increase significantly with the continuation of
existing clinical trials, the initiation of new trials, the
resulting manufacturing costs associated with producing clinical
trial materials, and the expansion, qualification and validation
of our commercial manufacturing processes and facilities.
Additionally, we expect non-cash stock-based compensation
expense resulting from the adoption of Statement of Financial
Accounting Standards (SFAS) No. 123R,
Share-based Payment: an Amendment of FASB Statement 123
and 95 (SFAS No. 123R), effective as
of January 1, 2006, to increase in the future. See
Note 2 Summary of Significant Accounting
Policies Stock-Based Compensation in the notes to
our financial statements.
GENERAL
AND ADMINISTRATIVE EXPENSES
Our general and administrative expenses consist primarily of
salaries, benefits and stock-based compensation for
administrative, finance, business development, human resources,
legal and information systems support personnel. In addition,
general and administrative expenses include business insurance
and professional services costs.
We expect general and administrative expenses other than
non-cash stock-based compensation expense to increase slightly
in the future as a result of increased headcount, public company
compliance and establishment of investor relations and marketing
programs. We expect overall general and administrative expenses
to increase significantly as a result of the adoption of
SFAS No. 123R. See Note 2 Summary of
Significant Accounting Policies Stock-Based
Compensation in the notes to our financial statements.
52
CRITICAL
ACCOUNTING POLICIES
We have based our discussion and analysis of our financial
condition and results of operations on our financial statements,
which have been prepared in accordance with accounting
principles generally accepted in the United States. The
preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of
assets, liabilities and expenses. We evaluate our estimates and
judgments on an ongoing basis. We base our estimates on
historical experience and on various assumptions that we believe
to be reasonable under the circumstances, the results of which
form the basis for making estimates of expenses such as stock
option expenses and judgments about the carrying values of
assets and liabilities. Actual results may differ from these
estimates under different assumptions or conditions. The
significant accounting policies that are critical to the
judgments and estimates used in the preparation of our financial
statements are described in more detail below.
Impairment
of long-lived assets
Assessing long-lived assets for impairment requires us to make
assumptions and judgments regarding the carrying value of these
assets. We evaluate long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. The assets are
considered to be impaired if we determine that the carrying
value may not be recoverable based upon our assessment of the
following events or changes in circumstances:
|
|
|
|
|
significant changes in our strategic business objectives and
utilization of the assets;
|
|
|
|
a determination that the carrying value of such assets cannot be
recovered through undiscounted cash flows;
|
|
|
|
loss of legal ownership or title to the assets; or
|
|
|
|
the impact of significant negative industry or economic trends.
|
If we believe our assets to be impaired, the impairment we
recognize is the amount by which the carrying value of the
assets exceeds the fair value of the assets. Any write-downs
would be treated as permanent reductions in the carrying amount
of the asset and an operating loss would be recognized. In
addition, we base the useful lives and related amortization or
depreciation expense on our estimate of the useful lives of the
assets. If a change were to occur in any of the above-mentioned
factors or estimates, our reported results could materially
change.
To date, we have had recurring operating losses, and the
recoverability of our long-lived assets is contingent upon
executing our business plan. If we are unable to execute our
business plan, we may be required to write down the value of our
long-lived assets in future periods.
Clinical
trial expenses
Our clinical trial accrual process seeks to account for expenses
resulting from our obligations under contract with vendors,
consultants, and clinical site agreements in connection with
conducting clinical trials. The financial terms of these
contracts are subject to negotiations which vary from contract
to contract and may result in payment flows that do not match
the periods over which materials or services are provided to us
under such contracts. Our objective is to reflect the
appropriate trial expenses in our financial statements by
matching period expenses with period services and efforts
expended. We account for these expenses according to the
progress of the trial as measured by patient progression and the
timing of various aspects of the trial. We determine accrual
estimates through discussions with internal clinical personnel
and outside service providers as to the progress or state of
completion of trials, or the services completed. Service
provider status is then compared to the contractual obligated
fee to be paid for such services. During the course of a
clinical trial, we adjust our rate of clinical expense
recognition if actual results differ from our estimates. In the
event that we do not identify certain costs that have begun to
be incurred or we underestimate or overestimate the level of
services performed or the costs of such services, our reported
expenses for a period would be too low or too high. The date on
which certain services commence, the level of services performed
on or before a given date and the cost of the services are often
judgmental. We make these judgments based upon the facts and
circumstances known to us in accordance with generally accepted
accounting principles.
53
Stock-based
compensation
On January 1, 2006, the Company adopted the provisions of
SFAS No. 123R, which is a revision of
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123). Prior to
January 1, 2006, the Company accounted for employee stock
options and the employee stock purchase plan using the intrinsic
value method in accordance with Accounting Principles Board
(APB) Opinion No. 25 (APB
No. 25), Accounting for Stock Issued to
Employees, and adopted the disclosure only alternative of
SFAS No. 123. SFAS No. 123R eliminated the
intrinsic value method of accounting for stock options which the
Company followed until December 31, 2005. Further,
SFAS No. 123R requires all share-based payments to
employees, including grants of stock options and the
compensatory elements of employee stock purchase plans, to be
recognized in the income statement based upon the fair value of
the awards at the grant date.
Upon adoption of SFAS No. 123R, the Company selected
the modified prospective transition method whereby unvested
awards at the date of adoption, as well as awards that are
granted, modified or settled after the date of adoption, will be
measured and accounted for in accordance with
SFAS No. 123R. Measurement and attribution of
compensation cost for awards unvested as of January 1, 2006
is based on the same estimate of the grant-date or
modification-date fair value and the same attribution method
(straight-line) used previously under SFAS No. 123.
Our consolidated financial statements as of and for the year
ended December 31, 2006 reflect the impact of
SFAS No. 123R. In accordance with the modified
prospective transition method, our consolidated financial
statements for prior periods have not been restated to reflect,
and do not include, the impact of SFAS 123R. If not for the
adoption of SFAS No. 123R, stock-based compensation expense
under APB No. 25 would have been approximately
$3.7 million for the year ended December 31, 2006. The
adoption of SFAS No. 123R in 2006 resulted in an increase
in stock based compensation expense of $11.0 million for a
total of $14.7 million of stock-based compensation for the
year ended December 31, 2006.
Accounting
for income taxes
We must make significant management judgments when determining
our provision for income taxes, our deferred tax assets and
liabilities and any valuation allowance recorded against our net
deferred tax assets. At December 31, 2006, we have
established a valuation allowance of $252.0 million against
all of our net deferred tax asset balance, due to uncertainties
related to our deferred tax assets as a result of our history of
operating losses. The valuation allowance is based on our
estimates of taxable income by jurisdiction in which we operate
and the period over which our deferred tax assets will be
recoverable. In the event that actual results differ from these
estimates or we adjust these estimates in future periods, we may
need to change the valuation allowance, which could materially
impact our financial position and results of operations.
