429161347
0.030
3200000
13100000
90000000
12500
6.80
4.82
6.80
0.0575
27700000
700000
0.085
175000000
120844000
9000000
0.01
550000000
9000000
429138685
10000000
0
429138685
0
0.01
249211000
5685000
119430000
49521000
68835000
8077000
30100000
466736000
23300000
27618000
23300000
28800000
4290000
2510367000
199000
15946000
75010000
23300000
134935000
-19000
2193000
-2888102000
-373464000
93272000
17680000
98500000
582000
48033000
44143000
27653000
93272000
2807000
144000
167463000
13539000
1096000
26000000
0
12927000
55605000
5700000
7400000
25000000
0.0875
20000000
17700000
8900000
8900000
27600000
21800000
460000
21590000
67761000
60584000
3435000
9519000
4114000
17700000
0.0975
60000000
75000000
79400000
27618000
27690000
603000
675000
0.0584
7100000
30100000
49500000
63500000
48200000
150000000
63500000
68800000
48200000
175000000
13500000
50000000
17700000
50000000
120841000
0.01
550000000
428670943
10000000
0
428670943
0
0.01
268319000
5662000
119513000
49521000
62371000
238000
7929000
476741000
27613000
4287000
2508633000
615000
15225000
74582000
140231000
-20000
1414000
-2863229000
-350329000
126412000
17503000
15599000
48749000
76654000
59074000
126412000
4018000
23000
168262000
13539000
1009000
55800000
12475000
53692000
27600000
21300000
586000
21590000
68434000
60584000
3435000
9519000
4114000
74600000
78400000
27613000
27690000
660000
737000
44500000
36500000
5300000
0.65
0.35
25000
0
50000000
120100000
800000
741100
1.30
P30D
1.00
20
147.0859
1000
350000000
370000000
140400000
2020-01-05
45171595
3020000
-0.08
398916000
872000
6251000
-30665000
4203000
1413000
-21738000
7119000
-30658000
0
3000
762000
4749000
-46154000
-3831000
-30658000
7000
-7000
-7000
1094000
2988000
21738000
1186000
2300000
0
33000
10479000
9377000
7050000
3000
714000
9622000
2003000
710000
1882000
-4182000
2003000
-4203000
-10660000
6168000
4220000
2647020
21615264
6200721
14708590
0
364000
9000
<div><strong><em><font size="2">Fair Value of Financial Instruments
— </font></em></strong>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 7 – Fair Value of
Financial Instruments.</div>
10-Q
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<strong><em>Deferred product costs from collaboration
—</em></strong> Deferred product costs represent the costs of
product manufactured and shipped to Sanofi, not to exceed the
amount of deferred product sales related to the collaboration, for
which recognition of revenue has been deferred. Given that the
costs of inventory delivered to a customer, but for which revenue
may not yet be recognized, meet both the definition and
characteristics of an “asset” and the Company believes
that it is probable that the amount of future revenue will exceed
the amount of deferred costs (i.e., the asset would be realizable
through the recognition of probable future income), the Company has
elected to account for the deferred costs related to the product
sold to Sanofi as an asset and carry forward to future periods
until the related revenue is recognized.</p>
</div>
MNKD
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>2. 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: rgb(0,0,0) 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: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31,<br />
2016</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 />
2015</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; 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">$</td>
<td valign="bottom" align="right">3,435</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,435</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; 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">21,590</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">21,590</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="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; 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">60,584</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">60,584</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; 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">67,761</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">68,434</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="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; 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">4,114</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,114</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; 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">9,519</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">9,519</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="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; 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">460</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">586</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top"></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">167,463</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">168,262</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="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Less accumulated depreciation and amortization</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">(119,430</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(119,513</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Property and equipment — net</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">$</td>
<td valign="bottom" align="right">48,033</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">48,749</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The December 31, 2015 balances have been reclassified to the
current year presentation by allocating the impairment of
$140.4 million to the individual asset groups.</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 months ended March 31, 2016 and 2015
was $0.6 million and $2.3 million, respectively.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The following is a summary of the carrying values and estimated
fair values of the 2018 notes, the facility financing obligation
(i.e., the 2019 notes and Tranche B notes), and the Sanofi Loan
Facility (in millions):</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="92%" 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>
<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>March 31, 2016</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, 2015</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="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
2018 notes</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27.6</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">21.8</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27.6</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">21.3</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Facility financing obligation</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">75.0</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">79.4</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">74.6</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">78.4</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Sanofi Loan Facility</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">63.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">48.2</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">44.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">36.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
</div>
0000899460
2016-03-31
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<b>3. Accrued expenses and other current liabilities</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Accrued expenses and other current liabilities are comprised of the
following (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="76%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31,<br />
2016</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31,<br />
2015</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Salary and related expenses</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,685</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,662</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accrued interest</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">199</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">615</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="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Construction in progress</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">238</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Other</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,193</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,414</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accrued expenses and other current liabilities</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">8,077</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7,929</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
</div>
Large Accelerated Filer
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>12. Facility Agreement</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
As of March 31, 2016, there were $60.0 million principal
amount of 2019 notes and $20.0 million principal amount of Tranche
B notes outstanding. The 2019 notes accrue interest at annual rate
of 9.75% and the Tranche B notes accrue interest at an annual rate
of 8.75%. The Facility Agreement principal repayment schedule is
comprised of annual payments beginning on July 1, 2016 and
ending December 9, 2019. The repayment dates correspond to the
dates on which the 2019 notes or Tranche B notes, as applicable,
were issued.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
In conjunction with the Facility Agreement, the Company entered
into a Milestone Rights Agreement with Deerfield which requires the
Company to make contingent payments to Deerfield, totaling up to
$90.0 million, upon the Company achieving specified
commercialization milestones. 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 March 31, 2016, the remaining liability balance of $8.9
million is classified as long-term liability in other
liabilities.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Accretion of debt issuance cost and debt discount in connection
with the Facility financing agreement during the three months ended
March 31, 2016 and 2015 are as follows (in thousands):</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="62%"></td>
<td valign="bottom" width="16%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="16%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000">
<b>Three months ended<br />
March 31, 2016</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000">
<b>Three months ended<br />
March 31, 2015</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style=" margin-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accretion expense- debt issuance cost</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style=" margin-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accretion expense- debt discount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">419</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">364</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
</table>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
The Facility Agreement 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. The Company
will need to raise additional capital to support its current
operating plans. Due to the uncertainties related to maintaining
sufficient resources to comply with the aforementioned covenant,
the 2019 notes have been classified as current liabilities in the
accompanying balance sheet as of March 31, 2016. In the event
of non-compliance, Deerfield may declare all or any portion of the
2019 notes and/or Tranche B notes to be immediately due and
payable.</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'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>8. Accounting for stock-based compensation</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'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Total stock-based compensation expense recognized in the
accompanying condensed consolidated statements of operations for
the three months ended March 31, 2016 and 2015 was as follows
(in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 12pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="78%"></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="6" align="center">
<b>Three months ended March 31,</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>2016</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>2015</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Stock-based compensation</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,273</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,003</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
During the three months ended March 31, 2016, the Company
issued stock awards to employees with a four-year vesting schedule.
