6.80
100000000
650000000
50000000
25000000
725000000
409576765
15500000
90000000
13100000
3200000
9000000
35759000
0.085
175000000
409116346
409116346
550000000
9000000
0
0.01
10000000
9000000
0.01
0
120546000
380753000
49521000
1022000
4090000
-21000
3302000
-2525447000
73368000
2424347000
12381000
-97031000
26779000
3394000
360022000
7050000
185059000
99593000
457053000
7386000
579000
232500000
30100000
120844000
6251000
120500000
193454000
16375000
1164000
314000000
360022000
16789000
10075000
4282000
2027000
158290000
5550000
9000000
14900000
0
47600000
50000000
25000000
0
10000000
9000000
0
7100000
175000000
150000000
6300000
50000000
0.0584
4200000
49500000
30100000
7300000
1600000
0.0875
20000000
10499000
114131000
54948000
41997000
5273000
82120000
17000
5015000
0.0975
60000000
73400000
76100000
0.0575
1000000
100000000
99593000
102100000
100000000
407000
725000000
70790000
406059089
406059089
550000000
0
0.01
10000000
0.01
0
118221000
403353000
49521000
2396000
4061000
-14000
7394000
-2494784000
72995000
2416967000
26206000
-73770000
15335000
7539000
394439000
197403000
99355000
468209000
14928000
1343000
120841000
118500000
192127000
20206000
95000
310348000
394439000
9670000
4856000
50436000
1159000
201153000
4719000
9000000
10465000
114131000
54948000
39580000
5273000
80919000
17000
5015000
73000000
75100000
2400000
100000000
99355000
102900000
645000
1.50
20
P30D
1.00
147.0859
4200000
1000
120100000
0.65
0.35
1.00
350000000
2020-01-05
370000000
12400000
100000
-36990000
368784000
-0.14
67791150
0
0
-1845000
82000
-52056000
0
-41411000
-52056000
-5890000
1409000
-52056000
1000
4678000
86000000
33000
0
1700000
5200000
2500000
41411000
714000
223000
4042000
-35031000
-6704000
0
9394000
3368000
0
-1409000
26182000
15229000
-1038000
10937000
714000
0
2921000
3401000
282000
6367000
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>4. Accrued expenses and other current liabilities</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Accrued expenses and other current liabilities are comprised of the
following (in thousands):</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="76%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>March 31,<br />
2015</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 />
2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Salary and related expenses</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7,386</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">14,928</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accrued interest</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,022</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,396</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Construction in progress</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">579</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,343</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Other</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,394</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">7,539</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accrued expenses and other current liabilities</p>
</td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">12,381</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">26,206</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-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. Collaboration arrangement</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>Sanofi License Agreement and Sanofi Supply 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: 0px; -webkit-text-stroke-width: 0px">
On August 11, 2014, the Company and Sanofi entered into the
Sanofi License Agreement, which became effective on
September 23, 2014. Under the terms of the Sanofi License
Agreement, the Company granted to Sanofi exclusive, worldwide
licenses to certain of the Company’s patents, trademarks and
know-how for the development and commercialization of AFREZZA.
Under the terms of the Sanofi License Agreement, Sanofi has the
exclusive right and responsibility to develop AFREZZA worldwide,
subject to certain development activities that will be performed by
the Company. Sanofi will also be obligated to use commercially
reasonable efforts to file for, obtain and maintain marketing
approvals for AFREZZA in certain major markets and countries. In
addition, Sanofi will have exclusive, worldwide rights to
commercialize AFREZZA and will be obligated to use commercially
reasonable efforts to market, promote and commercialize AFREZZA in
all countries in the world where regulatory approval for AFREZZA
has been received. Under the Sanofi License Agreement, Sanofi paid
the Company an up-front cash payment of $150.0 million in the third
quarter of 2014 and a subsequent payment of $50.0 million in the
first quarter of 2015 for the achievement of two manufacturing
milestones as of December 31, 2014. If certain development,
regulatory and sales milestones are achieved, the Company will also
be eligible to receive up to $725.0 million in additional milestone
payments, of which $25.0 million relates to a development milestone
event, $50.0 million relates to the filing and completion of
regulatory approvals and $650.0 million relates to the achievement
of certain product sales milestones. In addition, 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, improvement, regulatory filings, manufacturing,
and commercialization of AFREZZA will be shared 65% by Sanofi and
35% by the Company. In accordance with the terms of the Sanofi
License Agreement, profit and loss sharing commenced in the fourth
quarter of 2014.</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">
Pursuant to the terms of the Sanofi Supply Agreement, the Company
will be the exclusive manufacturer and supplier of AFREZZA until
the specified conditions are met, upon which a portion of the
manufacturing activities may be assumed by 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">
The Company analyzed the agreements entered into with Sanofi under
the provisions of ASC 605, <i>Revenue Recognition</i>, to
determine whether the consideration, or a portion thereof, could be
recognized as revenue. ASC 605 provides that 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: 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">
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; 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 order for revenue to be recognized, the seller’s price to
the buyer must be fixed and determinable. Given that as of
March 31, 2015, 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.</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 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, 2015. 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, 2015 the Company has recorded
$7.1 million in AFREZZA product shipments to Sanofi recorded
as deferred product sales from collaboration and recorded
$6.3 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, 2015, the Company’s portion
of the loss sharing was $12.4 million, which resulted in the
reclassification from current deferred payments from collaboration
to other long-term liabilities.</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>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: 0px; -webkit-text-stroke-width: 0px">
On September 23, 2014, the Company entered into the Sanofi
Loan Facility, consisting of a senior secured revolving promissory
note (the “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: 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">
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; 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 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 in an amount equal to 100% of the
net cash proceeds of the sale within five business days of
receipt.</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 order to fund the Company’s portion of the loss sharing