RESULTS
OF OPERATIONS
Years
ended December 31, 2006 and 2005
Revenues
During the year ended December 31, 2006, the Company
recognized $0.1 million in revenue under a license
agreement. No revenues were recorded for the year ended
December 31, 2005. We do not anticipate sales of any
product prior to regulatory approval and commercialization of
our Technosphere Insulin System.
54
Research
and Development Expenses
The following table provides a comparison of the research and
development expense categories for the years ended
December 31, 2006 and 2005 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
$ Change
|
|
|
% Change
|
|
|
Clinical
|
|
$
|
110,623
|
|
|
$
|
49,483
|
|
|
$
|
61,140
|
|
|
|
124
|
%
|
Manufacturing
|
|
|
40,656
|
|
|
|
25,401
|
|
|
|
15,255
|
|
|
|
60
|
%
|
Research
|
|
|
33,962
|
|
|
|
22,449
|
|
|
|
11,513
|
|
|
|
51
|
%
|
Research and development tax credit
|
|
|
(585
|
)
|
|
|
(1,666
|
)
|
|
|
1,081
|
|
|
|
(65
|
)%
|
Stock-based compensation expense
(benefit)
|
|
|
7,140
|
|
|
|
(320
|
)
|
|
|
7,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
191,796
|
|
|
$
|
95,347
|
|
|
$
|
96,449
|
|
|
|
101
|
%
|
The increase in research and development expenses for the year
ended December 31, 2006, as compared to the year ended
December 31, 2005 was primarily due to increased costs
associated with the expanded clinical development of our
Technosphere Insulin System and the continuation of other
preclinical studies; increased salaries and related expenses
driven by higher headcount; increases in consulting services and
technology agreements, and increases in stock-based compensation
expense. The increase in stock-based compensation expense was
due to the adoption of SFAS 123R on January 1, 2006
and the stock-based compensation benefit in 2005 resulting from
the fluctuation of our stock price on the stock options that
were repriced in November 2003. We anticipate that our research
and development expenses associated with our Technosphere
Insulin System, expanding our Technosphere platform technology
and the pursuit of cancer therapies will increase significantly
in 2007. Specifically, we anticipate increased expenses related
to the continuation of existing and initiation of new clinical
trials, and the resulting manufacturing costs associated with
producing clinical trial materials.
The research and development tax credit recognized for the years
ended December 31, 2006 and 2005 partially offsets our
research and development expenses. The State of Connecticut
provides an opportunity to exchange certain research and
development income tax credit carryforwards for cash in exchange
for forgoing the carryforward of the research and development
credits. Estimated amounts receivable under the program are
recorded as a reduction of research and development expenses.
During the years ended December 31, 2006 and 2005, research
and development expenses were offset by $0.6 million and
$1.7 million, respectively, in connection with the program.
General
and Administrative Expenses
The following table provides a comparison of the general and
administrative expense categories for the years ended
December 31, 2006 and 2005 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
$ Change
|
|
|
% Change
|
|
|
Salaries, employee related and
other general expenses
|
|
$
|
34,474
|
|
|
$
|
24,183
|
|
|
$
|
10,291
|
|
|
|
43
|
%
|
Stock-based compensation expense
(benefit)
|
|
|
7,527
|
|
|
|
(1,408
|
)
|
|
|
8,935
|
|
|
|
(635
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
42,001
|
|
|
$
|
22,775
|
|
|
$
|
19,226
|
|
|
|
84
|
%
|
General and administrative expenses for the year ended
December 31, 2006 increased as compared to the year ended
December 31, 2005. Salaries, employee related and other
general expenses increased primarily due to increased headcount
and administrative services. The increase in stock-based
compensation expense was due to the adoption of SFAS 123R
on January 1, 2006 as compared to the stock-based
compensation benefit in 2005 that resulted from the fluctuation
of our stock price on stock options that were repriced in
November 2003. We expect general and administrative expenses
other than non-cash stock-based compensation expense to increase
in the future. We expect overall general and administrative
expenses to increase significantly as a result of the adoption
of SFAS 123R. See Note 2 Summary of
Significant Accounting Policies Stock-Based
Compensation in the footnotes to our financial statements.
55
Years
ended December 31, 2005 and 2004
Revenues
No revenues were recorded for the years ended December 31,
2005 or 2004.
Research
and Development Expenses
The following table provides a comparison of the research and
development expense categories for the years ended
December 31, 2005 and 2004 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
$ Change
|
|
|
% Change
|
|
|
Clinical
|
|
$
|
49,483
|
|
|
$
|
23,477
|
|
|
$
|
26,006
|
|
|
|
111
|
%
|
Manufacturing
|
|
|
25,401
|
|
|
|
19,714
|
|
|
|
5,687
|
|
|
|
29
|
%
|
Research
|
|
|
22,449
|
|
|
|
17,309
|
|
|
|
5,140
|
|
|
|
30
|
%
|
Research and development tax credit
|
|
|
(1,666
|
)
|
|
|
(4,030
|
)
|
|
|
2,364
|
|
|
|
(59
|
)%
|
Stock-based compensation expense
|
|
|
(320
|
)
|
|
|
2,936
|
|
|
|
(3,256
|
)
|
|
|
(111
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
95,347
|
|
|
$
|
59,406
|
|
|
$
|
35,941
|
|
|
|
61
|
%
|
The increase in research and development expenses for the year
ended December 31, 2005, as compared to the year ended
December 31, 2004 was primarily due to ongoing expenses
related to the clinical development of our Technosphere Insulin
System. The expansion of our phase 3 clinical trial program
for our Technosphere Insulin System and the continuation of
other preclinical studies significantly increased our clinical
research expenditures in 2005. This also resulted in increased
Technosphere Insulin manufacturing costs to supply clinical
trial materials. We continue to expand our qualification and
validation of our manufacturing system. Additionally, research
activities related to toxicology studies for our Technosphere
Insulin System, expanding our proprietary Technosphere platform
technology, developing additional applications for the pulmonary
delivery of other drugs and the discovery and development of
programs primarily focused on cancer therapies resulted in
increased research expenditures.
The research and development tax credit recognized for the years
ended December 31, 2005 and 2004 partially offsets our
research and development expenses. The State of Connecticut
provides an opportunity to exchange certain research and
development income tax credit carryforwards for cash in exchange
for forgoing the carryforward of the research and development
credits. Estimated amounts receivable under the program are
recorded as a reduction of research and development expenses.
During the years ended December 31, 2005 and 2004, research
and development expenses were offset by $1.7 million and
$4.0 million, respectively, in connection with the program.
