0.0575
6.80
100000000
4200000
2900000
0.119
0.0875
0.0975
90000000
0.25
5.00
12000000
60000000
20000000
1200000
1800000
402380752
775000000
175000000
7500000
90000000
13100000
3200000
0.0975
160000000
160000000
40000000
2900000
40000000
9000000
28529000
12500000
40000000
394036984
394036984
550000000
9000000
0
0.01
10000000
9000000
0.01
0
2000000
115799000
119233000
37744000
49521000
2396000
55824000
3964000
-4000
5086000
37744000
98889000
2371487000
20579000
-46377000
15040000
4205000
236306000
282683000
9745000
2812000
30100000
41214000
41100000
183533000
3696000
2421824000
299332000
463000
236306000
7400000
44910000
6910000
463000
5157000
9000000
10000000
0
1421000
70000000
25000000
3700000
6900000
6700000
7500000
107000
0.0584
2000000
49500000
30100000
120000000
40000000
0.1163
2921000
1168000
20000000
11265000
114131000
54948000
26651000
5273000
81960000
17000
5087000
40000000
0
102300000
37700000
38000000
93500000
0.0575
2400000
100000000
98889000
161200000
1111000
61840000
369391972
369391972
550000000
0
0.01
10000000
0.01
0
111060000
127794000
49521000
2082000
3697000
-4000
3860000
102300000
98439000
2261996000
21634000
-30713000
13605000
5706000
258646000
289359000
12193000
342000
70790000
67700000
176557000
5485000
2296402000
287617000
298000
258646000
5516000
76275000
298000
9000000
1311000
11289000
114099000
54948000
14756000
5273000
82189000
17000
5046000
102300000
107000000
2400000
100000000
98439000
102200000
1561000
1.50
20
P30D
1.00
147.0859
1000
2019-12-31
120100000
0.65
150000000
0.35
0.119
4
0.124
0.123
0.127
-61771000
282062000
-0.31
129432728
-2000
0
-1337000
-87089000
-78022000
-87091000
38000
-2000
1591000
2000
-87089000
-87089000
2000
5006000
448000
4605000
15362000
5946000
78022000
3378000
421000
5729000
-33311000
2398000
6668000
30051000
0
-1591000
53450000
24572000
-974000
15362000
-157000
-686000
30499000
<div>
<p style="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>2. Accrued expenses and other current liabilities</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Accrued expenses and other current liabilities are comprised of the
following (in thousands):</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="76%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>June 30,<br />
2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>December 31,<br />
2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Salary and related expenses</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9,745</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">12,193</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Research and clinical trial costs</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,421</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,311</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accrued interest</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,396</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,082</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Construction in progress</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,812</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">342</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Other</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,205</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,706</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accrued expenses and other current liabilities</p>
</td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">20,579</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">21,634</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>8. Commitments and contingencies</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Guarantees and Indemnifications —</i></b> In the
ordinary course of its business, the Company makes certain
indemnities, commitments and guarantees under which it may be
required to make payments in relation to certain transactions. The
Company, as permitted under Delaware law and in accordance with its
Bylaws, indemnifies its officers and directors for certain events
or occurrences, subject to certain limits, while the officer or
director is or was serving at the Company’s request in such
capacity. The term of the indemnification period is for the
officer’s or director’s lifetime. The maximum amount of
potential future indemnification is unlimited; however, the Company
has a director and officer insurance policy that may enable it to
recover a portion of any future amounts paid. The Company believes
the fair value of these indemnification agreements is minimal. The
Company has not recorded any liability for these indemnities in the
accompanying condensed consolidated balance sheets. However, the
Company accrues for losses for any known contingent liability,
including those that may arise from indemnification provisions,
when future payment is probable and the amount can be reasonably
estimated.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Litigation —</i></b> The Company is subject to legal
proceedings and claims which arise in the ordinary course of its
business. As of the date hereof, the Company believes that the
final disposition of such matters will not have a material adverse
effect on the financial position, results of operations or cash
flows of the Company. The Company maintains liability insurance
coverage to protect the Company’s assets from losses arising
out of or involving activities associated with ongoing and normal
business operations. In accordance with ASC 450
<i>Contingencies</i>, the Company would record a provision for a
liability when it is both probable that a liability has been
incurred and the amount of the loss can be reasonably
estimated.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Contingencies —</i></b> In connection with the Facility
Agreement, on July 1, 2013 the Company also entered into a
Milestone Rights Purchase Agreement (the “Milestone
Agreement”) with Deerfield Private Design Fund and Horizon
Santé FLML SÁRL (collectively, the “Milestone
Purchasers”), pursuant to which the Company sold the
Milestone Purchasers certain rights (the “Milestone
Rights”) to receive payments of up to $90.0 million upon the
occurrence of specified strategic and sales milestones, including
the first commercial sale of an AFREZZA product and the achievement
of specified net sales figures (see Note 11 – Facility
financing agreement).</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>11. Facility financing agreement</b></p>
<!-- xbrl,body -->
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The significant activity related to the facility financing
agreement during the six months ended June 30, 2014 consist of
the following (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="87%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>June 30,<br />
2014</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
<b>Facility financing obligation</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Carrying value at December 31, 2013</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">102,300</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Principal converted to equity</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(93,500</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accretion of debt discount and debt issuance expense</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">7,191</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Adjustment to debt discount related to modification of the 2019
notes</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,921</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Tranche B principal amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">20,000</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Debt discount related to Tranche B purchase</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(1,168</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Net carrying value of facility financing obligation</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">37,744</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
<b>Commitment Asset</b></p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Commitment asset fair value balance at December 31,2013</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,157</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Tranche B commitment asset fair value</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,921</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Less commitment asset portion associated with the receipt of
Tranche B notes</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(1,168</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Commitment asset value included in other assets</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6,910</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Accretion of debt issuance cost and debt discount in connection
with the facility financing agreement during the three and six
months ended June 30, 2014 are as follows (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="64%"></td>
<td valign="bottom" width="14%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="14%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Three months ended<br />
June 30, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Six months ended<br />
June 30, 2014</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accretion expense- debt issuance cost</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">309</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accretion expense- debt discount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">516</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6,883</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On July 1, 2013, the Company entered into the Facility
Agreement providing for the sale of up to $160.0 million of
2019 notes to Deerfield in four equal tranches of $40.0 million
principal amount. The 2019 notes accrue interest at a rate of
9.75% per annum until maturity in 2019 or their earlier
repayment, repurchase, or conversion. As of June 30, 2014,
Deerfield had purchased the first three tranches of 2019 notes in
the aggregate principal amount of $120.0 million. Deerfield’s
obligation to purchase the fourth tranche of the 2019 notes was
subject to (i) the Company’s receipt of marketing
approval of AFREZZA from the FDA, which occurred on June 27,
2014, and (ii) the shares of the Company’s common stock
issuable upon conversion of all previously sold 2019 notes being
freely tradable pursuant to an effective registration statement
filed with the SEC or pursuant to Rule 144 under the Securities
Act. Subsequent to June 30, 2014, on July 18, 2014,
Deerfield purchased the fourth tranche of 2019 notes in the
aggregate principal amount of $40.0 million (See Note 14 —
Subsequent Events).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On February 28, 2014, the Company entered into the Amendment,
which modified the terms of the Facility Agreement to provide for
the issuance of Tranche B notes to Deerfield. Pursuant to the terms
of the Amendment and the subsequent occurrence of certain events
specified in the Amendment, the Company may issue to Deerfield up
to $90.0 million aggregate principal amount of Tranche B
notes. The Tranche B notes bear interest at the rate of
9.75% per year, subject to reduction to 8.75% if the Company
enters into a collaboration with a third party to commercialize