The grant date fair value of the 2,364,200 restricted stock units
and 4,920,267 stock options issued was $2,175,064 and $2,988,418,
respectively, with a grant date fair value per share of $0.92 and
$0.61, respectively.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
As of March 31, 2016, there was $5.7 million and $7.4 million
of unrecognized compensation cost related to options and restricted
stock units, respectively, which are expected to be recognized over
the remaining weighted average vesting period of
3.0 years.</p>
</div>
32280590
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Accrued expenses and other current liabilities are comprised of the
following (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="76%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31,<br />
2016</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31,<br />
2015</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Salary and related expenses</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,685</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,662</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accrued interest</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">199</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">615</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="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Construction in progress</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">238</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Other</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,193</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,414</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accrued expenses and other current liabilities</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">8,077</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7,929</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
</div>
--12-31
P3Y
Q1
<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'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>7. Fair Value of Financial Instruments</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'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
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; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 75px; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Level 1— Quoted prices for identical instruments in active
markets.</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-LEFT: 75px; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
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; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 75px; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Level 3— Significant inputs to the valuation model are
unobservable.</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'; WIDOWS: 1; 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'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
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; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Cash and cash equivalents</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'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
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 March 31, 2016
and December 31, 2015, the Company held $27.7 million and
$59.1 million, respectively, of cash and cash equivalents,
consisting primarily of money market funds of $26.0 million and
$55.8 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; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Related-Party Arrangement</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'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The fair value of the note payable to our principal stockholder
cannot be reasonably estimated as the Company would not be able to
obtain a similar credit arrangement in the current economic
environment.</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'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>2018 notes, facility financing obligation and Sanofi Loan
Facility</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'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The following is a summary of the carrying values and estimated
fair values of the 2018 notes, the facility financing obligation
(i.e., the 2019 notes and Tranche B notes), and the Sanofi Loan
Facility (in millions):</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 12pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="92%" 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>
<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>March 31, 2016</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, 2015</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>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
2018 notes</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27.6</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">21.8</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27.6</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">21.3</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Facility financing obligation</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">75.0</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">79.4</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">74.6</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">78.4</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Sanofi Loan Facility</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">63.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">48.2</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">44.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">36.5</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>2018 notes</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'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The estimated fair value of the 2018 notes was calculated based on
model-derived valuations whose inputs were observable, such as the
Company’s stock price and yields on U.S. Treasury notes and
actively traded bonds, and non-observable, such as the
Company’s longer-term historical volatility, and estimated
yields implied from any available market trades of the
Company’s issued debt instruments. As there is no current
active and observable market for the 2018 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 flows based on terms of the
notes with market-based assumptions regarding risk-free rate,
risk-adjusted yields (21%), stock price volatility (100%) and
recent price quotes and trading information regarding Company
issued debt instruments and shares of common stock into which the
notes are convertible (Level 3 in the fair value hierarchy).</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'; WIDOWS: 1; MARGIN-TOP: 18pt; 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'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
As discussed in Note 12 — Facility Agreement, in
connection with the Facility Agreement, the Company issued 2019
notes and subsequently issued Tranche B notes (the “Facility
Financing Obligation”). 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. On March 31, 2016 the market discount rate was
recalculated at 12.0% for the 2019 notes and 11% for the Tranche B
notes, which reflected decline in the market price of benchmark
U.S. Treasury securities as compared to prior measurement date
(Level 3 in the fair value hierarchy).</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In addition to the 2019 notes and Tranche B notes, the Company also
issued certain rights to receive payments of up to $90.0 million
upon occurrence of specified strategic and sales milestones (the
“Milestone Rights”). These rights are not reflected in
the facility financing obligation. 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 (14.5%) was
selected based on an estimation of required rate of returns for
similar investment opportunities using available market data. As of
March 31, 2016, the carrying value of the Milestone Rights is
$8.9 million, classified as a long-term liability in other
liabilities and the fair value is estimated at
$17.7 million.</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'; WIDOWS: 1; MARGIN-TOP: 18px; 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'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Sanofi Loan Facility</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'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
As discussed in Note 6 — the Sanofi Loan Facility,
consists of a senior secured revolving promissory note and a
guaranty and security agreement with an affiliate of Sanofi which
provides 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 estimated fair value was determined
using a discounted cash flow model in which time outstanding and
discount rate were primary variables. This method considered the
key elements of the contractual terms of the Sanofi Loan Facility,
market-based estimated cost of capital, and time value of money,
namely the amount of time to settlement and the estimated discount
rate (11%) appropriate for the liability (Level 3 in the fair
value hierarchy). As of March 31, 2016 the carrying value of
the Sanofi Loan Facility is $63.5 million and the fair value is
estimated at $48.2 million.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>9. Net loss per common share</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Basic net loss per share excludes dilution for potentially dilutive
securities and is computed by dividing net loss by the weighted
average number of common shares outstanding during the period
excluding the 9,000,000 shares loaned to Bank of America under a
share lending arrangement for the period ended March 31, 2015.
In the third quarter of 2015, the 9,000,000 shares loaned to Bank
of America were returned and therefore do not impact the first
quarter of 2016. Prior to the return of those shares, the borrowed
shares were not considered outstanding for the purpose of computing
and reporting basic or diluted loss per share because the share
borrower had to return all borrowed shares to the Company (or, in
certain circumstances, the cash value thereof).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
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, are not included in the diluted net loss per
share calculation and excluded the 9,000,000 shares of the
Company’s common stock loaned under the share lending
arrangement.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
On February 8, 2016, all unexercised warrants related to the
February 2012 public offering expired. The only remaining warrants
outstanding relate to those issued to the Company’s placement
agent in exchange for services related to the Company’s
offering on November 9, 2015 for selected investment funds in
Israel.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Potentially dilutive securities outstanding are summarized as
follows (in shares):</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="74%"></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>March 31,</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>2016</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>2015</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Exercise of common stock options</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">24,102,471</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">21,615,264</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Vesting of restricted stock units</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,946,007</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,647,020</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="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Exercise of common stock warrants</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">159,303</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6,200,721</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Conversion of senior convertible notes into common stock</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,072,809</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">14,708,590</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top"></td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">32,280,590</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">45,171,595</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
