MannKind (MNKD)

we issued and sold 23,000,000 shares of our common stock at a price of $17.42 per share in an underwritten public offering. The resulting aggregate net proceeds to us from this common stock offering were approximately $384.7 million after expenses. In December 2006, we also sold $115.0 million aggregate principal amount of 3.75% Senior Convertible Notes due 2013. The resulting aggregate net proceeds to us from this note offering were 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 August 1, 2007 and replaced with a new loan arrangement on October 2, 2007. Under the new loan arrangement, we can borrow up to a total of $350.0 million before January 1, 2010. From April 1, 2008 until September 30, 2008, we can borrow up to $150.0 million in one or more advances, and from March 1, 2009 until December 31, 2009, we can borrow the remaining $200.0 million plus any amount not previously borrowed in one or more advances. We may not borrow more than one advance in any 12-month period, and each advance must be not less than $50.0 million. Interest will accrue on each outstanding advance at a fixed rate equal to the one-year LIBOR rate as reported by the Wall Street Journal on the date of such advance plus 3% per annum and will be payable quarterly in arrears. Principal repayment is due on December 31, 2011. At any time after January 1, 2010, our principal stockholder can require us to prepay up to $200.0 million in advances that have been outstanding for at least 12 months. If our principal stockholder exercises this right, we will have until the earlier of 180 days after our principal stockholder provides written notice or December 31, 2011 to prepay such advances. In the event of a default, all unpaid principal and interest either becomes immediately due and payable or may be accelerated at our principal stockholder’s option, and the interest rate will increase to the one-year LIBOR rate calculated on the date of the initial advance or in effect on the date of default, whichever is greater, plus 5% per annum. Any borrowings under the loan arrangement will be unsecured. The loan arrangement contains no financial covenants. There are no warrants associated with the loan arrangement, nor are advances convertible into our common stock.

 

During the year ended December 31, 2007, we used $245.1 million of cash for our operations compared to using $189.8 million for our operations in the year ended December 31, 2006. We had a net loss of $293.2 million for the year ended December 31, 2007, of which $27.6 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 generated $38.7 million of cash for investing activities during the year ended December 31, 2007, compared to using $48.3 million for the year ended December 31, 2006. Cash provided by investing activities was primarily from net sales of marketable securities of $116.9 million partially offset by $78.3 million in machinery and equipment purchases used 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 $255.2 million for the year ended December 31, 2007 compared to $501.6 million for 2006. Cash from financing activities in 2007 was primarily from the equity offering in October 2007 and the exercise of stock options throughout the year. For 2006, cash from financing activities was primarily from the equity and convertible note offerings in December 2006, as well as the exercise of stock options.

 

As of December 31, 2007, we had $368.3 million in cash and cash equivalents. Although we believe our existing cash resources, including the expanded $350.0 million loan arrangement with our principal stockholder, will be sufficient to fund our anticipated cash requirements through the fourth quarter of 2009, we will require significant additional financing in the future to fund our operations. Accordingly, we expect that we will need to raise additional capital, either through the sale of equity and/or debt securities, a strategic business collaboration with a pharmaceutical or biotechnology company 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.

 

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 different types of cancers. We are expending 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.

 

We have held extensive discussions with a number of pharmaceutical companies concerning a potential strategic business collaboration for our Technosphere Insulin System. To date, we have not reached agreement with any of these companies on a collaboration. While we are continuing to engage in such discussions, we believe that we will have to expend significant additional time and effort before we could reach agreement, and we cannot predict when, if ever, we could conclude such an agreement with a partner. There can be no assurance that any such collaboration will be available to us on a timely basis or on acceptable terms, if at all.

 

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. 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.