AFREZZA, on the outstanding principal amount, payable in cash
quarterly in arrears on the last business day of March, June,
September and December of each year. The Company is required to
repay 25% of the original principal amount of any Tranche B notes
on the third, fourth, fifth and sixth anniversaries of the
applicable issue dates of such notes, provided that the entire
outstanding principal amount of all Tranche B notes will become due
and payable no later than December 31, 2019. The Tranche B
notes can be prepaid without penalty or premium commencing two
years after issuance thereof. On May 6, 2014, Deerfield
purchased an aggregate principal amount of $20.0 million in Tranche
B notes in accordance with the provisions of the Facility
Agreement, as amended.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In addition, pursuant to the Amendment, the outstanding first
tranche of 2019 notes (the “Tranche 1 notes”) and third
tranche of 2019 notes (the “Tranche 3 notes”) held by
Deerfield were amended and restated to permit Deerfield to convert
up to an additional $60.0 million principal amount under such 2019
notes into the Company’s common stock after the effective
date of the Amendment. The Company also agreed to register for
resale up to 12,000,000 shares of the Company’s common stock
issuable upon conversion of the outstanding 2019 notes, as amended
and restated, as of the date of the Amendment. In March 2014,
Deerfield elected to convert the full $40.0 million of outstanding
principal amount of the Tranche 3 notes and $12.5 million principal
amount of the Tranche 1 notes. In April 2014, Deerfield elected to
convert the remaining $7.5 million principal amount of the Tranche
1 notes.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On August 11, 2014 the Company entered into a second amendment to
the Facility Agreement to permit for the Sanofi Loan Facility.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Milestone Rights</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
In connection with the execution of the Facility Agreement, on
July 1, 2013, the Company issued Milestone Rights to the
Milestone Purchasers. The Milestone Rights provide the Milestone
Purchasers certain rights to receive payments of up to $90.0
million upon the occurrence of specified strategic and sales
milestones, including the first commercial sale of an AFREZZA
product and the achievement of specified net sales figures. The
payments due under the Milestone Rights are subject to pro rata
reduction in the event of certain funding failures by Deerfield
under the Facility Agreement.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Milestone Agreement includes customary representations and
warranties and covenants by the Company, including restrictions on
transfers of intellectual property related to AFREZZA. The
Milestone Rights are subject to acceleration in the event the
Company transfers its intellectual property related to AFREZZA in
violation of the terms of the Milestone Agreement.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Milestone Rights were initially recorded as a short-term
liability equal to $3.2 million included in Accrued expenses and
other current liabilities in the accompanying condensed
consolidated balance sheet and a long term liability equal to $13.1
million included in other liabilities. As of June 30, 2014,
there have been no material changes to facts and circumstances that
would impact the valuation or classification of the Milestone
Rights.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Commitment Asset</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
In connection with the issuance of the Tranche 1 notes and the
Milestone Rights, the Company recorded a commitment asset (the
“Commitment Asset”), on July 1, 2013. As a
result of the Amendment, the Company recorded an additional
commitment asset with an estimated fair value equal to $2.9
million. The Commitment Asset remaining as of June 30, 2014
represented the right to receive $40.0 million funding under
tranche 4 of the 2019 notes (the “Tranche 4 Notes”) and
up to $70.0 million of funding remaining under the Facility
Agreement, as amended, from the sale of the Tranche B notes. The
Commitment Asset is derecognized and recorded as a debt discount on
the 2019 notes and Tranche B notes when issued and amortized using
the effective interest rate method over the life of the respective
notes. Prior to derecognition occurring, the Company monitors the
Commitment Asset on an ongoing basis to determine whether an
impairment indicator is present that would result in a full or
partial write down of the Commitment Asset as a result of events
that may lead to the subsequent tranches of notes not being issued.
Based on the monitoring procedures performed through June 30,
2014, the Company did not identify any indicators of
impairment.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Amendment to the outstanding Tranche 1 notes and Tranche 3
notes</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The amendment and restatement of the outstanding Tranche 1 notes
and Tranche 3 notes, pursuant to the Amendment, did not represent a
troubled debt restructuring of the 2019 notes because the Amendment
did not result in Deerfield granting a concession to the Company.
In addition, the Amendment did not result in a substantial
modification to the terms of the Tranche 1 notes and Tranche 3
notes.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The impact of the Amendment to the Tranche 1 notes and Tranche 3
notes is being accounted for as a prospective yield adjustment.
Specifically, the value of the Tranche B notes commitment asset
(the “Tranche B Commitment Asset”) was considered a fee
received from the creditor as consideration for the Amendment and
is being amortized as an adjustment of interest expense over the
remaining term of the Tranche 1 notes and Tranche 3 notes using the
effective interest method. Further, the value of the Tranche B
Commitment Asset, which decreased the amount of debt discount in
the Tranche 1 notes and Tranche 3 notes, was allocated between the
Tranche 1 notes and Tranche 3 notes in a manner which resulted in
the Tranche 1 notes and Tranche 3 notes having a new effective
interest rate of 11.63%.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 18px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<i>Conversion Option</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
For accounting purposes, the Company evaluated the embedded
conversion option in the 2019 notes as a redemption feature because
the number of shares issuable upon conversion was based on the
volume weighted average prices for specified periods prior to the
conversion date (as opposed to being fixed). Accordingly,
conversions by Deerfield were treated as redemptions of the 2019
notes and, the Company analyzed whether the conversion option
required bifurcation as an embedded redemption feature.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
As of December 31, 2013, Deerfield had converted $6.5 million
principal amount of the second tranche of the 2019 notes (the
“Tranche 2 notes”) for equity, resulting in an issuance
of 1,293,224 shares of the Company’s common stock. Upon
the conversion, the principal balance of the notes were recorded in
equity and an expense was recognized in the Statement of Operations
in the amount of $0.6 million for the difference between the
principal amount of the notes converted and their carrying amount
(which included unamortized discount and debt issuance costs).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
During January 2014, Deerfield elected to convert the remaining
$33.5 million of Tranche 2 notes, which resulted in the issuance of
6,559,251 shares of the Company’s common stock. During the
six months ended June 30, 2014, the Company recorded an
expense of $3.0 million for the difference between the principal
amount of the notes converted and their carrying amount (which
included unamortized discount and debt issuance costs).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In March 2014, following the Amendment, which allowed Deerfield to
convert up to an additional $60.0 million principal amount under
the outstanding Tranche 1 notes and Tranche 3 notes, Deerfield
elected to convert the full $40.0 million of outstanding principal
amount of the Tranche 3 notes and $12.5 million of principal amount
of the Tranche 1 notes, pursuant to which the Company issued
Deerfield 7,121,120 and 2,142,709 shares of the Company’s
common stock, respectively. As a result of these conversions, the
Company recorded the principal balance of the notes in equity and
an expense of $3.0 million for the difference between the
principal amount of the notes converted and their carrying amount
(which included the unamortized discount and debt issuance costs)
and the write-off of the derivative liability that was previously
bifurcated from the Tranche 3 notes.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In April 2014, Deerfield elected to convert the remaining $7.5
million principal amount of the Tranche 1 notes, pursuant to which
the Company issued Deerfield 1,500,000 shares of the
Company’s common stock. As a result of this conversion, the
Company recorded the principal amount being converted under the
Tranche 1 notes in equity and an expense of $0.4 million for
the difference between the principal amount of the notes converted
and their carrying amount (which included the unamortized discount
and debt issuance costs).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Further, upon Deerfield converting the remaining $7.5 million
principal amount of the Tranche 1 notes, the full $60.0 million
principal amount of the Tranche 1 notes and Tranche 3 notes that
Deerfield was permitted to convert pursuant to the Amendment was
converted. Therefore, as of June 30, 2014, no additional
principal amount of the 2019 notes is convertible.</p>
</div>
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>4. Net loss per common share</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Basic net loss per share excludes dilution for potentially dilutive
securities and is computed by dividing net loss applicable to
common stockholders by the weighted average number of common shares
outstanding during the period excluding the shares loaned to Bank
of America, N.A. under a share lending arrangement (see Note 7
— Common and preferred stock). As of June 30, 2014,
9,000,000 shares of the Company’s common stock loaned to Bank
of America, N.A. pursuant to the terms of a share lending agreement
as described in Note 7, were issued and are outstanding, and
holders of the borrowed shares have all the rights of a holder of
the Company’s common stock. However, because the share
borrower must return all borrowed shares to the Company (or, in
certain circumstances, the cash value thereof), the borrowed shares
are not considered outstanding for the purpose of computing and
reporting basic or diluted earnings (loss) per share. Diluted net
loss per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised
or converted into common stock. Potentially dilutive securities are
excluded from the computation of diluted net loss per share for all
of the periods presented in the accompanying condensed consolidated
statements of operations because the reported net loss in each of
these periods results in their inclusion being antidilutive.