<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">
 </p>
</div>
<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="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>March 31,<br />
2016</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 />
2015</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-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
<b>2018 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-top:0pt ; margin-bottom:0pt; 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">27,690</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27,690</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-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Unamortized premium</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">603</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">660</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style=" margin-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Unaccreted debt issuance costs</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(675</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(737</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=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">
 </p>
</td>
<td valign="bottom">
<p style=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">
 </p>
</td>
<td valign="bottom">
<p style=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">
 </p>
</td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style=" margin-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Net carrying amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27,618</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27,613</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=" margin-top:0pt ; margin-bottom:0pt; border-top:3.00px double #000000">
 </p>
</td>
<td valign="bottom">
<p style=" margin-top:0pt ; margin-bottom:0pt; border-top:3.00px double #000000">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style=" margin-top:0pt ; margin-bottom:0pt; border-top:3.00px double #000000">
 </p>
</td>
<td valign="bottom">
<p style=" margin-top:0pt ; margin-bottom:0pt; border-top:3.00px double #000000">
 </p>
</td>
<td> </td>
</tr>
</table>
</div>
2364200
<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'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Property and equipment — net consist of the following (dollar
amounts in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 12pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" 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: rgb(0,0,0) 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: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31,<br />
2016</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 />
2015</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; 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">3,435</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,435</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; 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">21,590</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">21,590</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="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; 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">60,584</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">60,584</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; 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">67,761</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">68,434</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="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; 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">4,114</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,114</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; 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">9,519</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">9,519</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="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; 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">460</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">586</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top"></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">167,463</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">168,262</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="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Less accumulated depreciation and amortization</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">(119,430</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(119,513</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Property and equipment — net</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">48,033</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">48,749</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
<br class="Apple-interchange-newline" /></div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>6. Collaboration arrangement</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<i>Sanofi License Agreement and Sanofi Supply Agreement</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
As disclosed in Note 1 under Basis of Presentation, the Company
entered into a license and collaboration agreement with Sanofi
which was terminated effective April 4, 2016. On April 5,
2016 the Company assumed responsibility for the worldwide
development and commercialization of AFREZZA from Sanofi, in a
transition designed to ensure that patients will not experience any
interruption in their treatment. Under terms of the transition
agreement, Sanofi will continue to fulfill orders for AFREZZA until
such time as Sanofi’s inventory of usable product is depleted
or until the Company provides Sanofi written notice requesting that
Sanofi cease such activities, but in any event no later than
October 1, 2016. As previously disclosed, worldwide profits
and losses incurred by the Company and Sanofi that are specifically
attributable or related to the development, regulatory filings,
manufacturing, or commercialization of AFREZZA, are shared 65% by
Sanofi and 35% by the Company until Sanofi Ceases to distribute
AFREZZA.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The Company analyzed the agreements entered into with Sanofi to
determine whether the consideration, or a portion thereof, could be
recognized as revenue. Revenue is recognized when there is
persuasive evidence that an arrangement exists, delivery has
occurred or services have been rendered, the price is fixed or
determinable and collection is reasonably assured. In addition,
revenue arrangements with multiple elements are divided into
separate units of accounting if certain criteria are met, including
whether the delivered element has stand-alone value to the
customer. When deliverables are separable, consideration received
is allocated to the separate units of accounting based on the
relative selling price of each deliverable and the appropriate
revenue recognition principles are applied to each unit.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The assessment of multiple element arrangements requires judgment
in order to determine the appropriate units of accounting and the
points in time that, or periods over which, revenue should be
recognized. Under the terms of the Sanofi License Agreement, Sanofi
Supply Agreement and the Sanofi Loan Facility the Company
determined that the arrangement contained significant deliverables
including (i) licenses to develop and commercialize AFREZZA
and to use the Company’s trademarks, (ii) development
activities, and (iii) manufacture and supply services for
AFREZZA. Due to the proprietary nature of the manufacturing
services being provided by the Company, the Company determined that
all of the significant deliverables should be combined into a
single unit of accounting. The Company believes that the
manufacturing services are proprietary due to the fact that since
the late 1990’s, the Company has developed proprietary
knowledge and patented equipment and tools that are used in the
manufacturing process of AFREZZA. Due to the complexities of
particle formulation and the specialized knowledge and equipment
needed to handle the AFREZZA powder, neither Sanofi nor any
third-party contract manufacturing organization currently possesses
the capability of manufacturing AFREZZA.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In order for revenue to be recognized, the seller’s price to
the buyer must be fixed and determinable. Given that as of
March 31, 2016 the Company did not have the ability to
estimate the amount of costs that would potentially be incurred
under the loss share provision related to the Sanofi License
Agreement and the Sanofi Supply Agreement, the Company believes
this requirement for revenue recognition has not been met. As such,
the Company did not recognize any revenue pursuant to the Sanofi
License Agreement or the Sanofi Supply Agreement for the three
months ended March 31, 2016. The Company has recorded the
$150.0 million up-front payment and $50.0 million from
milestone payments as deferred payments from collaboration. In
addition, as of March 31, 2016 the Company has recorded
$17.7 million in AFREZZA product shipments to Sanofi recorded
as deferred product sales from collaboration and recorded
$13.5 million as deferred product costs from collaboration.
Deferred product costs represent the costs of product manufactured
and shipped to Sanofi, not to exceed the amount of deferred product
sales, for which recognition of revenue has been deferred. During
the quarter ended March 31, 2016, the Company’s portion
of the loss sharing was $5.5 million, which resulted in the
reclassification from current deferred payments from collaboration
to Sanofi loan facility and loss share obligation to reflect
amounts owed to Sanofi.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Sanofi Loan Facility</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
On September 23, 2014, the Company entered into the Sanofi
Loan Facility, consisting of a senior secured revolving promissory
note and a guaranty and security agreement (the “Security
Agreement”) with an affiliate of Sanofi which provides 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. In the event of certain future defaults under
the Sanofi Loan facility agreement for which the Company is not
able to obtain waivers, the lender under the Sanofi Loan Facility
may accelerate all of the Company’s repayment obligations,
and take control of the Company’s pledged assets, potentially
requiring the Company to renegotiate the terms of its indebtedness
on terms less favorable to the Company, or to immediately cease
operations.</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; TEXT-INDENT: 4%">
The obligations of the Company under the Sanofi Loan Facility are
guaranteed by the Company’s wholly-owned subsidiary, MannKind
LLC, and are secured by a first priority security interest in
certain insulin inventory located in the United States and any
contractual rights and obligations pursuant to which the Company
purchases or has purchased such insulin, and a second priority
security interest in the Company’s assets that secure the
Company’s obligations under the Facility Agreement, as
amended. In addition, the Company granted to Sanofi, as additional
security for the obligations under the Sanofi Loan Facility, a
first priority mortgage on the Company’s facility in
Valencia, California, which has a carrying value of
$17.7 million as of March 31, 2016.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Advances under the Sanofi Loan Facility bear interest at a rate of
8.5% per annum and are payable in-kind and compounded
quarterly and added to the outstanding principal balance under the
Sanofi Loan Facility. The Company is required to make mandatory
prepayments on the outstanding loans under the Sanofi Loan Facility
from its share of any profits (as defined in the Sanofi License
Agreement) under the Sanofi License Agreement within 30 days of
receipt of its share of any such profits. No advances may be made
under the Sanofi Loan Agreement if Deerfield has commenced