The three months ended September 30, 2004 was the first
period in which we were able to recognize the benefit of these
credits for financial reporting purposes and accordingly the
$4.0 million recognized in the year ended December 31,
2004 included amounts attributable to 2004 and prior years.
The decrease in stock-based compensation expense for the year
ended December 31, 2005 compared to the year ended
December 31, 2004 primarily resulted from the effect of the
decrease of our stock price from December 31, 2004 to
December 31, 2005. A significant portion of the
compensation expense is tied to the stock options that were
repriced in November 2003 as the compensation cost for all
repriced options was measured on a quarterly basis until the
options expired or were exercised or canceled.
56
General
and administrative expenses
The following table provides a comparison of the general and
administrative expense categories for the years ended
December 31, 2005 and 2004 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
$ Change
|
|
|
% Change
|
|
|
Salaries, employee related and
other general expenses
|
|
$
|
24,183
|
|
|
$
|
13,869
|
|
|
$
|
10,314
|
|
|
|
74
|
%
|
Stock-based compensation expense
|
|
|
(1,408
|
)
|
|
|
3,874
|
|
|
|
(5,282
|
)
|
|
|
(136
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
22,775
|
|
|
$
|
17,743
|
|
|
$
|
5,032
|
|
|
|
28
|
%
|
General and administrative expenses for the year ended
December 31, 2005 increased as compared to the year ended
December 31, 2004. Increased administrative services
resulted in increased headcount, compensation adjustments and
other employee related expenses. Additionally, litigation,
public company compliance (including the Sarbanes-Oxley Act) and
our establishment of a marketing function in 2005 increased both
professional fees and consulting expenses. Offsetting increases
to general and administrative expenses for these periods was a
decrease in stock-based compensation expense resulting from the
effect of the fluctuation of our stock price on the valuation of
stock options that were repriced in November 2003.
Deemed
dividends
Deemed dividend for 2004 represents the beneficial conversion
charge to common stockholders related to the downward adjustment
of the Series B and C preferred stock conversion price. All
outstanding preferred stock automatically converted into common
stock at the close of the initial public offering in the third
quarter of 2004, and no further deemed dividend has been or will
be recognized.
LIQUIDITY
AND CAPITAL RESOURCES
We have funded our operations primarily through the sale of
equity securities and a loan agreement with our principal
stockholder. On November 1, 2006, we filed a shelf
registration statement with the SEC for the issuance by us of up
to $500 million of our equity and debt securities from time
to time in one or more transactions. On December 12, 2006,
we closed the sale of 20,000,000 shares of our common stock
at a public offering price of $17.42 per share and on
December 19, 2006, closed the sale of an additional
3,000,000 shares of our common stock at a public offering
price of $17.42 per shares pursuant to an over-allotment
option granted to the underwriters of the offering. The
resulting aggregate net proceeds to us from this common stock
offering was approximately $384.7 million after expenses.
On December 12, 2006, we also sold $115.0 million
aggregate principal amount of 3.75% Senior Convertible
Notes due 2013, which included $15.0 million aggregate
principal amount of the notes sold to cover over-allotments. The
resulting aggregate net proceeds to us from this note offering
was approximately $111.3 million after expenses.
During the year ended December 31, 2006, we used
$189.8 million of cash for our operations compared to using
$101.2 million for our operations in the year ended
December 31, 2005. We had a net loss of $230.5 million
for the year ended December 31, 2006, of which
$25.3 million consisted of non-cash charges such as
depreciation and amortization, stock-based compensation, and
other stock-based charges pursuant to a research agreement. We
expect our negative operating cash flow to continue at least
until we obtain regulatory approval and achieve
commercialization of our Technosphere Insulin System.
We used $48.3 million of cash for investing activities
during the year ended December 31, 2006, compared to using
$94.4 million for the year ended December 31, 2005.
Cash used in investing activities was primarily from net
purchases of marketable securities of $27.5 million and
$20.8 million used to purchase machinery and equipment to
expand our manufacturing operations and quality systems in
support of our expansion of clinical trials for Technosphere
Insulin System. We expect to make significant purchases of
equipment in the foreseeable future.
Our financing activities provided cash of $501.6 million
for the year ended December 31, 2006 compared to
$172.7 million for 2005. Cash from financing activities in
2006 was primarily from the equity and convertible note
57
offerings in December 2006 and the exercise of stock options
throughout the year. For 2005, cash from financing activities
was primarily from the private placement in August 2005 as well
as the exercise of stock options.
As of December 31, 2006, we had $436.5 million in
cash, cash equivalents and marketable securities. Although we
believe our existing cash resources, including the net proceeds
from the equity and convertible note offerings of December 2006,
and the $150.0 million loan agreement with our principal
stockholder, will be sufficient to fund our anticipated cash
requirements into the first quarter of 2008, we will require
significant additional financing in the future to fund our
operations. If adequate funds are not available, we may be
required to delay, reduce or eliminate expenditures for certain
of our programs, including our Technosphere Insulin System
development activities.
We intend to use our capital resources to continue the
development of our Technosphere Insulin System and to develop
additional applications for our proprietary Technosphere
platform technology. In addition, portions of our capital
resources will be devoted to expanding our other product
development programs for the treatment of solid-tumor cancers.
We anticipate that we will expend a portion of our capital to
scale up our manufacturing capabilities in our Danbury
facilities. We also intend to use our capital resources for
general corporate purposes, which may include in-licensing or
acquiring additional technologies.
If we enter into a strategic business collaboration with a
pharmaceutical or biotechnology company, we would expect, as
part of the transaction, to receive additional capital and
reimbursements for a portion of the costs associated with the
development, manufacture and commercialization of our
Technosphere Insulin System. In addition, we expect to pursue
the sale of equity
and/or debt
securities, or the establishment of other funding facilities.
Issuances of debt or additional equity could impact the rights
of our existing stockholders, dilute the ownership percentages
of our existing stockholders and may impose restrictions on our
operations. These restrictions could include limitations on
additional borrowing, specific restrictions on the use of our
assets as well as prohibitions on our ability to create liens,
pay dividends, redeem our stock or make investments. We also may
seek to raise additional capital by pursuing opportunities for
the licensing, sale or divestiture of certain intellectual
property and other assets, including our Technosphere technology
platform. There can be no assurance, however, that any strategic
collaboration, sale of securities or sale or license of assets
will be available to us on a timely basis or on acceptable
terms, if at all. If we are unable to raise additional capital,
we may be required to enter into agreements with third parties
to develop or commercialize products or technologies that we
otherwise would have sought to develop independently, and any
such agreements may not be on terms as commercially favorable to
us.