Antidilutive securities, which consist of stock options, restricted
stock units, warrants, and shares that could be issued upon
conversion of the senior convertible notes, that are not included
in the diluted net loss per share calculation consisted of an
aggregate of 56,844,341 shares and 129,432,728 shares as of
June 30, 2014 and 2013, respectively, and exclude the
9,000,000 shares loaned under the share lending arrangement.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Total stock-based compensation expense recognized in the
accompanying condensed consolidated statements of operations for
the three and six months ended June 30, 2014 and 2013 was as
follows (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
<tr>
<td width="68%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"><b>Three months ended<br />
June 30,</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"><b>Six months ended<br />
June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Stock-based compensation</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">40,644</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">10,172</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">51,583</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">15,362</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
10-Q
MANNKIND CORP
MNKD
Large Accelerated Filer
P2Y11D
-60408000
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>9. Related-party arrangements</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
In October 2007, the Company entered into a $350.0 million loan
arrangement with its principal stockholder. The Loan Arrangement
has been amended from time to time. On October 31, 2013, the
promissory note underlying the Loan Arrangement was amended to,
among other things, extend the maturity date of the loan to
January 5, 2020, extend the date through which the Company can
borrow under the Loan Arrangement to December 31, 2019,
increase the aggregate borrowing amount under the Loan Arrangement
from $350.0 million to $370.0 million and provide that repayments
or cancellations of principal under the Loan Arrangement will not
be available for reborrowing.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
As of June 30, 2014, the total principal amount outstanding
under the Loan Arrangement was $49.5 million and the amount
available for future borrowings was $30.1 million. Interest, at a
fixed rate of 5.84%, is due and payable quarterly in arrears
on the first day of each calendar quarter for the preceding
quarter, or at such other time as the Company and The Mann Group
mutually agree. All or any portion of accrued and unpaid interest
that becomes due and payable may be paid-in-kind and capitalized as
additional borrowings at any time and would be classified as
non-current upon mutual agreement of both parties. As of
June 30, 2014, the Company had accrued $2.0 million of
interest in other liabilities related to the Loan Arrangement. The
Mann Group can require the Company to prepay up to $200.0 million
in advances that have been outstanding for at least 12 months (less
approximately $105.0 million aggregate principal amount that has
been cancelled in connection with two common stock purchase
agreements). If The Mann Group exercises this right, the Company
will have 90 days after The Mann Group provides written notice (or
the number of days to maturity of the note if less than
90 days) to prepay such advances. However, pursuant to a
letter agreement entered into in August 2010, The Mann Group has
agreed to not require the Company to prepay amounts outstanding
under the amended and restated promissory note if the prepayment
would require the Company to use its working capital resources. In
addition, The Mann Group entered into a subordination agreement
with Deerfield pursuant to which The Mann Group agreed with
Deerfield not to demand or accept any payment under the Loan
Arrangement until the Company’s payment obligations to
Deerfield under the Facility Agreement have been satisfied in full.
Subject to the foregoing, in the event of a default under the Loan
Arrangement, all unpaid principal and interest either becomes
immediately due and payable or may be accelerated at The Mann
Group’s option, and the interest rate will increase to the
one-year LIBOR calculated on the date of the initial advance or in
effect on the date of default, whichever is greater, plus
5% per annum. All borrowings under the Loan Arrangement are
unsecured. The Loan Arrangement contains no financial
covenants.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
During the six months ended June 30, 2014, there were no
additional borrowings under or amendments to the Loan
Arrangement.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The following is a summary of the carrying values and estimated
fair values of the 2015 notes and the facility financing obligation
(i.e., the 2019 notes and Tranche B notes) (in millions):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
<tr>
<td width="65%"></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"><b>June 30, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"><b>December 31, 2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Carrying<br />
value</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Estimated<br />
fair value</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Carrying<br />
value</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Estimated<br />
fair value</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
2015 notes</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">98.9</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">161.2</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">98.4</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">102.2</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Facility financing obligation</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">37.7</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">38.0</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">102.3</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">107.0</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
</div>
0.85
<div>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Accrued expenses and other current liabilities are comprised of the
following (in thousands):</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="76%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>June 30,<br />
2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>December 31,<br />
2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Salary and related expenses</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9,745</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">12,193</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Research and clinical trial costs</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,421</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,311</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accrued interest</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,396</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,082</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Construction in progress</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,812</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">342</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Other</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,205</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,706</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accrued expenses and other current liabilities</p>
</td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">20,579</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">21,634</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
374810000
2014-06-30
<div>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Senior convertible notes consist of the following (in
thousands):</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="74%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>June 30,<br />
2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>December 31,<br />
2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
<b>2015 notes</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Principal amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">100,000</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">100,000</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Unaccreted debt issuance expense</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(1,111</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(1,561</td>
<td nowrap="nowrap" valign="bottom">) </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Net carrying amount</p>
</td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">98,889</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"><font style="font-size:8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">98,439</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
false
--12-31
2014
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>12. Income taxes</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
As required by ASC 740 <i>Income Taxes</i> (“ASC 740”),
management of the Company has evaluated the positive and negative
evidence bearing upon the realizability of its deferred tax assets
and concluded, in accordance with the applicable accounting
standards, that net deferred tax assets should be fully
reserved.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
ASC 740-10-25 <i>Income Taxes Recognition</i> clarifies the
accounting and disclosure for uncertainty in tax positions, as
defined. This guidance seeks to reduce the diversity in practice
associated with certain aspects of the recognition and measurement
related to accounting for income taxes. The Company believes that
its income tax filing positions and deductions will be sustained on
audit and does not anticipate any adjustments that will result in a
material change to its financial position. Therefore, no reserves
for uncertain income tax positions have been recorded pursuant to
this guidance. Tax years since 1993 remain subject to examination
by the major tax jurisdictions in which the Company is subject to
tax.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>10. Senior convertible notes</b></p>
<!-- xbrl,body -->
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Senior convertible notes consist of the following (in
thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="74%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>June 30,<br />
2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31,<br />
2013</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
<b>2015 notes</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Principal amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">100,000</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">100,000</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Unaccreted debt issuance expense</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(1,111</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(1,561</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Net carrying amount</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">98,889</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">98,439</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On August 18, 2010, the Company completed a Rule 144A offering
of $100.0 million aggregate principal amount of 2015 notes. The
2015 notes are governed by the terms of an indenture dated as of
August 24, 2010 (the “2015 Note Indenture”). The
2015 notes bear interest at the rate of 5.75% per year on the
principal amount, payable in cash semi-annually in arrears on
February 15 and August 15 of each year, beginning
February 15, 2011. In connection with the 2015 notes, the
Company had accrued interest of $2.4 million and $2.4 million as of
June 30, 2014 and December 31, 2013, respectively. The
2015 notes are general, unsecured, senior obligations of the
Company and effectively rank junior in right of payment to all of
the Company’s secured debt, to the extent of the value of the
assets securing such debt and to the debt and all other liabilities
of the Company’s subsidiaries. The maturity date of the 2015
notes is August 15, 2015 and payment is due in full on that
date for unconverted securities. Holders of the 2015 notes may
convert, at any time prior to the close of business on the business
day immediately preceding the stated maturity date, any outstanding