enforcement proceedings in connection with an event of default
under the Facility Agreement.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The outstanding principal of all loans under the Sanofi Loan
Facility, if not prepaid, will become due and payable on
September 23, 2024 unless accelerated pursuant to the terms of
the Sanofi Loan Facility. Additionally, if the Company sells its
Valencia facility, the Company is required to prepay the loans
under the Sanofi Loan Facility from the net cash proceeds of the
sale within five business days of receipt. The maturity date of
September 23, 2024 for repayment of the outstanding principal
amount of the loans under the Sanofi Loan Facility is not affected
by the termination of the Sanofi License Agreement.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The Company’s total cumulative portion of the loss sharing,
including interest, was $68.8 million, of which $63.5 million
was borrowed under the Sanofi Loan Facility as of March 31,
2016. Subsequent to March 31, 2016, the Company borrowed
$5.3 million under the Sanofi Loan Facility to finance the
portion of the Company’s loss for the quarter ended
March 31, 2016. The total amount owed to Sanofi is $68.8
million, which includes $2.8 million in paid-in-kind interest
capitalized as principal.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The Sanofi Loan Facility includes customary representations,
warranties and covenants by the Company, including restrictions on
its ability to incur additional indebtedness, grant certain liens
and make certain changes to its organizational documents. Events of
default under the Sanofi Loan Facility include: the Company’s
failure to timely make payments due under the Sanofi Loan Facility;
inaccuracies in the Company’s representations and warranties
to the noteholder; the Company’s failure to comply with any
of its covenants under any of the Sanofi Loan Facility or certain
other related security agreements and documents entered into in
connection with the Sanofi Loan Facility, subject to a cure period
with respect to most covenants; the Company’s insolvency or
the occurrence of certain bankruptcy-related events; and the
failure of any material provision under any of the Sanofi Loan
Facility or certain other related security agreements and documents
entered into in connection with the Sanofi Loan Facility to remain
in full force and effect. If one or more events of default occurs
and is continuing, Sanofi may terminate its obligation to make
advances under the Sanofi Loan Facility, and, if certain specified
events of default (including the Company’s failure to timely
make payments due under the Sanofi Loan Facility; the
Company’s failure to comply with the negative covenants under
the Sanofi Loan Facility limiting the Company’s ability to
incur additional indebtedness or grant certain liens; the
Company’s insolvency or the occurrence of certain
bankruptcy-related events; or the failure of any material provision
under any of the Sanofi Loan Facility or certain other related
security agreements and documents entered into in connection with
the Sanofi Loan Facility to remain in full force and effect) occur
and are continuing, the noteholder may accelerate all of the
Company’s repayment obligations under the Sanofi Loan
Facility and otherwise exercise any of its remedies as a secured
creditor. There can be no assurance that the noteholder would not
choose to exercise these rights in the event such events were to
occur.</p>
</div>
-30758000
4920267
<div>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Accretion of debt issuance cost and debt discount in connection
with the Facility financing agreement during the three months ended
March 31, 2016 and 2015 are as follows (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="62%"></td>
<td valign="bottom" width="16%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="16%"></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>Three months ended<br />
March 31, 2016</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>Three months ended<br />
March 31, 2015</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-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accretion expense- debt issuance cost</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style=" margin-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accretion expense- debt discount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">419</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">364</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
</table>
</div>
false
-0.06
<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'; WIDOWS: 1; 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'; WIDOWS: 1; 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,” the “Company,”
“we” or “us”), 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, 2015 filed with the SEC on March 15,
2016 (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'; WIDOWS: 1; 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. The results of operations for the three months ended
March 31, 2016 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'; WIDOWS: 1; 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 and deferred product costs for impairment, accrued expenses,
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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Business — </i></b>MannKind is a
biopharmaceutical company focused on the discovery, development and
commercialization of therapeutic products for diseases such as
diabetes. Our only approved product, AFREZZA (insulin human [rDNA
origin]) inhalation powder, is a rapid-acting inhaled insulin that
was approved by the U.S. Food and Drug Administration (the
“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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Basis of Presentation </i></b>— The
Company’s primary activities since incorporation have been
establishing its facilities, recruiting personnel, conducting
research and development, business development, business and
financial planning, raising capital and commercial manufacturing.
It is costly to develop therapeutic products and conduct clinical
studies for these products. As of March 31, 2016, the Company
had an accumulated deficit of $2.9 billion and has reported
negative cash flow from operations since inception, other than for
the nine months ended September 30, 2014, the year ended
December 31, 2014, and for the three months ended
March 31, 2015, as a result of receipt of the upfront payment
and milestone payments from Sanofi-Aventis U.S. LLC
(“Sanofi”).</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
At March 31, 2016, the Company’s capital resources
consisted of cash and cash equivalents of $27.7 million. The
Company expects to continue to incur significant expenditures to
support commercial manufacturing and sales and marketing of AFREZZA
and the development of other product candidates. The 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”) and the First Amendment to
Facility Agreement and Registration Rights Agreement (the
“First Amendment”) that resulted in additional sales of
an additional tranche of notes (the “Tranche B notes”)
(see Note 12 — Facility Agreement) requires the
Company to maintain at least $25.0 million in cash and cash
equivalents or available borrowings under the loan arrangement,
dated as of October 2, 2007, between The Company and The Mann
Group LLC (as amended, restated, or otherwise modified as of the
date hereof, “The Mann Group Loan Arrangement”), as of
the last day of each fiscal quarter. The Company will need to
continue to incur expenses for the commercialization of AFREZZA and
will need to raise additional capital to finance such activities.
The Company cannot be certain that it will be able to raise
additional capital on favorable terms, or at all, which raises
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 this
uncertainty.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
On August 11, 2014, we executed a license and collaboration
agreement (the “Sanofi License Agreement”) with
Sanofi-Aventis Deutschland GmbH (which subsequently assigned its
rights and obligations under the agreement to Sanofi), pursuant to
which Sanofi was responsible for global commercial, regulatory and
development activities for AFREZZA. The Sanofi License Agreement
became effective on September 23, 2014. The Company
manufactured AFREZZA at its manufacturing facility in Danbury,
Connecticut to supply Sanofi’s demand for the product
pursuant to a supply agreement dated August 11, 2014 (the
“Sanofi Supply Agreement”).</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'; WIDOWS: 1; 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'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On January 4, 2016 the Company received notification from
Sanofi of its election to terminate in its entirety the Sanofi
License Agreement. Pursuant to a transition agreement between the
Company and Sanofi, all rights to AFREZZA transferred back to the
Company on April 4, 2016 to the Company. Accordingly, on
April 5, 2016, the Company assumed responsibility for the
worldwide development and commercialization of AFREZZA from Sanofi,
in a transition designed to ensure that patients will not
experience any interruption in their treatment. Under the terms of
the transition agreement, Sanofi will continue to fulfill orders
for AFREZZA until such time as Sanofi’s inventory of usable
product is depleted or until the Company provides Sanofi written
notice requesting that Sanofi cease such activities, but in any
event no later than October 1, 2016.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Under the Sanofi License Agreement, worldwide profits and losses,
which are determined based on the difference between the net sales
of AFREZZA and the costs and expenses incurred by the Company and
Sanofi that are specifically attributable or related to the
development, regulatory filings, manufacturing, or
commercialization of AFREZZA, are shared 65% by Sanofi and 35% by
the Company until Sanofi ceases to distribute AFREZZA. As a result
of this loss share provision, and because the Company does not
currently have the ability to estimate the amount of costs that
would potentially be incurred related to the Sanofi License
Agreement, the amount of up-front cash payment or milestone
payments that could be recognized as revenue is not fixed or
determinable. In connection with the Sanofi License Agreement, an
affiliate of Sanofi provided the Company with a secured loan
facility (the “Sanofi Loan Facility”) of up to $175.0
million to fund the Company’s share of net losses under the
Sanofi License 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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Additional funding sources that are, or in certain circumstances
may be, available to the Company, include approximately $30.1
million principal amount of available borrowings under The Mann
Group Loan Arrangement. A portion of these available borrowings may
be used to capitalize accrued interest into principal, upon mutual
agreement of the parties, as it becomes due and payable under The
Mann Group Loan Arrangement (see Note
4 — Related-party arrangements). 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
is seeking and will need to raise additional capital, whether
through a sale of equity or debt securities, a strategic business
collaboration with a pharmaceutical company, the establishment of
other funding facilities, licensing arrangements, asset sales or
other means, in order to continue the development and
commercialization of AFREZZA and other product candidates and to
support its other ongoing activities. However, the Company cannot
provide assurances that such additional capital will be available
on acceptable 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'; WIDOWS: 1; 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 7 – Fair Value of Financial Instruments.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Deferred product costs from collaboration — </i></b>Deferred product costs
represent the costs of product manufactured and shipped to Sanofi,
not to exceed the amount of deferred product sales related to the
collaboration, for which recognition of revenue has been deferred.