However, we cannot provide assurances that our plans will not
change or that changed circumstances will not result in the
depletion of our capital resources more rapidly than we
currently anticipate. If planned operating results are not
achieved or we are not successful in raising additional equity
financing or entering a business collaboration, we may be
required to reduce expenses through the delay, reduction or
curtailment of our projects, including our Technosphere Insulin
System development activities, or further reduction of costs for
facilities and administration.
Effects
of Inflation
Our assets are primarily monetary, consisting of cash and cash
equivalents. Because of their liquidity, these assets are not
directly affected by inflation. We also believe that we have
intangible assets in the value of our technology. In accordance
with generally accepted accounting principles, we have not
capitalized the value of this intellectual property on our
consolidated balance sheet. Because we intend to retain and
continue to use our equipment, furniture and fixtures and
leasehold improvements, we believe that the incremental
inflation related to replacement costs of such items will not
materially affect our operations. However, the rate of inflation
affects our expenses, such as those for employee compensation
and contract services, which could increase our level of
expenses and the rate at which we use our cash resources.
Off-Balance
Sheet Arrangements
As of December 31, 2006, we did not have any off-balance
sheet arrangements.
58
COMMITMENTS
AND CONTINGENCIES
Our contractual obligations represent future cash commitments
and liabilities under agreements with third parties, and exclude
contingent liabilities for which we cannot reasonably predict
future payments. Accordingly, the table below excludes
contractual obligations relating to milestone and royalty
payments due to third parties, all of which are contingent upon
certain future events. The expected timing of payment of the
obligations presented below is estimated based on current
information. Future payments relate to operating lease
obligations (including facility leases executed in March 2005
and November 2005), the senior convertible notes, and open
purchase commitments consisted of the following at
December 31, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
5 or More
|
|
|
|
|
Contractual Obligations
|
|
One Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
Years
|
|
|
Total
|
|
|
Open purchase order commitments(1)
|
|
$
|
101,356
|
|
|
$
|
52,823
|
|
|
$
|
490
|
|
|
$
|
|
|
|
$
|
154,669
|
|
Senior Convertible
Note Obligations(2)
|
|
|
4,408
|
|
|
|
8,757
|
|
|
|
8,745
|
|
|
|
123,757
|
|
|
|
145,667
|
|
Operating lease obligations
|
|
|
1,451
|
|
|
|
1,758
|
|
|
|
|
|
|
|
|
|
|
|
3,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
107,215
|
|
|
$
|
63,338
|
|
|
$
|
9,235
|
|
|
$
|
123,757
|
|
|
$
|
303,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts included in open purchase order commitments are
subject to performance under the purchase order by the supplier
of the goods or services and do not become our obligation until
such performance is rendered. The amount shown is principally
for the purchase of materials for our clinical trials, the
acquisition of manufacturing equipment and commitments related
to our manufacturing plant expansion. |
|
(2) |
|
The senior convertible note obligation amounts include future
interest payments at a fixed rate of 3.75% and payment of the
notes in full upon maturity in 2013. |
RELATED
PARTY TRANSACTIONS
For a description of our related party transactions see
Note 17 Certain Relationships and Related Party
Transactions in the notes to our financial statements.
RECENT
ACCOUNTING PRONOUNCEMENTS
In July 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for
uncertainty in income tax positions. FIN 48 addresses the
recognition and measurement of uncertain income tax positions
using a more-likely-than-not threshold and will also
require enhanced disclosures in the financial statements. The
provisions of FIN 48 are effective for us beginning
January 1, 2007. We are currently evaluating the impact of
this Interpretation on our financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157). SFAS No. 157
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands
disclosures about fair value measurements.
SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. We are currently
evaluating the impact of adopting SFAS No. 157 on our
financial statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We have not used derivative financial instruments. However, we
are exposed to market risk related to changes in interest rates.
Our current policy is to maintain a highly liquid short-term
investment portfolio consisting mainly of U.S. money market
funds and government and investment-grade corporate debt. Our
cash is deposited in and invested through highly rated financial
institutions in North America. Our short-term investments are
subject to interest rate risk and will fall in value if market
interest rates increase. If market interest rates were to
increase immediately and uniformly by ten percent from levels at
December 31, 2006, we estimate that the fair value of our
investment portfolio would decline by an immaterial amount.
59
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The information required by this Item is included in
Items 15(a)(1) and (2) of Part IV of this report.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our
reports filed under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange
Commissions rules and forms and that such information is
accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as
appropriate, to allow for timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls
and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives, and management is required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures.
Our chief executive officer and chief financial officer
performed an evaluation under the supervision and with the
participation of our management, of our disclosure controls and
procedures (as defined in
Rule 13a-15(b)
of the Securities Exchange Act of 1934, as amended) as of
December 31, 2006. Based on that evaluation, our chief
executive officer and chief financial officer concluded that our
disclosure controls and procedures were effective at the
reasonable assurance level.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rule 13a-15(f).
Under the supervision and with the participation of our
management, including our chief executive officer and chief
financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework set forth in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework set
forth in Internal Control Integrated
Framework, our management concluded that our internal
control over financial reporting was effective as of
December 31, 2006. Our managements assessment of the
effectiveness of our internal control over financial reporting
as of December 31, 2006 has been audited by
Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their report which is included
herein.
60
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of MannKind
Corporation,
Valencia, California
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting, that MannKind Corporation and subsidiaries
(a development stage company) (the Company)
maintained effective internal control over financial reporting
as of December 31, 2006, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, managements assessment that the Company
maintained effective internal control over financial reporting
as of December 31, 2006, is fairly stated, in all material
respects, based on the criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Also in
our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2006, based on the criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended
December 31, 2006 of the Company and our report dated
March 15, 2007 expressed an unqualified opinion on those
financial statements and included an explanatory paragraph
regarding a change in the manner in which the Company accounts
for share-based compensation in 2006.
/s/ DELOITTE &
TOUCHE LLP
Los Angeles, California
March 15, 2007
61
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
Certain information required by Part III is omitted from
this report because we will file a definitive proxy statement
within 120 days after the end of our fiscal year pursuant
to Regulation 14A for our 2007 annual meeting of
stockholders, and the information included in the proxy
statement is incorporated herein by reference.
|
|
Item 10.
|
Directors
and Executive Officers of the Registrant.
|
(a) Executive Officers For information
regarding the identification and business experience of our
executive officers, see Executive Officers in
Part I, Item 1 of this report.
(b) Directors The information required
by this Item regarding the identification and business
experience of our directors is contained in the section entitled
Proposal 1 Election of Directors in
the proxy statement for the May 2006 annual meeting of
stockholders to be filed with the Securities and Exchange
Commission within 120 days after the end of our fiscal year
ended December 31, 2006, and is incorporated herein by
reference.