principal into shares of the Company’s common stock at an
initial conversion rate of 147.0859 shares per $1,000 principal
amount, which is equal to a conversion price of approximately $6.80
per share, subject to adjustment. Except in certain circumstances,
if the Company undergoes a fundamental change: (1) the Company
will pay a make-whole premium on the 2015 notes converted in
connection with a fundamental change by increasing the conversion
rate on such 2015 notes, which amount, if any, will be based on the
Company’s common stock price and the effective date of the
fundamental change, and (2) each holder of 2015 notes will
have the option to require the Company to repurchase all or any
portion of such holder’s 2015 notes at a repurchase price of
100% of the principal amount of the 2015 notes to be repurchased
plus accrued and unpaid interest, if any. The Company may elect to
redeem some or all of the 2015 notes if the closing stock price has
equaled 150% of the conversion price for at least 20 of the 30
consecutive trading days ending on the trading day before the
Company’s redemption notice. The redemption price will equal
100% of the principal amount of the 2015 notes to be redeemed, plus
accrued and unpaid interest, if any, to, but excluding, the
redemption date, plus a make-whole payment equal to the sum of the
present values of the remaining scheduled interest payments through
and including August 15, 2015 (other than interest accrued up
to, but excluding, the redemption date). The Company will be
obligated to make the make-whole payment on all the 2015 notes
called for redemption and converted during the period from the date
the Company mailed the notice of redemption to and including the
redemption date. The Company may elect to make the make-whole
payment in cash or shares of its common stock, subject to certain
limitations. Under the terms of the 2015 Note Indenture, the
conversion option can be net-share settled and the maximum number
of shares that could be required to be delivered under the
contract, including the make-whole shares, is fixed and less than
the number of authorized and unissued shares less the maximum
number of shares that could be required to be delivered during the
contract period under other existing commitments. Applying the
Company’s sequencing policy, the Company performed an
analysis at the time of the offering of the 2015 notes and each
reporting date since and has concluded that the number of available
authorized shares at the time of the offering and each subsequent
reporting date was sufficient to deliver the number of shares that
could be required to be delivered during the contract period under
existing commitments.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company incurred approximately $4.2 million in issuance costs
which are recorded as an offset to the 2015 notes in the
accompanying condensed consolidated balance sheets. These costs are
being accreted to interest expense using the effective interest
method over the term of the 2015 notes.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The 2015 notes provide that upon an acceleration of certain
indebtedness, including the 2019 notes and the Tranche B notes
described in Note 11, the holders may elect to accelerate the
Company’s repayment obligations under the 2015 notes if such
acceleration is not cured, waived, rescinded or annulled. There can
be no assurance that the holders would not choose to exercise these
rights in the event such events were to occur.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
Accretion of debt issuance expense in connection with the 2015
notes during the three and six months ended June 30, 2014 and
2013 were as follows (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="76%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="6" align="center"><b>Three months ended<br />
June 30,</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="6" align="center"><b>Six months ended<br />
June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accretion expense</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">227</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">212</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">450</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">421</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
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</td>
<td> </td>
<td valign="bottom">  </td>
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<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
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<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
</tr>
</table>
<p> </p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>1. Description of business and basis of presentation</b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The accompanying unaudited condensed consolidated financial
statements of MannKind Corporation and its subsidiaries (
“MannKind” or the “Company”), have been
prepared in accordance with generally accepted accounting
principles in the United States of America (“GAAP”) for
interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X of the Securities and
Exchange Commission (the “SEC”). Accordingly, they do
not include all of the information and footnotes required by GAAP
for complete financial statements. The information included in this
quarterly report on Form 10-Q should be read in conjunction with
the audited consolidated financial statements and notes thereto
included in the Company’s annual report on Form 10-K for the
fiscal year ended December 31, 2013 filed with the SEC on
March 3, 2014 (the “Annual Report”).</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In the opinion of management, all adjustments, consisting only of
normal, recurring adjustments, considered necessary for a fair
presentation of the results of these interim periods have been
included. Interim financial results may not be indicative of the
results that may be expected for the full year.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates or
assumptions. The more significant estimates reflected in these
accompanying financial statements involve assessing long-lived
assets for impairment, accrued expenses, including clinical study
expenses, valuation of forward purchase contracts, valuation of the
facility financing obligation, commitment asset, milestone rights,
valuation of stock-based compensation and the determination of the
provision for income taxes and corresponding deferred tax assets
and liabilities and any valuation allowance recorded against net
deferred tax assets. The estimation process often may yield a range
of potentially reasonable estimates of the ultimate future outcomes
and management must select an amount that falls within that range
of reasonable estimates. This process may result in actual results
differing materially from those estimated amounts used in the
preparation of the financial statements.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Business — </i></b>The Company is a
biopharmaceutical company focused on the discovery and development
of therapeutic products for diseases such as diabetes. The
Company’s lead product, AFREZZA (insulin human) inhalation
powder, is a rapid-acting inhaled insulin that was approved by the
U.S. Food and Drug Administration (“FDA”) on
June 27, 2014 to improve glycemic control in adult patients
with diabetes.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Basis of Presentation — </i></b>The Company is
considered to be in the development stage as its primary activities
since incorporation have been establishing its facilities,
recruiting personnel, conducting research and development, business
development, business and financial planning, and raising capital.
It is costly to develop therapeutic products and conduct clinical
studies for these products. From its inception through
June 30, 2014, the Company had accumulated net losses of $2.4
billion, which include a goodwill impairment charge of $151.4
million and cumulative negative cash flow from operations of $1.8
billion. At June 30, 2014, the Company’s capital
resources consisted of cash and cash equivalents of $41.2 million.
These factors raise substantial doubt about the Company’s
ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of
these uncertainties.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
As of June 30, 2014, the Company had $30.1 million principal
amount of available borrowings under its loan arrangement (the
“Loan Arrangement”) with The Mann Group LLC (“The
Mann Group”) although the Company anticipates using a portion
of these available borrowings to capitalize accrued interest into
principal as it becomes due and payable under the Loan Arrangement,
upon mutual agreement of the parties. As of June 30, 2014, the
Company had accrued $2.0 million of interest related to the Loan
Arrangement.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On July 1, 2013, the Company entered into a facility agreement
(the “Facility Agreement”) with Deerfield Private
Design Fund II, L.P. (“Deerfield Private Design Fund”)
and Deerfield Private Design International II, L.P. (collectively,
“Deerfield”), providing for the sale of up to $160.0
million of Senior Convertible Notes due 2019 (the “2019
notes”) to Deerfield in four equal tranches of $40.0 million
principal amount. As of June 30, 2014, Deerfield had purchased
the first three tranches of 2019 notes in the aggregate principal
amount of $120.0 million leaving $40.0 million of 2019 notes
unsold. On February 28, 2014, the Company entered into a First
Amendment to Facility Agreement and Registration Rights Agreement
(the “Amendment”). The Amendment modified the terms of
the Facility Agreement to provide for the issuance of an additional
tranche of notes (the “Tranche B notes”) to Deerfield.
Pursuant to the terms of the Amendment and the subsequent
occurrence of certain events specified in the Amendment, the
Company may issue to Deerfield up to $90.0 million aggregate
principal amount of Tranche B notes, subject to the satisfaction of
certain conditions. On May 6, 2014, Deerfield purchased $20.0
million aggregate principal amount of the potential $90.0 million
Tranche B notes in accordance with the provisions of the Facility
Agreement, as amended.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; MARGIN-TOP: 12px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On July 18, 2014, Deerfield purchased the fourth and final
tranche of 2019 notes in the aggregate principal amount of $40.0
million. Deerfield’s obligation to purchase the fourth
tranche of 2019 notes was subject to (i) the Company’s
receipt of marketing approval of AFREZZA from the FDA, which
occurred June 27, 2014, and (ii) the shares of the
Company’s common stock issuable upon conversion of all
previously sold 2019 notes being freely tradable pursuant to an
effective registration statement filed with the SEC or pursuant to
Rule 144 under the Securities Act of 1933, as amended (the
“Securities Act”). The Facility Agreement, as amended,
contains a financial covenant that requires the Company’s
cash and cash equivalents, which include available borrowings under
the Loan Arrangement, on the last day of each fiscal quarter to not
be less than $25.0 million. On August 11, 2014 the Company entered
into a second amendment to the Facility Agreement to provide for a
$175.0 million secured loan facility to be provided by an affiliate
of Sanofi in connection the Sanofi License Agreement (as defined
below).</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Additional capital resources potentially available to the Company
include proceeds from the exercise of warrants issued in its
February 2012 public offering, the Company’s at-the-market
issuance sales agreements, and up to $70.0 million of additional
sales of Tranche B notes to Deerfield (see Note 11 – Facility
financing agreement).</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On August 11, 2014, the Company entered into a license and
collaboration agreement (the “Sanofi License
Agreement”) with Sanofi-Aventis Deutschland GmbH
(“Sanofi”) pursuant to which the Company will receive a
$150.0 million upfront fee and may earn up to an aggregate of
$775.0 million upon the achievement of certain development,
manufacturing, regulatory and sales milestones. Worldwide profits
and losses will be shared 65% by Sanofi and 35% by the Company.