Given that the costs of inventory delivered to a customer, but for
which revenue may not yet be recognized, meet both the definition
and characteristics of an “asset” and the Company
believes that it is probable that the amount of future revenue will
exceed the amount of deferred costs (i.e., the asset would be
realizable through the recognition of probable future income), the
Company has elected to account for the deferred costs related to
the product sold to Sanofi as an asset and carry forward to future
periods until the related revenue is recognized.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Recently Issued Accounting Standards
—</i></b> From time to time, new
accounting pronouncements are issued by the Financial Accounting
Standards Board (FASB) or other standard setting bodies that are
adopted by the Company as of the specified effective date.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In May 2014, the FASB issued ASU 2014-09 related to revenue
recognition, which requires an entity to recognize the amount of
revenue to which it expects to be entitled for the transfer of
promised goods or services to customers. The standard requires a
company to recognize revenue to depict the transfer of goods or
services to customers in an amount that reflects the consideration
it expects to be entitled to receive in exchange for those goods or
services. In August 2015, the FASB issued ASU 2015-14, Revenue from
Contracts with Customers (Topic 606): Deferral of the Effective
Date, which delayed the effective date of the new standard from
January 1, 2017 to January 1, 2018. The FASB also agreed
to allow entities to choose to adopt the standard as of the
original effective date. In March 2016, the FASB issued ASU
No. 2016-08, Revenue from Contracts with Customers (Topic
606): Principal versus Agent Considerations, which clarifies the
implementation guidance on principal versus agent considerations.
We are assessing the potential impact of the new standards on our
consolidated financial statements and have not yet selected a
method of adoption.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In August 2014, the FASB issued ASU 2014-15, which provides
guidance on determining when and how reporting entities must
disclose going-concern uncertainties in their financial statements.
The new standard requires management to perform interim and annual
assessments of an entity’s ability to continue as a going
concern within one year of the date of issuance of the
entity’s financial statements (or within one year after the
date on which the financial statements are available to be issued,
when applicable). Further, an entity must provide certain
disclosures if there is “substantial doubt about the
entity’s ability to continue as a going concern.” The
ASU is effective for annual periods ending after December 15,
2016, and interim periods thereafter; early adoption is permitted.
The Company is evaluating the impact the adoption of ASU 2014-15
will have on its 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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330):
Simplifying the Measurement of Inventory. Topic 330, Inventory,
currently requires an entity to measure inventory at the lower of
cost or market. Market could be replacement cost, net realizable
value, or net realizable value less an approximately normal profit
margin. The amendments do not apply to inventory that is measured
using last-in, first-out (LIFO) or the retail inventory method. The
amendments apply to all other inventory, which includes inventory
that is measured using first-in, first-out (FIFO) or average cost.
The amendments are effective for fiscal years beginning after
December 15, 2016, including interim periods within those
fiscal years. The amendments should be applied prospectively with
earlier application permitted as of the beginning of an interim or
annual reporting period. The Company is evaluating the impact the
adoption of ASU 2015-11 will have on its 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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In January 2016, the FASB issued ASU 2016-01, Financial Instruments
— Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities. The update is intended
to improve the recognition and measurement of financial
instruments. The ASU affects public and private companies,
not-for-profit organizations, and employee benefit plans that hold
financial assets or owe financial liabilities. The update is
effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. The Company is
evaluating the impact the adoption of ASU 2016-01 will have on its
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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic 842). The new standard requires that all lessees recognize
the assets and liabilities that arise from leases on the balance
sheet and disclose qualitative and quantitative information about
its leasing arrangements. The new standard will be effective for us
on January 1, 2019. The adoption of this standard is not
expected to have a material impact on our financial position. The
Company is evaluating the impact the adoption of ASU 2016-02 will
have on its 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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In March 2016, the FASB issued ASU No. 2016-09,
Compensation—Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting. The new standard involves
several aspects of the accounting for share-based payment
transactions, including the income tax consequences, classification
of awards as either equity or liabilities and classification on the
statement of cash flows. For public business entities, the
amendments in this Update are effective for annual periods
beginning after December 15, 2016, and interim periods within
those annual periods. The Company is evaluating the impact the
adoption of ASU 2016-09 will have on its consolidated financial
statements.</p>
</div>
MANNKIND CORP
<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'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>11. Income taxes</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'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
As required by ASC 740 Income Taxes (“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-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
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>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Accounting Standard Update 2015-17, <i>Balance Sheet
Classification of Deferred Taxes</i> requires that deferred tax
assets and liabilities be classified as noncurrent in a classified
statement of financial position. For public business entities, the
amendments in this Update are effective for financial statements
issued for annual periods beginning after December 15, 2016,
and interim periods within those annual periods. As permitted by
the standard, we adopted the new presentation and the adoption did
not have an impact on our consolidated financial statements and
disclosures.</p>
</div>
428858000
2016
<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'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>10. Commitments and contingencies</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'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Guarantees and Indemnifications</i><b><i> — </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. No such losses have been recorded to date.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Litigation</i><b><i> — </i></b>The Company is subject
to legal proceedings and claims which arise in the ordinary course
of its business. As of March 31, 2016, 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 and no accrual has been recorded. 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 records 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. The Company’s policy is to
accrue for legal expenses in connection with legal proceedings and
claims as they are incurred.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Following the public announcement of Sanofies election to terminate
the Sanofi License Agreement and the subsequent decline in the
Company’s stock price, several complaints were filed in the
U.S. District Court for the Central District of California (the
“District Court”) against the Company and certain of
its officers and directors on behalf of certain purchasers of its
common stock. The complaints include claims asserted under Sections
10(b) and 20(a) of the Exchange Act and have been pled as putative
shareholder class actions. In general, the complaints allege that
the Company and certain of its officers and directors violated
federal securities laws by making materially false and misleading
statements regarding the prospects for AFREZZA, thereby
artificially inflating the price of its common stock. The
plaintiffs are seeking monetary damages and other relief. On April
29, 2016, two putative shareholders filed a Joint Stipulation with
the District Court seeking an order consolidating the actions for
all purposes, appointing them co-lead plaintiffs, and approving
their selection of lead counsel. The Company will vigorously defend
against the claims advanced.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Following the public announcement of Sanofies election to terminate
the Sanofi License Agreement and the subsequent decline in the
Company’s stock price, two motions were submitted to the
district court at Tel Aviv (Economic Department) for the
certification of a class action against the Company and certain of
its officers and directors. In general, the complaints allege that
the Company and certain of its officers and directors violated
Israeli and U.S. securities laws by making materially false and
misleading statements regarding the prospects for AFREZZA, thereby
artificially inflating the price of its common stock. The
plaintiffs are seeking monetary damages. The Company will
vigorously defend against the claims advanced.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
On March 10, 2016, a shareholder derivative complaint,
captioned <i>Hoang
Dao v. Matthew Pfeffer, et al</i>., Case No. BC613361, was filed in
the Superior Court for the State of California, County of Los
Angeles against certain of the Company’s directors and
officers. The complaint alleges breaches of fiduciary duties