Additional information required by this Item is incorporated by
reference to the section entitled Section 16(a)
Beneficial Ownership Reporting Compliance in the proxy
statement.
We have adopted a Code of Business Conduct and Ethics Policy
that applies to our directors and employees (including our
principal executive officer, principal financial officer,
principal accounting officer and controller), and have posted
the text of the policy on our website (www.mannkindcorp.com) in
connection with Investor Relations materials. In
addition, we intend to promptly disclose (i) the nature of
any amendment to the policy that applies to our principal
executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions and (ii) the nature of any waiver, including an
implicit waiver, from a provision of the policy that is granted
to one of these specified individuals, the name of such person
who is granted the waiver and the date of the waiver on our
website in the future.
|
|
Item 11.
|
Executive
Compensation
|
The information under the caption Executive
Compensation in the proxy statement is incorporated herein
by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information under the captions Security Ownership of
Certain Beneficial Owners and Management and
Executive Compensation Securities Authorized
for Issuance under Equity Compensation Plans in the proxy
statement is incorporated herein by this reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions
|
The information under the caption Certain
Transactions in the proxy statement is incorporated herein
by reference. With the exception of the information specifically
incorporated by reference from the proxy statement in this
report, the proxy statement shall not be deemed to be filed as
part of this report. Without limiting the foregoing, the
information under the captions Report of the Audit
Committee of the Board of Directors and Report of
the Compensation Committee of the Board of Directors in
the proxy statement is not incorporated by reference in this
report.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information under the caption Principal Accounting
Fees and Services in the proxy statement is incorporated
herein by reference.
62
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) The following documents are filed as part of, or
incorporated by reference into, this report:
(1)(2) Financial Statements and Financial Statement Schedules.
The following Financial Statements of MannKind Corporation,
Financial Statement Schedules and Report of Independent
Registered Public Accounting Firm are included in a separate
section of this report beginning on
page F-2:
|
|
|
|
|
Report of Independent Registered
Public Accounting Firm
|
|
|
69
|
|
Consolidated Balance Sheets
|
|
|
70
|
|
Statements of Operations
|
|
|
71
|
|
Statements of Stockholders
Equity (Deficit)
|
|
|
72
|
|
Statements of Cash Flows
|
|
|
76
|
|
Notes to Financial Statements
|
|
|
78
|
|
All financial statement schedules have been omitted because the
required information is not applicable or not present in amounts
sufficient to require submission of the schedule, or because the
information required is included in the consolidated financial
statements or the notes thereto.
(3) Exhibits. The exhibits listed under Item 15(c)
hereof are filed with, or incorporated by reference into, this
report. Each management contract or compensatory plan or
arrangement is identified separately in Item 15(c) hereof.
(c) Exhibits. The following exhibits are filed as part of,
or incorporated by reference into, this report:
63
Exhibit Index
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
3
|
.1(1)
|
|
Restated Certificate of
Incorporation.
|
|
3
|
.2(1)
|
|
Amended and Restated Bylaws.
|
|
4
|
.1(11)
|
|
Indenture, by and between MannKind
and Wells Fargo Bank, N.A., dated November 1, 2006.
|
|
4
|
.2(4)
|
|
First Supplemental Indenture, by
and between MannKind and Wells Fargo Bank, N.A., dated
December 12, 2006.
|
|
4
|
.3(4)
|
|
Form of 3.75% Senior
Convertible Note due 2013.
|
|
4
|
.4(1)
|
|
Form of common stock certificate.
|
|
4
|
.5(1)
|
|
Registration Rights Agreement,
dated October 15, 1998 by and among CTL ImmunoTherapies
Corp., Medical Research Group, LLC, McLean Watson Advisory Inc.
and Alfred E. Mann, as amended.
|
|
10
|
.1(2)
|
|
Promissory Note made by MannKind
in favor of Alfred E. Mann dated August 2, 2006.
|
|
10
|
.2(10)
|
|
Allonge #1 to the Promissory
Note made by MannKind in favor of Alfred E. Mann dated
August 2, 2006.
|
|
10
|
.3(3)
|
|
Securities Purchase Agreement,
dated August 2, 2005 by and among MannKind and the
purchasers listed on Exhibit A thereto.
|
|
10
|
.4(5)
|
|
Supply Agreement, dated
December 31, 2004, between MannKind and Vaupell, Inc.
|
|
10
|
.5(1)
|
|
Supply Agreement, dated
January 1, 2000, between Diosynth B.V. and Pharmaceutical
Discovery Corporation.
|
|
10
|
.6*(1)
|
|
Form of Indemnity Agreement
entered into between MannKind and each of its directors and
officers.
|
|
10
|
.7*(9)
|
|
Description of Officers
Incentive Program.
|
|
10
|
.8*(6)
|
|
Description of 2006 executive
officer salaries.
|
|
10
|
.9*(6)
|
|
Description of 2006 non-employee
director compensation.
|
|
10
|
.10*(1)
|
|
Executive Severance Agreement,
dated August 1, 2003, between MannKind and Wendell Cheatham.
|
|
10
|
.11*(1)
|
|
Executive Severance Agreement,
dated August 1, 2003, between MannKind and Hakan Edstrom.
|
|
10
|
.12*(1)
|
|
Executive Severance Agreement,
dated August 1, 2003, between MannKind and David Thomson.
|
|
10
|
.13*(1)
|
|
Executive Severance Agreement,
dated August 1, 2003, between MannKind and Dick Anderson.
|
|
10
|
.14*(1)
|
|
Executive Severance Agreement,
dated August 1, 2003, between MannKind and Dan Burns.
|
|
10
|
.15*(1)
|
|
Change of Control Agreement, dated
August 1, 2003, between MannKind and Wendell Cheatham.
|
|
10
|
.16*(1)
|
|
Change of Control Agreement, dated
August 1, 2003, between MannKind and Hakan Edstrom.
|
|
10
|
.17*(1)
|
|
Change of Control Agreement, dated
August 1, 2003, between MannKind and David Thomson.
|
|
10
|
.18*(1)
|
|
Change of Control Agreement, dated
August 1, 2003, between MannKind and Dick Anderson.
|
|
10
|
.19*(1)
|
|
Change of Control Agreement, dated
August 1, 2003, between MannKind and Dan Burns.
|
|
10
|
.20*(8)
|
|
2004 Equity Incentive Plan and
form of stock option agreement there under.
|
|
10
|
.21*(7)
|
|
Form of Phantom Stock Award
Agreement under the 2004 Equity Incentive Plan.
|
|
10
|
.22*(9)
|
|
2004 Non-Employee Directors
Stock Option Plan and form of stock option agreement there under.