Pursuant to a separate supply agreement, the Company will
manufacture AFREZZA at its manufacturing facility in Danbury,
Connecticut to supply Sanofi’s demand for the product. In
addition, the Company received a commitment letter from an
affiliate of Sanofi to provide the Company with a secured loan
facility of up to $175.0 million to fund the Company’s share
of net losses under the Sanofi License Agreement (the “Sanofi
Loan Facility”).</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Based on its current expectations, the Company believes that its
existing capital resources, without considering payments under the
collaboration with Sanofi, will enable it to continue planned
operations at least into the first quarter of 2015. However, the
Company cannot provide assurances that its plans will not change or
that changed circumstances will not result in the depletion of its
capital resources more rapidly than it currently anticipates. The
Company may need to raise additional capital, whether through the
sale of equity or debt securities, additional strategic business
collaborations, the establishment of other funding facilities,
licensing arrangements, asset sales or other means, in order to
support its ongoing activities related to the commercialization of
AFREZZA and the development of other product candidates. However,
the Company cannot provide assurances that such additional capital
will be available on favorable terms, or at all.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Fair Value of Financial Instruments — </i></b>The carrying amounts
reported in the accompanying financial statements for cash and cash
equivalents, accounts payable and accrued liabilities approximate
their fair value due to their relatively short maturities. The fair
value of the cash equivalents, note payable to related party,
senior convertible notes, and the Facility Agreement are discussed
in Note 13, “Fair Value Measurements.”</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Recently Issued Accounting Standards
—</i></b> In
July 2013, the FASB issued ASU 2013-11,<i> Income Taxes (Topic
740): Presentation of an Unrecognized Tax Benefit when a Net
Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit
Carryforward Exists (a consensus of the FASB Emerging Issues Task
Force)</i>. The amendments in this ASU provide guidance on the
financial statements presentation of an unrecognized tax benefit
when a net operating loss carryforward, a similar tax loss, or a
tax credit carryforward exists. An unrecognized tax benefit should
be presented in the financial statements as a reduction to a
deferred tax asset for a net operating loss carryforward, a similar
tax loss, or a tax credit carryforward with certain exceptions, in
which case such an unrecognized tax benefit should be presented in
the financial statements as a liability. The amendments in this ASU
do not require new recurring disclosures. The amendments in this
ASU are effective for fiscal years, and interim periods within
those years, beginning after December 15, 2013. The adoption
of the new requirement did not have a significant impact on the
Company’s consolidated financial statements.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In June 2014, the FASB issued ASU No. 2014-10, Development
Stage Entities (Topic 915): Elimination of Certain Financial
Reporting Requirements, Including an Amendment to Variable Interest
Entities Guidance in Topic 810, Consolidation. The amendments
in this ASU remove all incremental financial reporting requirements
from U.S. GAAP for development stage entities, including the
removal of Topic 915, Development Stage Entities, from the
FASB Accounting Standards Codification. In addition, the ASU:
(a) adds an example disclosure in Topic 275, Risks and
Uncertainties, to illustrate one way that an entity that has
not begun planned principal operations could provide information
about the risks and uncertainties related to the company’s
current activities; and (b) removes an exception provided to
development stage entities in Topic 810, Consolidation, for
determining whether an entity is a variable interest entity. The
presentation and disclosure requirements in Topic 915 will no
longer be required for the first annual period beginning after
December 15, 2014. The revised consolidation standards are
effective one year later, in annual periods beginning after
December 15, 2015. Early adoption is permitted. The Company is
evaluating the impact the adoption of ASU 2014-10 will have on its
consolidated financial statements.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>14. Subsequent Events</b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Facility Agreement</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On July 18, 2014, following receipt of approval of
AFFREZZA<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> from the FDA on June 27,
2014 and the satisfaction of certain other conditions, Deerfield
purchased the Tranche 4 notes, which constituted the fourth and
final tranche of 2019 notes, in the aggregate principal amount of
$40.0 million in accordance with the terms of the Facility
Agreement.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On August 11, 2014 the Company entered into a second amendment to
the Facility Agreement to provide for the Sanofi Loan Facility.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Supply Agreement with Amphastar</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On July 31, 2014, the Company entered into a Supply Agreement
with Amphastar France Pharmaceuticals S.A.S., a French corporation
(“Amphastar”), pursuant to which Amphastar will
manufacture for and supply to the Company certain quantities of
recombinant human insulin (“Insulin”) for use in
AFREZZA. Under the terms of the Supply Agreement, Amphastar will be
responsible for manufacturing the Insulin in accordance with the
Company’s specifications and agreed-upon quality standards.
The Company has agreed to purchase annual minimum quantities of
Insulin under the Supply Agreement of an aggregate of approximately
€120.1 million in calendar years 2015 through 2019. The
Company may request to purchase additional quantities of Insulin
over such annual minimum quantities.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Unless earlier terminated, the term of the Supply Agreement expires
on December 31, 2019 and can be renewed for additional,
successive two year terms upon 12 months written notice, given
prior to the end of the initial term or any additional two year
term. The Company and Amphastar each have normal and customary
termination rights, including termination for material breach that
is not cured within a specific time frame or in the event of
liquidation, bankruptcy or insolvency of the other party. In
addition, The Company may terminate the Supply Agreement upon two
years’ prior written notice to Amphastar without cause or
upon 30 days prior written notice to Amphastar if a controlling
regulatory authority withdraws approval for AFREZZA, provided,
however, in the event of a termination pursuant to either of the
latter two scenarios, the provisions of the Supply Agreement
require the Company to pay the full amount of all unpaid purchase
commitments due over the initial term within 60 calendar days of
the effective date of such termination.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>License and Collaboration Agreement with SANOFI-AVENTIS
Deutschland GmbH</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On August 11, 2014, the Company entered into the Sanofi License
Agreement pursuant to which it will receive $150.0 million upfront
fee and may earn potential payments of up to an aggregate of $775.0
million upon the achievement of certain development, manufacturing,
regulatory and sales milestones. Worldwide profits and losses will
be shared 65% by Sanofi and 35% by the Company. Pursuant to a
separate supply agreement, the Company will manufacture AFREZZA at
its manufacturing facility in Danbury, Connecticut to supply
Sanofi’s demand for the product. In addition, the Company
received a commitment letter from an affiliate of Sanofi to provide
the Company with a secured loan facility of up to $175.0 million to
fund the Company’s share of net losses under the Sanofi
License Agreement. The commitment letter provides that our
obligations under the Sanofi Loan Facility would be secured by a
first priority mortgage on our facility in Valencia, California, a
first priority security interest in certain insulin inventory
located at our facility in Danbury, Connecticut and any contractual
rights and obligations pursuant to which we purchase or have
purchased such insulin, and a second priority security interest in
our assets that secure our obligations under the Facility
Agreement. The commitment is subject to customary conditions,
including the effectiveness of the Sanofi License Agreement, the
finalization of loan documentation and the entry into satisfactory
intercreditor agreement with Deerfield.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The effectiveness of the Sanofi License Agreement and the Supply
Agreement is contingent upon satisfaction of the applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the entry into the definitive loan documents
relating to the Sanofi Loan Facility (unless we terminate the
commitment letter for the Sanofi Loan Facility).</p>
</div>
0000899460
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>3. Accounting for stock-based compensation</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Total stock-based compensation expense recognized in the
accompanying condensed consolidated statements of operations for
the three and six months ended June 30, 2014 and 2013 was as
follows (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
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<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"><b>Three months ended<br />
June 30,</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"><b>Six months ended<br />
June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Stock-based compensation</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">40,644</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">10,172</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">51,583</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">15,362</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
During the three months ended March 31, 2014, the Company
issued stock awards to employees primarily with a four-year vesting
schedule. The grant date fair value of the 46,400 restricted stock
units and 17,700 stock options issued were $296,000 and $81,000,
respectively, with a grant date fair value per share of $6.39 and
$4.58, respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
During the three months ended June 30, 2014, the Company
issued stock awards to employees primarily with a four-year vesting
schedule as well as non-employee directors primarily with a
three-year vesting schedule. The grant date fair value of the
158,600 restricted stock units and 252,600 stock options issued
were $1.23 million and $1.32 million, respectively. The grant date
fair value per share was $7.76 for restricted stock units, $5.31
for employee stock options and $5.22 for non-employee director
stock options.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On June 30, 2014, the Company modified certain performance
grants to allow 124 employees to withhold in excess of the minimum
statutory requirements for performance-based restricted stock units
at the employee’s discretion through December 31, 2014.