by the defendants and other violations of law. Among other
allegations, the complaint alleges that the defendants caused the
Company to make false and misleading statements or omissions of
material fact regarding the Company’s business and the
prospects for sales of Afrezza, thereby artificially inflating the
price of the Company’s common stock. The plaintiff is
seeking unspecified monetary damages and other relief, including
reforms to the Company’s corporate governance and internal
procedures. The Company has not yet been served with the
complaint and summons in this matter.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Contingencies</i><b><i> —</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 the Milestone Rights to receive payments up to
$90.0 million upon the occurrence of specified strategic and sales
milestones, including the first commercial sale of an AFREZZA
product in the United States and the achievement of specified net
sales figures (see Note 12 – 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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Commitments</i><b><i> —</i></b> On July 31, 2014, the
Company entered into a supply agreement (the “Insulin Supply
Agreement”) with Amphastar France Pharmaceuticals S.A.S., a
French corporation (“Amphastar”), pursuant to which
Amphastar manufactures for and supplies to the Company certain
quantities of recombinant human insulin for use in AFREZZA. Under
the terms of the Insulin Supply Agreement, Amphastar is 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 for calendar years 2015 through 2019 under the Insulin
Supply Agreement of an aggregate total of approximately
€120.1 million, of which €98.5 million is
remaining at March 31, 2016. The Company has contracted for
the purchase of €28.8 million in 2016 and the remaining
annual minimum quantities will be €23.3 million for the
years ending December 31, 2017 through 2019. The Company may
request to purchase additional quantities of insulin over such
annual minimum quantities and will incur a cancellation fee of
approximately $5.2 million if not purchased (see Note
2 — Summary of Significant accounting policies). Based
on our purchase commitments outstanding in foreign currency at
March 31. 2016, the Company incurred a loss on foreign
currency exchange of $2.4 million for the quarter ended.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Unless earlier terminated, the term of the Insulin 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 Insulin 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 Insulin 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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Under the terms of the Sanofi Supply Agreement, in the event that
Sanofi terminates the Sanofi License Agreement for various reasons
(including the reasons cited in its notice of termination to the
Company), then upon written notice from the Company within
30 days following the termination date, Sanofi is obligated to
purchase up to $50 million of the Company’s insulin
inventory as a percentage of each lot received or receivable by the
Company (the “Insulin Put”). On April 14, 2016,
the Company provided Sanofi with written notice that it was
exercising the Insulin Put. The Company and Sanofi are currently
discussing the schedule of purchases and deliveries pursuant to the
Insulin Put.</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'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>13. 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'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
On April 26, 2016, MannKind Corporation (the
“Company”) entered into an At Market Issuance Sales
Agreement (the “Sales Agreement”) with FBR Capital
Markets & Co. (“FBR”), pursuant to which the
Company may issue and sell shares of its common stock having an
aggregate offering price of up to $50.0 million from time to time
through FBR as its sales agent. The Company is not obligated to
make any sales of common stock under the Sales 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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The issuance and sale of the common stock by the Company under the
Sales Agreement, if any, is subject to the continuing effectiveness
of the Company’s registration statement on Form S-3 (File
No. 333-210792), filed with the Securities and Exchange
Commission on April 18, 2016 (the “Registration
Statement”). The Registration Statement became effective on
April 27, 2016.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
FBR may sell the common stock by any method that is deemed to be an
“at the market offering” as defined in Rule 415
promulgated under the Securities Act of 1933, as amended, including
sales made directly on or through The NASDAQ Global Market or to or
through a market maker. FBR may also sell the common stock in
negotiated transactions, subject to our approval. Subject to the
terms and conditions of the Sales Agreement, FBR will use
commercially reasonable efforts consistent with its normal trading
and sales practices to sell the common stock from time to time,
based upon the Company’s instructions (including any price,
time or size limits or other customary parameters or conditions the
Company may impose).</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Unless earlier terminated as provided below, the Sales Agreement
will automatically terminate upon the earlier of (1) the sale
of all common stock subject to the Sales Agreement and
(2) April 26, 2019. The Sales Agreement may be terminated
by the Company or FBR at any time upon 10 days’ notice to the
other party, or by FBR at any time in certain circumstances,
including the occurrence of a material adverse change in the
Company.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company will pay FBR an aggregate commission rate equal to up
to 3.0% of the gross proceeds of the sales price per share for
common stock sold through FBR under the Sales Agreement. The
Company has also provided FBR with customary indemnification rights
and expense reimbursements for up to $25,000 of expenses.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Potentially dilutive securities outstanding are summarized as
follows (in shares):</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 12pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="74%"></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>March 31,</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>2016</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>2015</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Exercise of common stock options</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">24,102,471</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">21,615,264</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Vesting of restricted stock units</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,946,007</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,647,020</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="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Exercise of common stock warrants</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">159,303</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6,200,721</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Conversion of senior convertible notes into common stock</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,072,809</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">14,708,590</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top"></td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">32,280,590</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">45,171,595</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </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'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>4. Related-party arrangements</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'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In October 2007, the Company entered into a $350.0 million loan
arrangement with its principal stockholder. The Mann Group Loan
Arrangement has been amended from time to time. On October 31,
2013, the promissory note underlying The Mann Group 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 Mann Group Loan Arrangement
to December 31, 2019, increase the aggregate borrowing amount
under The Mann Group Loan Arrangement from $350.0 million to $370.0
million and provide that repayments or cancellations of principal
under The Mann Group Loan Arrangement will not be available for
reborrowing.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
As of March 31, 2016, the total principal amount outstanding
under The Mann Group 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
March 31, 2016, the Company had accrued $7.1 million of
interest in other long term liabilities. 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. 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 Mann Group 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 Mann Group 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 Mann
Group Loan Arrangement are unsecured. The Mann Group Loan
Arrangement contains no financial covenants.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
During the three months ended March 31, 2016, there were no
additional borrowings under or amendments to The Mann Group 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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In May 2015, the Company entered into a sublease agreement with the
Alfred Mann Foundation for Scientific Research (the “Mann
Foundation”), a California not-for-profit corporation. The
lease is for approximately 12,500 square feet of office space in
Valencia, California and expires in April 2017. The office space
contains the Company’s principal executive offices. Lease
payments to the Mann Foundation for the three months ended
March 31, 2016 were $65,000 and there were no lease payments
to the Mann Foundation for the three months ended March 31,
2015.</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'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company has entered into indemnification agreements with each
of its directors and executive officers, in addition to the
indemnification provided for in its amended and restated