during the three months ended March 31, 2015, subsequent to
March 31, 2015, the Company borrowed $12.4 million under the
Sanofi Loan Facility to finance the portion of the Company’s
loss. As of May 11, 2015, the total amount owed to Sanofi
under the Sanofi Loan Facility was $15.5 million, which includes
$0.1 million in paid-in-kind interest.</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 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.</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 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; termination by
Sanofi of the Sanofi License Agreement as a result of the
Company’s breach of the Sanofi License Agreement; 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; termination by Sanofi of the Sanofi
License Agreement as a result of the Company’s breach of the
non-compete provisions of the Sanofi License Agreement; 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>
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>12. Commitments and contingencies</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Guarantees and Indemnifications —</i></b> In the
ordinary course of its business, the Company makes certain
indemnities, commitments and guarantees under which it may be
required to make payments in relation to certain transactions. The
Company, as permitted under Delaware law and in accordance with its
Bylaws, indemnifies its officers and directors for certain events
or occurrences, subject to certain limits, while the officer or
director is or was serving at the Company’s request in such
capacity. The term of the indemnification period is for the
officer’s or director’s lifetime. The maximum amount of
potential future indemnification is unlimited; however, the Company
has a director and officer insurance policy that may enable it to
recover a portion of any future amounts paid. The Company believes
the fair value of these indemnification agreements is minimal. The
Company has not recorded any liability for these indemnities in the
accompanying condensed consolidated balance sheets. However, the
Company accrues for losses for any known contingent liability,
including those that may arise from indemnification provisions,
when future payment is probable and the amount can be reasonably
estimated.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Litigation —</i></b> The Company is subject to legal
proceedings and claims which arise in the ordinary course of its
business. As of the date hereof, the Company believes that the
final disposition of such matters will not have a material adverse
effect on the financial position, results of operations or cash
flows of the Company. The Company maintains liability insurance
coverage to protect the Company’s assets from losses arising
out of or involving activities associated with ongoing and normal
business operations. In accordance with ASC 450
<i>Contingencies</i>, the Company would record a provision for a
liability when it is both probable that a liability has been
incurred and the amount of the loss can be reasonably
estimated.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Contingencies —</i></b> In connection with the Facility
Agreement, on July 1, 2013 the Company also entered into a
Milestone Rights Purchase Agreement (the “Milestone
Agreement”) with Deerfield Private Design Fund and Horizon
Santé FLML SÁRL (collectively, the “Milestone
Purchasers”), pursuant to which the Company sold the
Milestone Purchasers 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 14 – Facility Agreement).</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Commitments —</i></b> On July 31, 2014, the
Company entered into the Insulin Supply Agreement, (the
“Insulin Supply Agreement”), with Amphastar France
Pharmaceuticals S.A.S. (“Amphastar”), pursuant to which
the Company agreed to purchase certain annual minimum quantities of
insulin for an aggregate total purchase price of approximately
€120.1 million for calendar years 2015 through 2019.</p>
</div>
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>14. Facility Agreement</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
As of March 31, 2015, 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; 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.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
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. During the three months
ended March 31, 2015, the second milestone triggering event
was achieved following the Company’s product launch on
February 3, 2015, which resulted in a $5.8 million incremental
charge to interest expense due to the increase in carrying value of
the liability to the required $10.0 million payment made in
February of 2015. As of March 31, 2015, the Company determined
that it was probable that the first commercial sales related
milestone would be achieved within the next twelve months. As such,
the company reclassified the corresponding $1.6 million long term
liability to short term. As of March 31, 2015, the short-term
portion of the liability had a balance of $1.6 million and the
long-term portion of the liability had a balance of $7.3
million.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Accretion of debt issuance cost and debt discount in connection
with the Facility financing agreement during the three months ended
March 31, 2015 and 2014 are as follows (in thousands):</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="62%"></td>
<td valign="bottom" width="15%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="15%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000">
<b>Three months ended<br />
March 31, 2015</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000">
<b>Three months ended<br />
March 31, 2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accretion expense- debt issuance cost</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">282</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accretion expense- debt discount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">364</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6,367</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
</table>
<p style="margin-top:12pt; margin-bottom:0pt; 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. If the
Company fails to satisfy this financial covenant, or another event
of default occurs under the Facility Agreement, 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-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>11. Net loss per common share</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Basic net loss per share excludes dilution for potentially dilutive
securities and is computed by dividing net loss by the weighted
average number of common shares outstanding during the period
excluding the shares loaned to Bank of America under a share
lending arrangement (see Note 9 — Common and preferred
stock). As of March 31, 2015, 9,000,000 shares of the
Company’s common stock, which were loaned to Bank of America
pursuant to the terms of a share lending agreement as described in
Note 9, were issued and are outstanding, and the holder of the
borrowed shares has all the rights of a holder of the
Company’s common stock. However, because the share borrower
must return all borrowed shares to the Company (or, in certain
circumstances, the cash value thereof), the borrowed shares are not
considered outstanding for the purpose of computing and reporting
basic or diluted earnings (loss) per share. Diluted net loss per
share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised
or converted into common stock. Potentially dilutive securities are
excluded from the computation of diluted net loss per share for all
of the periods presented in the accompanying condensed consolidated
statements of operations because the reported net loss in each of
these periods results in their inclusion being antidilutive.