The modification resulted in the reclassification of these
performance grants from equity awards to liability awards, which
require re-measurement at the end of each reporting period through
settlement. Consequently, as of June 30, 2014, the
reclassification and re-measurement of these performance-based
restricted stock units resulted in an increase in stock-based
compensation expense of $35.9 million.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
As of June 30, 2014, there was $7.5 million of unrecognized
compensation cost related to options and $6.7 million and $6.9
million of unrecognized compensation cost related to equity and
liability classified restricted stock units, respectively, which
are expected to be recognized over the remaining weighted average
vesting period of 2.03 years. The Company evaluates stock awards
with performance conditions as to the probability that the
performance conditions will be met and estimates the date at which
the performance conditions will be met in order to properly
recognize stock-based compensation expense over the requisite
service period. As of June 30, 2014, there were $107,000 and
$3.7 million of unrecognized expenses related to performance
options and restricted stock units, respectively, for milestones
not considered probable of achievement.</p>
</div>
-0.33
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>13. Fair Value of Financial Instruments</b></p>
<!-- xbrl,body -->
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company applies various valuation approaches in determining the
fair value of its financial assets and liabilities within a
hierarchy that maximizes the use of observable inputs and minimizes
the use of unobservable inputs by requiring that observable inputs
be used when available. Observable inputs are inputs that market
participants would use in pricing the asset or liability based on
market data obtained from sources independent of the Company.
Unobservable inputs are inputs that reflect the Company’s
assumptions about the inputs that market participants would use in
pricing the asset or liability and are developed based on the best
information available in the circumstances. The fair value
hierarchy is broken down into three levels based on the source of
inputs as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
Level 1— Quoted prices for identical instruments in active
markets.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 6px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 0pt">
Level 2— Quoted prices for similar instruments in active
markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations whose
inputs are observable or whose significant value drivers are
observable.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
Level 3— Significant inputs to the valuation model are
unobservable.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The availability of observable inputs can vary among the various
types of financial assets and liabilities. To the extent that the
valuation is based on models or inputs that are less observable or
unobservable in the market, the determination of fair value
requires more judgment. In certain cases, the inputs used to
measure fair value may fall into different levels of the fair value
hierarchy. In such cases, for financial statement disclosure
purposes, the level in the fair value hierarchy within which the
fair value measurement is categorized is based on the lowest level
input that is significant to the overall fair value
measurement.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Cash and cash equivalents</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Cash equivalents consist of highly liquid investments with original
or remaining maturities of 90 days or less at the time of purchase,
that are readily convertible into cash. As of June 30, 2014
and December 31, 2013, the Company held $41.2 million and
$70.8 million, respectively, of cash and cash equivalents,
consisting primarily of money market funds of $41.1 million and
$67.7 million, respectively, and the remaining in non-interest
bearing checking accounts. The fair value of these money market
funds was determined by using quoted prices for identical
investments in an active market (Level 1 in the fair value
hierarchy).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The following is a summary of the carrying values and estimated
fair values of the 2015 notes and the facility financing obligation
(i.e., the 2019 notes and Tranche B notes) (in millions):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="65%"></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="6" align="center"><b>June 30, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="6" align="center"><b>December 31, 2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Carrying<br />
value</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Estimated<br />
fair value</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Carrying<br />
value</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Estimated<br />
fair value</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
2015 notes</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">98.9</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">161.2</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">98.4</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">102.2</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Facility financing obligation</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">37.7</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">38.0</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">102.3</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">107.0</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Senior Convertible Notes</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The estimated fair value of the 2015 notes was calculated based on
model-derived valuations whose inputs were observable, such as the
Company’s stock price, and non-observable, such as the
Company’s longer-term historical volatility, which was
estimated to be 85% (Level 3 in the fair value hierarchy). As there
is no current observable market for the 2015 notes, the Company
determined the estimated fair value using a convertible bond
valuation model within a lattice framework. The convertible bond
valuation model combined expected cash outflows with market-based
assumptions regarding risk-adjusted yields, stock price volatility
and recent price quotes and trading information regarding Company
issued debt instruments and shares of common stock into which the
notes are convertible.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Facility financing agreement</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
As discussed in Note 11 — Facility financing agreement, in
connection with the Facility Agreement, the Company issued 2019
notes and Milestone Rights and recorded the Commitment Asset on
July 1, 2013. In addition, on February 28, 2014, the
Company entered into the Amendment, and recorded an additional
commitment asset, which represented the increase in borrowing
capacity that the Company received as consideration for the
modifications made to the Facility Agreement and the Tranche 1
notes and Tranche 3 notes. As there is no current observable market
for the 2019 notes or Tranche B notes, the Company determined the
estimated fair value using a bond valuation model based on a
discounted cash flow methodology. The bond valuation model combined
expected cash flows associated with principal repayment and
interest based on the contractual terms of the debt agreement
discounted to present value using a selected market discount rate
of 12.7% at December 31, 2013 for the 2019 notes and a
selected market discount rate of 11.9% at the inception of the
Tranche B notes (Level 3 in the fair value hierarchy). On
June 30, 2014, the market discount rate was recalculated at
12.4% for the Tranche 1 notes and 12.3% for the Tranche B notes.
The Tranche 2 and Tranche 3 notes were fully converted by the end
of the first quarter of 2014.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The estimated fair value of the Milestone Rights was calculated
using the income approach in which the cash flows associated with
the specified contractual payments were adjusted for both the
expected timing and the probability of achieving the milestones
discounted to present value using a selected market discount rate
(Level 3 in the fair value hierarchy). The expected timing and
probability of achieving the milestones, starting in 2014, was
developed with consideration given to both internal data, such as
progress made to date and assessment of criteria required for
achievement, and external data, such as market research studies.
The discount rate (17.5%) was selected based on an estimation
of required rate of returns for similar investment opportunities
using available market data.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
The fair value of the Commitment Asset was estimated using the
income approach by estimating the fair value of the future tranches
using a market debt rate (12.0%) commensurate with the risk of
the future tranches and the fair value of the cash expected to be
received by the Company and assessing the probability of the
commitments being funded in the future based on the operational
hurdles required for funding being met (Level 3 in the fair value
hierarchy).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
At June 30, 2014, as there had been no material changes to the
established estimates, the carrying value of the Milestone Rights
and Commitment Asset approximates their respective estimated fair
values.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The fair value of the Commitment Asset was estimated using a
discounted cash flow analysis under the income approach.
Specifically, the fair value of the additional Tranche B Commitment
Asset was determined by estimating the fair value of the future
tranche using a market yield (11.9%) commensurate with the
risk of the future tranche and the fair value of the cash expected
to be received by the Company and assessing the probability of the
commitment being funded in the future based on the operational
hurdles required for funding being met as well as consideration of
alternative funding options (Level 3 in the fair value hierarchy).
As of February 28, 2014, the additional commitment asset was
valued at $2.9 million.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On May 6, 2014, Deerfield purchased $20.0 million aggregate
principal amount of Tranche B notes in accordance with the
provisions of the Facility Agreement, as amended. Accordingly, the
$1.2 million portion of the Commitment Asset associated with the
$20.0 million purchased was derecognized and recorded as debt
discount on the Tranche B notes. Consequently, the remaining
carrying value of the Tranche B Commitment Asset was $1.8 million.