|
|
10
|
.23*(1)
|
|
2004 Employee Stock Purchase Plan
and form of offering document there under.
|
|
10
|
.24*(1)
|
|
Pharmaceutical Discovery
Corporation 1991 Stock Option Plan.
|
|
10
|
.25*(1)
|
|
Pharmaceutical Discovery
Corporation 1999 Stock Plan and form of stock option plan there
under.
|
|
10
|
.26*(1)
|
|
AlleCure Corp. 2000 Stock Option
and Stock Plan.
|
|
10
|
.27*(1)
|
|
CTL Immunotherapies Corp. 2000
Stock Option and Stock Plan.
|
|
10
|
.28*(1)
|
|
2001 Stock Awards Plan.
|
|
23
|
.1
|
|
Consent of Independent Registered
Public Accounting Firm
|
|
31
|
.1
|
|
Certification of the Chief
Executive Officer pursuant to
Rules 13a-14(a)
and
15d-14(a) of
the Securities Exchange Act of 1934, as amended.
|
64
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
31
|
.2
|
|
Certification of the Chief
Financial Officer pursuant to
Rules 13a-14(a)
and
15d-14(a) of
the Securities Exchange Act of 1934, as amended.
|
|
32
|
|
|
Certifications of the Chief
Executive Officer and Chief Financial Officer pursuant to
Rules 13a-14(b)
and
15d-14(b) of
the Securities Exchange Act of 1934, as amended and
Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. § 1350)
|
|
|
|
* |
|
Indicates management contract or compensatory plan. |
|
|
|
Confidential treatment has been granted with respect to certain
portions of this exhibit. Omitted portions have been filed
separately with the SEC. |
|
(1) |
|
Incorporated by reference to MannKinds registration
statement on
Form S-1
(File
No. 333-115020),
filed with the SEC on April 30, 2004, as amended. |
|
(2) |
|
Incorporated by reference to MannKinds Quarterly Report on
Form 10-Q
filed with the SEC on August 3, 2006. |
|
(3) |
|
Incorporated by reference to MannKinds current report on
Form 8-K
filed with the SEC on August 5, 2005. |
|
(4) |
|
Incorporated by reference to MannKinds current report on
Form 8-K
filed with the SEC on December 12, 2006. |
|
(5) |
|
Incorporated by reference to MannKinds current report on
Form 8-K
filed with the SEC on February 23, 2005. |
|
(6) |
|
Incorporated by reference to MannKinds current report on
Form 8-K
filed with the SEC on February 22, 2006. |
|
(7) |
|
Incorporated by reference to MannKinds current report on
Form 8-K
filed with the SEC on December 14, 2005. |
|
(8) |
|
Incorporated by reference to MannKinds Current Report on
Form 8-K
filed with the SEC on May 31, 2006. |
|
(9) |
|
Incorporated by reference to MannKinds Annual Report on
Form 10-K
filed with the SEC on March 16, 2006. |
|
(10) |
|
Incorporated by reference to MannKinds Quarterly Report on
Form 10-Q
filed with the SEC on November 2, 2006. |
|
(11) |
|
Incorporated by reference to MannKinds Registration
Statement on Form
S-3 (File
No. 333-138373)
filed with the SEC on November 2, 2006. |
65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Mannkind Corporation
Alfred E. Mann
Chief Executive Officer
Dated: March 15, 2007
POWER OF
ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Hakan S. Edstrom, Richard
L. Anderson and David Thomson, and each of them, as his or her
true and lawful
attorneys-in-fact
and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place, and stead, in any
and all capacities, to sign any and all amendments to this
Report, and any other documents in connection therewith, and to
file the same, with all exhibits thereto, with the Securities
and Exchange Commission, granting unto said
attorneys-in-fact
and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said
attorneys-in-fact
and agents, or any of them or their or his substitute or
substituted, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ Alfred
E. Mann
Alfred
E. Mann
|
|
Chief Executive Officer and
chairman of the Board of Directors
(Principal Executive Officer)
|
|
March 15, 2007
|
|
|
|
|
|
/s/ Hakan
S. Edstrom
Hakan
S. Edstrom
|
|
President, Chief Operating Officer
and Director
|
|
March 15, 2007
|
|
|
|
|
|
/s/ Richard
L. Anderson
Richard
L. Anderson
|
|
Corporate Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
|
|
March 15, 2007
|
|
|
|
|
|
/s/ Kathleen
Connell, Ph.D.
Kathleen
Connell, Ph.D.
|
|
Director
|
|
March 15, 2007
|
|
|
|
|
|
/s/ Ronald
J. Consiglio
Ronald
J. Consiglio
|
|
Director
|
|
March 15, 2007
|
|
|
|
|
|
/s/ Michael
Friedman, M.D.
Michael
Friedman, M.D.
|
|
Director
|
|
March 15, 2007
|
66
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
Llew
Keltner M.D., Ph.D.
|
|
Director
|
|
March , 2007
|
|
|
|
|
|
Kent
Kresa
|
|
Director
|
|
March , 2007
|
|
|
|
|
|
/s/ David
H. MacCallum
David
H. MacCallum
|
|
Director
|
|
March 15, 2007
|
|
|
|
|
|
Henry
L. Nordhoff
|
|
Director
|
|
March , 2007
|
67
MANNKIND
CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
Report of Independent Registered
Public Accounting Firm
|
|
|
69
|
|
Consolidated Balance Sheets
|
|
|
70
|
|
Statements of Operations
|
|
|
71
|
|
Statements of Stockholders
Equity (Deficit)
|
|
|
72
|
|
Statements of Cash Flows
|
|
|
76
|
|
Notes to Financial Statements
|
|
|
78
|
|
68
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of MannKind
Corporation
Valencia, California
We have audited the accompanying consolidated balance sheets of
MannKind Corporation and subsidiaries (a development stage
company) (the Company) as of December 31, 2005
and 2006 and the related statements of operations,
stockholders equity (deficit) and cash flows for each of
the three years in the period ended December 31, 2006 and
for the period from February 14, 1991 (date of inception)
to December 31, 2006. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of MannKind
Corporation and subsidiaries as of December 31, 2005 and
2006 and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2006 and for the period from February 14,
1991 (date of inception) to December 31, 2006 in conformity
with accounting principles generally accepted in the United
States of America.
As discussed in Note 2 to the consolidated financial
statements, the Company changed the manner in which it accounts
for share-based compensation in 2006.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2006, based on the
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 15, 2007
expressed an unqualified opinion on managements assessment
of the effectiveness of the Companys internal control over
financial reporting and an unqualified opinion on the
effectiveness of the Companys internal control over
financial reporting.