certificate of incorporation and amended and restated bylaws (see
Note 10 — Commitments and contingencies).</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<b>5. Senior convertible notes</b></p>
<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>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
</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="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-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>March 31,<br />
2016</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 />
2015</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
<b>2018 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="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Principal amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27,690</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27,690</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="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Unamortized premium</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">603</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">660</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Unaccreted debt issuance costs</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(675</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(737</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Net carrying amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27,618</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27,613</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="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 12pt">
<i>Issuance of new 5.75% Convertible Senior Subordinated Exchange
Notes due 2018 in exchange for 2015 notes</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
On July 28, 2015, the Company entered into a
privately-negotiated exchange agreement (the “Note Exchange
Agreement”) with a select holder of the Company’s 5.75%
Senior Convertible Notes due 2015 (the “2015 notes”),
pursuant to which the Company agreed to issue $27.7 million
aggregate principal amount of new 5.75% Convertible Senior
Subordinated Exchange Notes due 2018 (the “2018 notes”)
to such holder in exchange for the delivery to the Company of the
same principal amount of 2015 notes. The 2018 notes were issued at
the closing of the exchange on August 10, 2015. The Company
analyzed this exchange under the provisions of ASC 470-50 and
concluded that the exchange represents an extinguishment of the
2015 notes and a new issuance of 2018 notes and recorded such notes
at fair value which resulted in a premium of $0.7 million.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The 2018 notes are the Company’s general, unsecured, senior
obligations, except that the 2018 notes are subordinated in right
of payment to the outstanding notes issued pursuant to the Facility
Agreement and the Company’s borrowings under the Sanofi Loan
Facility with an affiliate of Sanofi-Aventis U.S. LLC. The 2018
notes rank equally in right of payment with the Company’s
other unsecured senior debt. The 2018 notes bear interest at the
rate of 5.75% per year on the principal amount, payable
semiannually in arrears in cash on February 15 and
August 15 of each year, beginning February 15, 2016, with
interest accruing from August 15, 2015. The 2018 notes mature
on August 15, 2018.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The 2018 notes are convertible, at the option of the holder, at any
time on or prior to the close of business on the business day
immediately preceding the stated maturity date, into shares of the
Company’s common stock at an initial conversion rate of
147.0859 shares per $1,000 principal amount of 2018 notes, which is
equal to a conversion price of approximately $6.80 per share, the
same conversion price as that of the 2015 notes on the date of
exchange. The conversion rate is subject to adjustment under
certain circumstances described in an indenture governing the 2018
notes dated August 10, 2015 with US Bank (as successor trustee
to Wells Fargo, National Association), including in connection with
a make-whole fundamental change. If certain fundamental changes
occur, such as share price being over $4.82 on date of conversion,
the Company will be obligated to pay a make-whole premium on any
2018 notes converted in connection with such fundamental change by
increasing the conversion rate on such 2018 notes. In such
instances, the amount of the fundamental change make-whole premium
will be based on the Company’s common stock price and the
effective date of the applicable fundamental change. The Company
can force conversion at $6.80 or 747.1 thousand shares.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
If the Company undergoes certain fundamental changes, except in
certain circumstances, each holder of 2018 notes will have the
option to require the Company to repurchase all or any portion of
that holder’s 2018 notes. The fundamental change repurchase
price will be 100% of the principal amount of the 2018 notes to be
repurchased plus accrued and unpaid interest, if any.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
On or after the date that is one year following the original issue
date of the 2018 notes, the Company will have the right to redeem
for cash all or part of the 2018 notes if the last reported sale
price of its common stock exceeds 130% of the conversion price then
in effect for 20 or more trading days during the 30 consecutive
trading day period ending on the trading day immediately prior to
the date of the redemption notice. The redemption price will equal
the sum of 100% of the principal amount of the 2018 notes to be
redeemed, plus accrued and unpaid interest. Under the terms of the
indenture, the conversion option can be net-share settled and the
maximum number of shares that could be required to be delivered
under the indenture, 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 term of the 2018 notes under existing commitments.
Applying the Company’s sequencing policy, the Company
performed an analysis at the time of the offering of the 2018 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 term of
the 2018 notes under existing commitments.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The 2018 notes provide that upon an acceleration of certain
indebtedness, including the 9.75% Senior Convertible Notes due 2019
(the “2019 notes”) and the 8.75% Senior Convertible
Notes due 2019 (the “Tranche B notes”) issued to
Deerfield pursuant to the Facility Agreement (see Note
13 — Facility Agreement), the holders may elect to
accelerate the Company’s repayment obligations under the
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: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The Company incurred approximately $0.8 million in issuance costs
which are recorded as an offset to the 2018 notes in the
accompanying condensed consolidated balance sheet. These costs are
being accreted to interest expense using the effective interest
method over the term of the 2018 notes.</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; TEXT-INDENT: 4%">
Accretion of debt issuance expense in connection with the 2018
notes for the three months ended March 31, 2016 was $62,000.
Amortization of 2018 notes premium for the three months ended
March 31, 2016 was $57,000.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Total stock-based compensation expense recognized in the
accompanying condensed consolidated statements of operations for
the three months ended March 31, 2016 and 2015 was as follows
(in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="78%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center">
<b>Three months ended March 31,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2016</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2015</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Stock-based compensation</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,273</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,003</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
</div>
86000
-24872000
1144000
67000
-20013000
-24873000
0
15000
3000
2713000
121000
-1211000
-24873000
-696000
1000
1000
558000
1023000
20013000
464000
600000
0
1168000
7351000
5130000
177000
17000
-31421000
721000
4221000
1273000
721000
7532000
-14799000
1273000
2364000
-1127000
488000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<b><i>Basis of Presentation</i></b> — The Company’s
primary activities since incorporation have been establishing its
facilities, recruiting personnel, conducting research and
development, business development, business and financial planning,
raising capital and commercial manufacturing. It is costly to
develop therapeutic products and conduct clinical studies for these
products. As of March 31, 2016, the Company had an accumulated
deficit of $2.9 billion and has reported negative cash flow from
operations since inception, other than for the nine months ended
September 30, 2014, the year ended December 31, 2014, and
for the three months ended March 31, 2015, as a result of
receipt of the upfront payment and milestone payments from
Sanofi-Aventis U.S. LLC (“Sanofi”).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
At March 31, 2016, the Company’s capital resources
consisted of cash and cash equivalents of $27.7 million. The
Company expects to continue to incur significant expenditures to
support commercial manufacturing and sales and marketing of AFREZZA
and the development of other product candidates. The 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”) and the First Amendment to
Facility Agreement and Registration Rights Agreement (the
“First Amendment”) that resulted in additional sales of
an additional tranche of notes (the “Tranche B notes”)
(see Note 12 — Facility Agreement) requires the
Company to maintain at least $25.0 million in cash and cash
equivalents or available borrowings under the loan arrangement,
dated as of October 2, 2007, between The Company and The Mann
Group LLC (as amended, restated, or otherwise modified as of the
date hereof, “The Mann Group Loan Arrangement”), as of
the last day of each fiscal quarter. The Company will need to
continue to incur expenses for the commercialization of AFREZZA and
will need to raise additional capital to finance such activities.