 

 

We have funded our operations primarily through the sale of
equity securities. In October 2007, we issued and sold a total
of 27,014,686 shares of our common stock. Of this total,
15,940,489 shares were sold to our principal stockholder at
a price per share of $9.41 and 11,074,197 shares were sold
to other investors at a price per share of $9.03. The resulting
aggregate net proceeds were approximately $249.8 million
after expenses. In December 2006,

we issued and sold 23,000,000 shares of our common stock at
a price of $17.42 per share in an underwritten public offering.
The resulting aggregate net proceeds to us from this common
stock offering were approximately $384.7 million after
expenses. In December 2006, we also sold $115.0 million
aggregate principal amount of 3.75% Senior Convertible
Notes due 2013. The resulting aggregate net proceeds to us from
this note offering were 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
August 1, 2007 and replaced with a new loan arrangement on
October 2, 2007. Under the new loan arrangement, we can
borrow up to a total of $350.0 million before
January 1, 2010. From April 1, 2008 until
September 30, 2008, we can borrow up to $150.0 million
in one or more advances, and from March 1, 2009 until
December 31, 2009, we can borrow the remaining
$200.0 million plus any amount not previously borrowed in
one or more advances. We may not borrow more than one advance in
any 12-month
period, and each advance must be not less than
$50.0 million. Interest will accrue on each outstanding
advance at a fixed rate equal to the one-year LIBOR rate as
reported by the Wall Street Journal on the date of such
advance plus 3% per annum and will be payable quarterly in
arrears. Principal repayment is due on December 31, 2011.
At any time after January 1, 2010, our principal
stockholder can require us to prepay up to $200.0 million
in advances that have been outstanding for at least
12 months. If our principal stockholder exercises this
right, we will have until the earlier of 180 days after our
principal stockholder provides written notice or
December 31, 2011 to prepay such advances. In the event of
a default, all unpaid principal and interest either becomes
immediately due and payable or may be accelerated at our
principal stockholder’s option, and the interest rate will
increase to the one-year LIBOR rate calculated on the date of
the initial advance or in effect on the date of default,
whichever is greater, plus 5% per annum. Any borrowings under
the loan arrangement will be unsecured. The loan arrangement
contains no financial covenants. There are no warrants
associated with the loan arrangement, nor are advances
convertible into our common stock.

 

During the year ended December 31, 2007, we used
$245.1 million of cash for our operations compared to using
$189.8 million for our operations in the year ended
December 31, 2006. We had a net loss of $293.2 million
for the year ended December 31, 2007, of which
$27.6 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 generated $38.7 million of cash for investing activities
during the year ended December 31, 2007, compared to using
$48.3 million for the year ended December 31, 2006.
Cash provided by investing activities was primarily from net
sales of marketable securities of $116.9 million partially
offset by $78.3 million in machinery and equipment
purchases used 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 $255.2 million
for the year ended December 31, 2007 compared to
$501.6 million for 2006. Cash from financing activities in
2007 was primarily from the equity offering in October 2007 and
the exercise of stock options throughout the year. For 2006,
cash from financing activities was primarily from the equity and
convertible note offerings in December 2006, as well as the
exercise of stock options.

 

As of December 31, 2007, we had $368.3 million in cash
and cash equivalents. Although we believe our existing cash
resources, including the expanded $350.0 million loan
arrangement with our principal stockholder, will be sufficient
to fund our anticipated cash requirements through the fourth
quarter of 2009, we will require significant additional
financing in the future to fund our operations. Accordingly, we
expect that we will need to raise additional capital, either
through the sale of equity
and/or debt
securities, a strategic business collaboration with a
pharmaceutical or biotechnology company 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.

 

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 different types of
cancers. We are expending 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.

 

We have held extensive discussions with a number of
pharmaceutical companies concerning a potential strategic
business collaboration for our Technosphere Insulin System. To
date, we have not reached agreement with any of these companies
on a collaboration. While we are continuing to engage in such
discussions, we believe that we will have to expend significant
additional time and effort before we could reach agreement, and
we cannot predict when, if ever, we could conclude such an
agreement with a partner. There can be no assurance that any
such collaboration will be available to us on a timely basis or
on acceptable terms, if at all.

 

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. 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.

 

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.

 

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.