/s/ DELOITTE &
TOUCHE LLP
Los Angeles, California
March 15, 2007
69
MANNKIND
CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
56,037
|
|
|
$
|
319,555
|
|
Marketable securities
|
|
|
89,597
|
|
|
|
116,924
|
|
State research and development
credit exchange receivable current
|
|
|
1,194
|
|
|
|
2,418
|
|
Prepaid expenses and other current
assets
|
|
|
3,044
|
|
|
|
10,650
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
149,872
|
|
|
|
449,547
|
|
Property and equipment
net
|
|
|
76,183
|
|
|
|
88,328
|
|
State research and development
credit exchange receivable net of current portion
|
|
|
2,031
|
|
|
|
1,500
|
|
Other assets
|
|
|
285
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
228,371
|
|
|
$
|
539,737
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,547
|
|
|
$
|
10,715
|
|
Accrued expenses and other current
liabilities
|
|
|
17,818
|
|
|
|
34,244
|
|
Deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
21,365
|
|
|
|
44,959
|
|
Senior convertible notes
|
|
|
|
|
|
|
111,267
|
|
Other liabilities
|
|
|
29
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
21,394
|
|
|
|
156,250
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Undesignated preferred stock,
$0.01 par value 10,000,000 shares
authorized; no shares issued or outstanding at December 31,
2005 and 2006
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par
value 90,000,000 shares authorized; 50,314,108
and 73,360,154 shares issued and outstanding at
December 31, 2005 and 2006, respectively
|
|
|
503
|
|
|
|
734
|
|
Additional paid-in capital
|
|
|
763,775
|
|
|
|
1,170,602
|
|
Deficit accumulated during the
development stage
|
|
|
(557,301
|
)
|
|
|
(787,849
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
206,977
|
|
|
|
383,487
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
228,371
|
|
|
$
|
539,737
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
February 14,
|
|
|
|
|
|
|
|
|
|
|
|
|
1991 (Date of
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception) to
|
|
|
|
Year Ended December 31,
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
100
|
|
|
$
|
2,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
59,406
|
|
|
|
95,347
|
|
|
|
191,796
|
|
|
|
490,196
|
|
General and administrative
|
|
|
17,743
|
|
|
|
22,775
|
|
|
|
42,001
|
|
|
|
139,976
|
|
In-process research and
development costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,726
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
77,149
|
|
|
|
118,122
|
|
|
|
233,797
|
|
|
|
801,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(77,149
|
)
|
|
|
(118,122
|
)
|
|
|
(233,697
|
)
|
|
|
(798,368
|
)
|
Other income
|
|
|
226
|
|
|
|
78
|
|
|
|
208
|
|
|
|
(1,684
|
)
|
Interest expense on note payable
to principal stockholder
|
|
|
|
|
|
|
|
|
|
|
(1,511
|
)
|
|
|
(1,511
|
)
|
Interest expense on senior
convertible notes
|
|
|
|
|
|
|
|
|
|
|
(222
|
)
|
|
|
(222
|
)
|
Interest income
|
|
|
932
|
|
|
|
3,707
|
|
|
|
4,679
|
|
|
|
13,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income
taxes
|
|
|
(75,991
|
)
|
|
|
(114,337
|
)
|
|
|
(230,543
|
)
|
|
|
(787,828
|
)
|
Income taxes
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(75,992
|
)
|
|
|
(114,338
|
)
|
|
|
(230,548
|
)
|
|
|
(787,849
|
)
|
Deemed dividend related to
beneficial conversion feature of convertible preferred stock
|
|
|
(19,822
|
)
|
|
|
|
|
|
|
|
|
|
|
(22,260
|
)
|
Accretion on redeemable preferred
stock
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
(952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common
stockholders
|
|
$
|
(95,874
|
)
|
|
$
|
(114,338
|
)
|
|
$
|
(230,548
|
)
|
|
$
|
(811,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share applicable to
common stockholders basic and diluted
|
|
$
|
(3.80
|
)
|
|
$
|
(2.87
|
)
|
|
$
|
(4.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute basic and
diluted net loss per share applicable to common stockholders
|
|
|
25,221
|
|
|
|
39,871
|
|
|
|
50,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
Series B
|
|
|
Series C
|
|
|
Convertible
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
Notes
|
|
|
Accumulated
|
|
|
|
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Preferred
|
|
|
Stock
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Receivable
|
|
|
Receivable
|
|
|
During the
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Stock
|
|
|
Subscriptions
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
from
|
|
|
from
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Issuable
|
|
|
Receivable
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stockholders
|
|
|
Officers
|
|
|
Stage
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
BALANCE, FEBRUARY 14, 1991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
998
|
|
|
$
|
10
|
|
|
$
|
890
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
900
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(911
|
)
|
|
|
(911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, FEBRUARY 29, 1992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
998
|
|
|
|
10
|
|
|
|
890
|
|
|
|
|
|
|
|
|
|
|
|
(911
|
)
|
|
|
(11
|
)
|
Issuance of common stock for cash
and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
1
|
|
|
|
887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
888
|
|
Capital contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,175
|
)
|
|
|
(1,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, FEBRUARY 28, 1993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,071
|
|
|
|
11
|
|
|
|
1,797
|
|
|
|
|
|
|
|
|
|
|
|
(2,086
|
)
|
|
|
(278
|
)
|
Issuance of common stock for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526
|
|
Issuance of stock for notes
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
400
|
|
|
|
(400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,156
|
)
|
|
|
(1,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, FEBRUARY 28, 1994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,090
|
|
|
|
11
|
|
|
|
2,723
|
|
|
|
(400
|
)
|
|
|
|
|
|
|
(3,242
|
)
|
|
|
(908
|
)
|
Issuance of common stock for cash
and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
1,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,805
|
|
Collection of stock subscription
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,004
|
)
|
|
|
(2,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 1994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,126
|
|
|
|
11
|
|
|
|
4,528
|
|
|
|
|
|
|
|
|
|
|
|
(5,246
|
)
|
|
|
(707
|
)
|
Issuance of common stock for
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
384
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,815
|
)
|
|
|
(2,815
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 1995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,127
|
|
|
|
11
|
|
|
|
4,942
|
|
|
|
|
|
|
|
|
|
|
|
(8,061
|
)
|
|
|
(3,108
|
)
|
Issuance of common stock for cash
and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,570
|
)
|
|
|
(2,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 1996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,131
|
|
|
|
11
|
|
|
|
5,139
|
|
|
|
|
|
|
|
|
|
|
|
(10,631
|
)
|
|
|
(5,481
|
)
|
Issuance of common stock for cash
and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
548
|
|
|
|
6
|
|
|
|
190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
Conversion of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,280
|
)
|
|
|
(2,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 1997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,718
|
|
|
|
17
|
|
|
|
5,526
|
|
|
|
|
|
|
|
|
|
|
|
(12,911
|
)
|
|
|
(7,368
|
)
|
Issuance of common stock for cash
and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,253
|
|
|
|
23
|
|
|
|
12,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,726
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
1
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Conversion of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
2
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,202
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,331
|
)
|
|
|
(3,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 1998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,254
|
|
|
|
43
|
|
|
|
19,603
|
|
|
|
|
|
|
|
|
|
|
|
(16,242
|
)
|
|
|
3,404
|
|
Issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162
|
|
|
|
2
|
|
|
|
532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
534
|
|
Conversion of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
1
|
|
|
|
994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
995
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,679
|
)
|
|
|
(5,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
MANNKIND
CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
Series B
|
|
|
Series C
|
|
|
Convertible
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