The Company cannot be certain that it will be able to raise
additional capital on favorable terms, or at all, which raises
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 this
uncertainty.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
On August 11, 2014, we executed a license and collaboration
agreement (the “Sanofi License Agreement”) with
Sanofi-Aventis Deutschland GmbH (which subsequently assigned its
rights and obligations under the agreement to Sanofi), pursuant to
which Sanofi was responsible for global commercial, regulatory and
development activities for AFREZZA. The Sanofi License Agreement
became effective on September 23, 2014. The Company
manufactured AFREZZA at its manufacturing facility in Danbury,
Connecticut to supply Sanofi’s demand for the product
pursuant to a supply agreement dated August 11, 2014 (the
“Sanofi Supply Agreement”).</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 January 4, 2016 the Company received notification from
Sanofi of its election to terminate in its entirety the Sanofi
License Agreement. Pursuant to a transition agreement between the
Company and Sanofi, all rights to AFREZZA transferred back to the
Company on April 4, 2016 to the Company. Accordingly, on
April 5, 2016, the Company assumed responsibility for the
worldwide development and commercialization of AFREZZA from Sanofi,
in a transition designed to ensure that patients will not
experience any interruption in their treatment. Under the terms of
the transition agreement, Sanofi will continue to fulfill orders
for AFREZZA until such time as Sanofi’s inventory of usable
product is depleted or until the Company provides Sanofi written
notice requesting that Sanofi cease such activities, but in any
event no later than October 1, 2016.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Under the Sanofi License Agreement, worldwide profits and losses,
which are determined based on the difference between the net sales
of AFREZZA and the costs and expenses incurred by the Company and
Sanofi that are specifically attributable or related to the
development, regulatory filings, manufacturing, or
commercialization of AFREZZA, are shared 65% by Sanofi and 35% by
the Company until Sanofi ceases to distribute AFREZZA. As a result
of this loss share provision, and because the Company does not
currently have the ability to estimate the amount of costs that
would potentially be incurred related to the Sanofi License
Agreement, the amount of up-front cash payment or milestone
payments that could be recognized as revenue is not fixed or
determinable. In connection with the Sanofi License Agreement, an
affiliate of Sanofi provided the Company with a secured loan
facility (the “Sanofi Loan Facility”) of up to $175.0
million to fund the Company’s share of net losses under the
Sanofi License Agreement.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Additional funding sources that are, or in certain circumstances
may be, available to the Company, include approximately $30.1
million principal amount of available borrowings under The Mann
Group Loan Arrangement. A portion of these available borrowings may
be used to capitalize accrued interest into principal, upon mutual
agreement of the parties, as it becomes due and payable under The
Mann Group Loan Arrangement (see Note
4 — Related-party arrangements). 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
is seeking and will need to raise additional capital, whether
through a sale of equity or debt securities, a strategic business
collaboration with a pharmaceutical company, the establishment of
other funding facilities, licensing arrangements, asset sales or
other means, in order to continue the development and
commercialization of AFREZZA and other product candidates and to
support its other ongoing activities. However, the Company cannot
provide assurances that such additional capital will be available
on acceptable terms or at all.</p>
</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> From
time to time, new accounting pronouncements are issued by the
Financial Accounting Standards Board (FASB) or other standard
setting bodies that are adopted by the Company as of the specified
effective date.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In May 2014, the FASB issued ASU 2014-09 related to revenue
recognition, which requires an entity to recognize the amount of
revenue to which it expects to be entitled for the transfer of
promised goods or services to customers. The standard requires a
company to recognize revenue to depict the transfer of goods or
services to customers in an amount that reflects the consideration
it expects to be entitled to receive in exchange for those goods or
services. In August 2015, the FASB issued ASU 2015-14, Revenue from
Contracts with Customers (Topic 606): Deferral of the Effective
Date, which delayed the effective date of the new standard from
January 1, 2017 to January 1, 2018. The FASB also agreed
to allow entities to choose to adopt the standard as of the
original effective date. In March 2016, the FASB issued ASU
No. 2016-08, Revenue from Contracts with Customers (Topic
606): Principal versus Agent Considerations, which clarifies the
implementation guidance on principal versus agent considerations.
We are assessing the potential impact of the new standards on our
consolidated financial statements and have not yet selected a
method of adoption.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In August 2014, the FASB issued ASU 2014-15, which provides
guidance on determining when and how reporting entities must
disclose going-concern uncertainties in their financial statements.
The new standard requires management to perform interim and annual
assessments of an entity’s ability to continue as a going
concern within one year of the date of issuance of the
entity’s financial statements (or within one year after the
date on which the financial statements are available to be issued,
when applicable). Further, an entity must provide certain
disclosures if there is “substantial doubt about the
entity’s ability to continue as a going concern.” The
ASU is effective for annual periods ending after December 15,
2016, and interim periods thereafter; early adoption is permitted.
The Company is evaluating the impact the adoption of ASU 2014-15
will have on its consolidated financial statements.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330):
Simplifying the Measurement of Inventory. Topic 330, Inventory,
currently requires an entity to measure inventory at the lower of
cost or market. Market could be replacement cost, net realizable
value, or net realizable value less an approximately normal profit
margin. The amendments do not apply to inventory that is measured
using last-in, first-out (LIFO) or the retail inventory method. The
amendments apply to all other inventory, which includes inventory
that is measured using first-in, first-out (FIFO) or average cost.
The amendments are effective for fiscal years beginning after
December 15, 2016, including interim periods within those
fiscal years. The amendments should be applied prospectively with
earlier application permitted as of the beginning of an interim or
annual reporting period. The Company is evaluating the impact the
adoption of ASU 2015-11 will have on its consolidated financial
statements.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In January 2016, the FASB issued ASU 2016-01, Financial Instruments
— Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities. The update is intended
to improve the recognition and measurement of financial
instruments. The ASU affects public and private companies,
not-for-profit organizations, and employee benefit plans that hold
financial assets or owe financial liabilities. The update is
effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. The Company is
evaluating the impact the adoption of ASU 2016-01 will have on its
consolidated financial statements.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic 842). The new standard requires that all lessees recognize
the assets and liabilities that arise from leases on the balance
sheet and disclose qualitative and quantitative information about
its leasing arrangements. The new standard will be effective for us
on January 1, 2019. The adoption of this standard is not
expected to have a material impact on our financial position. The
Company is evaluating the impact the adoption of ASU 2016-02 will
have on its consolidated financial statements.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In March 2016, the FASB issued ASU No. 2016-09,
Compensation—Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting. The new standard involves
several aspects of the accounting for share-based payment
transactions, including the income tax consequences, classification
of awards as either equity or liabilities and classification on the
statement of cash flows. For public business entities, the
amendments in this Update are effective for annual periods
beginning after December 15, 2016, and interim periods within
those annual periods. The Company is evaluating the impact the
adoption of ASU 2016-09 will have on its consolidated financial
statements.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<b><i>Business —</i></b> MannKind is a biopharmaceutical
company focused on the discovery, development and commercialization
of therapeutic products for diseases such as diabetes. Our only
approved product, AFREZZA (insulin human [rDNA origin]) inhalation
powder, is a rapid-acting inhaled insulin that was approved by the
U.S. Food and Drug Administration (the “FDA”) on
June 27, 2014 to improve glycemic control in adult patients
with diabetes</p>
</div>
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On or after the date that is one year following the original issue date of the 2018 notes, the Company will have the right to redeem for cash all or part of the 2018 notes if the last reported sale price of its common stock exceeds 130% of the conversion price then in effect for 20 or more trading days during the 30 consecutive trading day period ending on the trading day immediately prior to the date of the redemption notice. The redemption price will equal the sum of 100% of the principal amount of the 2018 notes to be redeemed, plus accrued and unpaid interest.
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