MNKD 2017 Annual Report

Expenses The following table provides a comparison of the expense categories for the years ended December 31, 2017 and 2016 (dollars in thousands): Year Ended December 31, 2017 2016 $ Change % Change Expenses: Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,228 $ 17,121 $ 107 1% Cost of revenue - collaboration . . . . . . . . . . . . . . . . . . . . . . . . — 32,971 (32,971) (100%) Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,118 14,917 (799) (5%) Selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,571 19,854 22,717 114% General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,388 27,074 5,314 20% Property and equipment impairment . . . . . . . . . . . . . . . . . . . . 203 1,259 (1,056) (84%) Loss (gain) on foreign currency translation . . . . . . . . . . . . . . . 13,641 (3,433) 17,074 (497%) (Gain) loss on purchase commitment . . . . . . . . . . . . . . . . . . . . (215) (2,265) 2,050 (91%) Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $119,934 $107,498 $ 12,436 12% Cost of goods sold includes the costs related to Afrezza product dispensed by pharmacies to patients as well as the following costs, which are recorded as expenses in the period in which they are incurred, rather than as a portion of the inventory cost: current year manufacturing costs in excess of costs capitalized into inventory, the impact of an annual revaluation of inventory and deferred costs of commercial sales to standard cost, write-offs of inventory and deferred costs of commercial sales. The increase in cost of goods sold of $0.1 million for the year ended December 31, 2017 compared to the prior year is primarily due to increases of $2.8 million in inventory write offs related to obsolescence and $1.6 million in cost of goods attributable to commercial product sales. These increases were offset by a decrease of $4.5 million related to a reduction in current year manufacturing costs in excess of costs capitalized into inventory (resulting from the reduction in work force in the fourth quarter of 2016) and a $0.3 million gain related to the January 2017 revaluation of inventory to standard costs. Costs of revenue from collaboration represents the costs of product manufactured and sold to Sanofi, as well as certain direct costs associated with a firm purchase commitment entered into in connection with the collaboration with Sanofi for the year ended December 31, 2016. During the year ended December 31, 2017, we did not recognize any collaboration product costs. During the year ended December 31, 2016, we recognized $33.0 million of collaboration product costs, which consists of $13.5 million in Afrezza manufacturing costs for product sold to Sanofi, and $19.5 million related to the cost of bulk insulin sold to Sanofi. Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with research and development. Research and development expenses also include third-party clinical spending and clinical grants, manufacturing improvement and Technosphere development. Research and development expenses decreased for the year ended December 31, 2017 by $0.8 million, or 5% compared with the year ended December 31, 2016, primarily due to a $3.6 million decrease in research and development expenses associated with a reduction in workforce in 2016 and an FDA submission fee for label expansion of $1.0 million incurred in 2016. These decreases were offset by a $2.5 million increase in clinical trial expenses, a $0.7 million increase in expenses incurred for research and development related to manufacturing automation and improvements, and a $0.2 million increase in travel expenses. Selling expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs. Selling expenses increased for the year ended December 31, 2017 by $22.7 million, or 114%, compared to the prior year, primarily due to for a full year of 53