Notes
|
|
|
Accumulated
|
|
|
|
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Preferred
|
|
|
Stock
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Receivable
|
|
|
Receivable
|
|
|
During the
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Stock
|
|
|
Subscriptions
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
from
|
|
|
from
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Issuable
|
|
|
Receivable
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stockholders
|
|
|
Officers
|
|
|
Stage
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
BALANCE, DECEMBER 31, 1999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,496
|
|
|
|
46
|
|
|
|
21,129
|
|
|
|
|
|
|
|
|
|
|
|
(21,921
|
)
|
|
|
(746
|
)
|
Conversion of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
1
|
|
|
|
1,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,074
|
|
Issuance of Series B preferred
stock for cash
|
|
|
193
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
Issuance of common stock for cash,
services and notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,690
|
|
|
|
46
|
|
|
|
33,945
|
|
|
|
(2,358
|
)
|
|
|
|
|
|
|
|
|
|
|
31,633
|
|
Discount on notes below market rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
Accrued interest on notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
(117
|
)
|
Purchase of Series A
redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(993
|
)
|
Amount in excess of redemption
obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
999
|
|
Accretion to redemption value on
Series A redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,609
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,661
|
)
|
|
|
(24,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2000
|
|
|
193
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,249
|
|
|
|
93
|
|
|
|
65,613
|
|
|
|
(2,234
|
)
|
|
|
|
|
|
|
(46,582
|
)
|
|
|
31,890
|
|
Issuance of common stock for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,052
|
|
|
|
30
|
|
|
|
78,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,030
|
|
Cash received for common stock to
be issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,900
|
|
Issuance of common stock for
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Accrued interest on notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
(189
|
)
|
Payments on notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
Accretion to redemption value on
Series A redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(239
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,565
|
|
Issuance of put option by
stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,949
|
)
|
Record merger of entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,154
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,245
|
)
|
|
|
(48,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2001
|
|
|
193
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,305
|
|
|
|
123
|
|
|
|
317,117
|
|
|
|
(2,395
|
)
|
|
|
|
|
|
|
(94,827
|
)
|
|
|
235,018
|
|
Issuance of common stock for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,922
|
|
|
|
40
|
|
|
|
58,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,815
|
|
Issuance of common stock for cash
already received
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock award to employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
Cash received for common stock
issuable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
Accrued interest on notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
(229
|
)
|
Payments on notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,314
|
|
|
|
|
|
|
|
|
|
|
|
1,314
|
|
Beneficial conversion feature of
Series B convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,421
|
|
Deemed dividend related to
beneficial conversion feature of Series B convertible
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,421
|
)
|
Accretion to redemption value on
Series A redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268
|
|
Put option redemption by stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,921
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(206,265
|
)
|
|
|
(206,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
MANNKIND
CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
Series B
|
|
|
Series C
|
|
|
Convertible
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
Notes
|
|
|
Accumulated
|
|
|
|
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Preferred
|
|
|
Stock
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Receivable
|
|
|
Receivable
|
|
|
During the
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Stock
|
|
|
Subscriptions
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
from
|
|
|
from
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Issuable
|
|
|
Receivable
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stockholders
|
|
|
Officers
|
|
|
Stage
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
BALANCE, DECEMBER 31, 2002
|
|
|
193
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,464
|
|
|
|
165
|
|
|
|
378,010
|
|
|
|
(1,310
|
)
|
|
|
|
|
|
|
(301,092
|
)
|
|
|
90,773
|
|
Issuance of Series C
convertible preferred stock subscriptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash collected on Series C
convertible preferred stock subscriptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,847
|
|
Issuance of common stock for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,494
|
|
|
|
35
|
|
|
|
49,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
Non-cash compensation expense of
officer resulting from stockholder contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
Issuance of common stock for cash
already received
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable by stockholder
issued to officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225
|
|
|
|
|
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
Accrued interest on notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(105
|
)
|
Beneficial conversion feature of
Series B convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,017
|
|
Deemed dividend related to
beneficial conversion feature of Series B convertible
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,017
|
)
|
Accretion to redemption value on
Series A redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(253
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,501
|
|
Put shares sold to majority
stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
623
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65,879
|
)
|
|
|
(65,879
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2003
|
|
|
193
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
(18,153
|
)
|
|
|
19,975
|
|
|
|
200
|
|
|
|
433,141
|
|
|
|
(1,412
|
)
|
|
|
(228
|
)
|
|
|
(366,971
|
)
|
|
|
111,577
|
|
Issuance of Series C
convertible preferred stock for cash
|
|
|
|
|
|
|
|
|
|
|
356
|
|
|
|
18,153
|
|
|
|
(18,153
|
)
|
|
|
18,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,153
|
|
Issuance of Series C
convertible preferred stock for cash already received
|
|
|
|
|
|
|
|
|
|
|
624
|
|
|
|
31,847
|
|
|
|
(31,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
1,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,079
|
|
Exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
Accrued interest on notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
(107
|
)
|
Repayment of notes receivable by
stockholder issued to officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(225
|
)
|
|
|
|
|
|
|
228
|
|
|
|
|
|
|
|
3
|
|
Repayment of stock note receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
|
|
(1
|
)
|
|
|
(1,518
|
)
|
|
|
1,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series A
convertible preferred stock to common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
891
|
|
|
|
9
|
|
|
|
5,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,248
|
|
Conversion of Series B
convertible preferred stock to common stock
|
|
|
(193
|
)
|
|
|
(15,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
811
|
|
|
|
8
|
|
|
|
14,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series C
convertible preferred stock to common stock
|
|
|
|
|
|
|
|
|
|
|
(980
|
)
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
|
4,464
|
|
|
|
45
|
|
|
|
49,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares in
exchange for warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares under
Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430
|
|
Net proceeds from initial public
offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,557
|
|
|
|
66
|
|
|
|
83,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,176
|
|
Beneficial conversion feature of
Series B convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,822
|
|