At June 30, 2014, as there have been no material changes to
the established estimates, the carrying value of the Tranche B
Commitment Asset approximates its respective estimated fair
value.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
There were no material re-measurements to fair value during the six
months ended June 30, 2014 and 2013 of financial assets and
liabilities that are not measured at fair value on a recurring
basis. There were no transfers of assets or liabilities
between the fair value measurement levels during the six months
ended June 30, 2014 and 2013.</p>
<p> </p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>6. Property and equipment</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Property and equipment — net consist of the following (dollar
amounts in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="84%" align="center" border="0">
<tr>
<td width="68%"></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Estimated<br />
Useful<br />
Life<br />
(Years)</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>June 30,<br />
2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31,<br />
2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Land</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,273</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,273</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Buildings</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">39-40</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">54,948</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">54,948</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Building improvements</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5-40</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">114,131</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">114,099</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Machinery and equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3-15</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">81,960</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">82,189</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Furniture, fixtures and office equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5-10</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,087</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,046</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Computer equipment and software</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">11,265</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">11,289</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Leasehold improvements</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">17</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">17</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Construction in progress</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">26,651</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">14,756</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top"></td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">299,332</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">287,617</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Less accumulated depreciation and amortization</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(115,799</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(111,060</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Property and equipment — net</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">183,533</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">176,557</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Leasehold improvements are amortized over four years which is the
shorter of the term of the lease or the service lives of the
improvements.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Depreciation and amortization expense related to property and
equipment for the three and six months ended June 30, 2014 and
2013 was as follows (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
<tr>
<td width="72%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"><b>Three months ended<br />
June 30,</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"><b>Six months ended<br />
June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Depreciation and amortization expense</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,449</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,956</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4,972</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,946</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The significant activity related to the facility financing
agreement during the six months ended June 30, 2014 consist of
the following (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0">
<tr>
<td width="87%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>June 30,<br />
2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
<b>Facility financing obligation</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Carrying value at December 31, 2013</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">102,300</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Principal converted to equity</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(93,500</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accretion of debt discount and debt issuance expense</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">7,191</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Adjustment to debt discount related to modification of the 2019
notes</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,921</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Tranche B principal amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">20,000</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Debt discount related to Tranche B purchase</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(1,168</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Net carrying value of facility financing obligation</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">37,744</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
<b>Commitment Asset</b></p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Commitment asset fair value balance at December 31,2013</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,157</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Tranche B commitment asset fair value</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,921</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Less commitment asset portion associated with the receipt of
Tranche B notes</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(1,168</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Commitment asset value included in other assets</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6,910</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Accretion of debt issuance cost and debt discount in connection
with the facility financing agreement during the three and six
months ended June 30, 2014 are as follows (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="64%"></td>
<td valign="bottom" width="14%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="14%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Three months ended<br />
June 30, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Six months ended<br />
June 30, 2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accretion expense- debt issuance cost</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">309</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accretion expense- debt discount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">516</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6,883</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
</div>
Q2
56844341
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<b><i>Fair Value of Financial Instruments —</i></b> The
carrying amounts reported in the accompanying financial statements
for cash and cash equivalents, accounts payable and accrued
liabilities approximate their fair value due to their relatively
short maturities. The fair value of the cash equivalents, note
payable to related party, senior convertible notes, and the
Facility Agreement are discussed in Note 13, “Fair Value
Measurements.”</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Property and equipment — net consist of the following (dollar
amounts in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="84%" align="center" border="0">
<tr>
<td width="68%"></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Estimated<br />
Useful<br />
Life<br />
(Years)</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>June 30,<br />
2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31,<br />
2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Land</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,273</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,273</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Buildings</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">39-40</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">54,948</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">54,948</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Building improvements</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5-40</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">114,131</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">114,099</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Machinery and equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3-15</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">81,960</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">82,189</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Furniture, fixtures and office equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5-10</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,087</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,046</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Computer equipment and software</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">11,265</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">11,289</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Leasehold improvements</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">17</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">17</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Construction in progress</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">26,651</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">14,756</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top"></td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">299,332</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">287,617</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Less accumulated depreciation and amortization</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(115,799</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(111,060</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Property and equipment — net</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">183,533</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">176,557</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
0
-1789000
131000
-125422000
-111258000
-125422000
93500000
-6260000
9667000
-125422000
-125422000
2000
5296000
123000
2965000
51583000
4972000
111258000
1435000
450000
6471000
-29576000
-3315000
12614000
40499000
0
-9667000
63506000
35900000
47752000
1567000
51583000
1435000
20000000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>7. Common and preferred stock</b></p>
<!-- xbrl,body -->
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company is authorized to issue 550,000,000 shares of common
stock, par value $0.01 per share, and 10,000,000 shares of
undesignated preferred stock, par value $0.01 per share, issuable
in one or more series designated by the Company’s board of
directors. No other class of capital stock is authorized. As of
June 30, 2014 and December 31, 2013, 394,036,984 and
369,391,972 shares of common stock, respectively, were issued and
outstanding and no shares of preferred stock were outstanding.
Included in the common stock outstanding as of June 30, 2014
and December 31, 2013 are 9,000,000 shares of common stock
loaned to Bank of America under a share lending agreement in
connection with the offering of $100.0 million aggregate principal
amount of 5.75% Senior Convertible Notes due 2015 (the “2015
Notes”) (see Note 10 — Senior convertible notes). Bank
of America is obligated to return the borrowed shares (or, in
certain circumstances, the cash value thereof) to the Company on or
about the 45th business day following the date as of which the
entire principal amount of the 2015 notes ceases to be outstanding,
subject to extension or acceleration in certain circumstances or
early termination at Bank of America’s option. The Company
did not receive any proceeds from the sale of the borrowed shares
by Bank of America, but the Company did receive a nominal lending
fee of $0.01 per share from Bank of America for the use of borrowed
shares.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
On July 1, 2013, the Company entered into the Facility
Agreement with Deerfield providing for the sale of up to $160.0
million of 2019 notes to Deerfield in four equal tranches of $40.0
million principal amount.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On February 28, 2014, the Company amended the Facility
Agreement to, among other things, allow Deerfield, subject to
certain limitations, to convert up to an additional $60.0 million
principal amount under the then-outstanding 2019 notes into the
Company’s common stock after the effective date of the
Amendment. The Company also agreed to register for resale up to
12,000,000 shares of common stock issuable upon conversion of the
outstanding 2019 notes, with a minimum conversion price of $5.00
per share unless the Company otherwise consents. The conversion
price was determined by the average of the volume weighted average
prices per share during the three trading days immediately
preceding the election to convert. As of June 30, 2014,
Deerfield had converted $100.0 million of 2019 notes into the
Company’s common stock (see Note 11 – Facility
financing agreement) and no additional principal amount of the 2019
notes is convertible.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i><b><i>Basis of Presentation — </i></b>The Company is
considered to be in the development stage as its primary activities
since incorporation have been establishing its facilities,
recruiting personnel, conducting research and development, business
development, business and financial planning, and raising capital.
It is costly to develop therapeutic products and conduct clinical
studies for these products. From its inception through
June 30, 2014, the Company had accumulated net losses of $2.4
billion, which include a goodwill impairment charge of $151.4
million and cumulative negative cash flow from operations of $1.8
billion. At June 30, 2014, the Company’s capital
resources consisted of cash and cash equivalents of $41.2 million.
These factors raise substantial doubt about the Company’s
ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of
these uncertainties.</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
As of June 30, 2014, the Company had $30.1 million principal
amount of available borrowings under its loan arrangement (the
“Loan Arrangement”) with The Mann Group LLC (“The
Mann Group”) although the Company anticipates using a portion
of these available borrowings to capitalize accrued interest into
principal as it becomes due and payable under the Loan Arrangement,
upon mutual agreement of the parties. As of June 30, 2014, the
Company had accrued $2.0 million of interest related to the Loan
Arrangement.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On July 1, 2013, the Company entered into a facility agreement
(the “Facility Agreement”) with Deerfield Private
Design Fund II, L.P. (“Deerfield Private Design Fund”)
and Deerfield Private Design International II, L.P. (collectively,
“Deerfield”), providing for the sale of up to $160.0
million of Senior Convertible Notes due 2019 (the “2019
notes”) to Deerfield in four equal tranches of $40.0 million
principal amount. As of June 30, 2014, Deerfield had purchased
the first three tranches of 2019 notes in the aggregate principal
amount of $120.0 million leaving $40.0 million of 2019 notes
unsold. On February 28, 2014, the Company entered into a First
Amendment to Facility Agreement and Registration Rights Agreement
(the “Amendment”). The Amendment modified the terms of
the Facility Agreement to provide for the issuance of an additional
tranche of notes (the “Tranche B notes”) to Deerfield.
Pursuant to the terms of the Amendment and the subsequent
occurrence of certain events specified in the Amendment, the
Company may issue to Deerfield up to $90.0 million aggregate
principal amount of Tranche B notes, subject to the satisfaction of
certain conditions. On May 6, 2014, Deerfield purchased $20.0
million aggregate principal amount of the potential $90.0 million
Tranche B notes in accordance with the provisions of the Facility
Agreement, as amended.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; MARGIN-TOP: 12px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On July 18, 2014, Deerfield purchased the fourth and final
tranche of 2019 notes in the aggregate principal amount of $40.0
million. Deerfield’s obligation to purchase the fourth
tranche of 2019 notes was subject to (i) the Company’s
receipt of marketing approval of AFREZZA from the FDA, which
occurred June 27, 2014, and (ii) the shares of the
Company’s common stock issuable upon conversion of all
previously sold 2019 notes being freely tradable pursuant to an
effective registration statement filed with the SEC or pursuant to
Rule 144 under the Securities Act of 1933, as amended (the
“Securities Act”). The Facility Agreement, as amended,
contains a financial covenant that requires the Company’s
cash and cash equivalents, which include available borrowings under
the Loan Arrangement, on the last day of each fiscal quarter to not
be less than $25.0 million. On August 11, 2014 the Company entered
into a second amendment to the Facility Agreement to provide for a
$175.0 million secured loan facility to be provided by an affiliate
of Sanofi in connection the Sanofi License Agreement (as defined
below).</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Additional capital resources potentially available to the Company
include proceeds from the exercise of warrants issued in its
February 2012 public offering, the Company’s at-the-market
issuance sales agreements, and up to $70.0 million of additional
sales of Tranche B notes to Deerfield (see Note 11 – Facility
financing agreement).</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On August 11, 2014, the Company entered into a license and
collaboration agreement (the “Sanofi License
Agreement”) with Sanofi-Aventis Deutschland GmbH
(“Sanofi”) pursuant to which the Company will receive a
$150.0 million upfront fee and may earn up to an aggregate of
$775.0 million upon the achievement of certain development,
manufacturing, regulatory and sales milestones. Worldwide profits
and losses will be shared 65% by Sanofi and 35% by the Company.
Pursuant to a separate supply agreement, the Company will
manufacture AFREZZA at its manufacturing facility in Danbury,
Connecticut to supply Sanofi’s demand for the product. In
addition, the Company received a commitment letter from an
affiliate of Sanofi to provide the Company with a secured loan
facility of up to $175.0 million to fund the Company’s share
of net losses under the Sanofi License Agreement (the “Sanofi
Loan Facility”).</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Based on its current expectations, the Company believes that its
existing capital resources, without considering payments under the
collaboration with Sanofi, will enable it to continue planned
operations at least into the first quarter of 2015. However, the
Company cannot provide assurances that its plans will not change or
that changed circumstances will not result in the depletion of its
capital resources more rapidly than it currently anticipates. The
Company may need to raise additional capital, whether through the
sale of equity or debt securities, additional strategic business
collaborations, the establishment of other funding facilities,
licensing arrangements, asset sales or other means, in order to
support its ongoing activities related to the commercialization of
AFREZZA and the development of other product candidates. However,
the Company cannot provide assurances that such additional capital
will be available on favorable terms, or at all.</p>
</div>
124
1753000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<b><i>Business —</i></b> The Company is a biopharmaceutical
company focused on the discovery and development of therapeutic
products for diseases such as diabetes. The Company’s lead
product, AFREZZA (insulin human) inhalation powder, is a
rapid-acting inhaled insulin that was approved by the U.S. Food and
Drug Administration (“FDA”) on June 27, 2014 to
improve glycemic control in adult patients with diabetes.</p>
</div>
<div>
<p style="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Accretion of debt issuance expense in connection with the 2015
notes during the three and six months ended June 30, 2014 and
2013 were as follows (in thousands):</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="92%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:8pt" align="center">
<tr>
<td width="76%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1.00pt solid #000000">
<b>Three months ended<br />
June 30,</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1.00pt solid #000000">
<b>Six months ended<br />
June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2013</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accretion expense</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">227</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">212</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">450</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">421</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<b><i>Recently Issued Accounting Standards —</i></b> In July
2013, the FASB issued ASU 2013-11,<i> Income Taxes (Topic
740): Presentation of an Unrecognized Tax Benefit when a Net
Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit
Carryforward Exists (a consensus of the FASB Emerging Issues Task
Force)</i>. The amendments in this ASU provide guidance on the
financial statements presentation of an unrecognized tax benefit
when a net operating loss carryforward, a similar tax loss, or a
tax credit carryforward exists. An unrecognized tax benefit should
be presented in the financial statements as a reduction to a
deferred tax asset for a net operating loss carryforward, a similar
tax loss, or a tax credit carryforward with certain exceptions, in
which case such an unrecognized tax benefit should be presented in
the financial statements as a liability. The amendments in this ASU
do not require new recurring disclosures. The amendments in this
ASU are effective for fiscal years, and interim periods within
those years, beginning after December 15, 2013. The adoption
of the new requirement did not have a significant impact on the
Company’s consolidated financial statements.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In June 2014, the FASB issued ASU No. 2014-10, Development
Stage Entities (Topic 915): Elimination of Certain Financial
Reporting Requirements, Including an Amendment to Variable Interest
Entities Guidance in Topic 810, Consolidation. The amendments
in this ASU remove all incremental financial reporting requirements
from U.S. GAAP for development stage entities, including the
removal of Topic 915, Development Stage Entities, from the
FASB Accounting Standards Codification. In addition, the ASU:
(a) adds an example disclosure in Topic 275, Risks and
Uncertainties, to illustrate one way that an entity that has
not begun planned principal operations could provide information
about the risks and uncertainties related to the company’s
current activities; and (b) removes an exception provided to
development stage entities in Topic 810, Consolidation, for
determining whether an entity is a variable interest entity. The
presentation and disclosure requirements in Topic 915 will no
longer be required for the first annual period beginning after
December 15, 2014. The revised consolidation standards are
effective one year later, in annual periods beginning after
December 15, 2015. Early adoption is permitted. The Company is
evaluating the impact the adoption of ASU 2014-10 will have on its
consolidated financial statements.</p>
</div>
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<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Depreciation and amortization expense related to property and
equipment for the three and six months ended June 30, 2014 and
2013 was as follows (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
<tr>
<td width="72%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"><b>Three months ended<br />
June 30,</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"><b>Six months ended<br />
June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Depreciation and amortization expense</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,449</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,956</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4,972</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,946</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
0.01
0.65
<div>
<p style="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>5. State research and development credit exchange
receivable</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
The State of Connecticut provides certain companies with the
opportunity to exchange certain research and development income tax
credit carryforwards for cash in exchange for forgoing the
carryforward of the research and development income tax credits.
The program provides for an exchange of research and development
income tax credits for cash equal to 65% of the value of
corporation tax credit available for exchange. There were no
current estimated amounts receivable under the program at
June 30, 2014 and December 31, 2013, respectively.
Long-term estimated amounts receivable under the program were
$463,000 and $298,000 at June 30, 2014 and December 31,
2013, respectively.</p>
</div>
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