Antidilutive securities, which consist of stock options, restricted
stock units, warrants, and shares that could be issued upon
conversion of the senior convertible notes, that are not included
in the diluted net loss per share calculation consisted of an
aggregate of 45,171,595 shares and 67,791,150 shares as of
March 31, 2015 and 2014, respectively, and exclude the
9,000,000 shares loaned under the share lending arrangement.</p>
</div>
<div><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.</div>
10-Q
MANNKIND CORP
MNKD
<div>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Inventories 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="75%"></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-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center">
<b>March 31,</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center">
<b>December 31,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2015</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Raw materials</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">10,075</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4,856</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Work-in-process</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,550</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,719</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Finished goods</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,164</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">95</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Total inventories</p>
</td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">16,789</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9,670</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
Large Accelerated Filer
P2Y7M6D
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>2. Inventories</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Inventories 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="75%"></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-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center">
<b>March 31,</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center">
<b>December 31,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2015</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Raw materials</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">10,075</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4,856</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Work-in-process</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,550</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,719</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Finished goods</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,164</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">95</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Total inventories</p>
</td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">16,789</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9,670</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
3020000
<div>
<p style="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>5. Related-party arrangements</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
In October 2007, the Company entered into a $350.0 million loan
arrangement with its principal stockholder. The Loan Arrangement
has been amended from time to time. On October 31, 2013, the
promissory note underlying the Loan Arrangement was amended to,
among other things, extend the maturity date of the loan to
January 5, 2020, extend the date through which the Company can
borrow under the Loan Arrangement to December 31, 2019,
increase the aggregate borrowing amount under the Loan Arrangement
from $350.0 million to $370.0 million and provide that repayments
or cancellations of principal under the Loan Arrangement will not
be available for reborrowing.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
As of March 31, 2015, the total principal amount outstanding
under the Loan Arrangement was $49.5 million, and the amount
available for future borrowings was $30.1 million. Interest, at a
fixed rate of 5.84%, is due and payable quarterly in arrears
on the first day of each calendar quarter for the preceding
quarter, or at such other time as the Company and The Mann Group
mutually agree. All or any portion of accrued and unpaid interest
that becomes due and payable may be paid-in-kind and capitalized as
additional borrowings at any time and would be classified as
non-current upon mutual agreement of both parties. As of
March 31, 2015, the Company had accrued $4.2 million of
interest in other liabilities related to the Loan Arrangement. The
Mann Group can require the Company to prepay up to $200.0 million
in advances that have been outstanding for at least 12 months (less
approximately $105.0 million aggregate principal amount that has
been cancelled in connection with two common stock purchase
agreements). If The Mann Group exercises this right, the Company
will have 90 days after The Mann Group provides written notice (or
the number of days to maturity of the note if less than
90 days) to prepay such advances. However, pursuant to a
letter agreement entered into in August 2010, The Mann Group has
agreed to not require the Company to prepay amounts outstanding
under the amended and restated promissory note if the prepayment
would require the Company to use its working capital resources. The
Mann Group entered into a subordination agreement with Deerfield
pursuant to which The Mann Group agreed with Deerfield not to
demand or accept any payment under the Loan Arrangement until the
Company’s payment obligations to Deerfield under the Facility
Agreement have been satisfied in full. Subject to the foregoing, in
the event of a default under the Loan Arrangement, all unpaid
principal and interest either becomes immediately due and payable
or may be accelerated at The Mann Group’s option, and the
interest rate will increase to the one-year LIBOR calculated on the
date of the initial advance or in effect on the date of default,
whichever is greater, plus 5% per annum. All borrowings under
the Loan Arrangement are unsecured. The Loan Arrangement contains
no financial covenants.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
During the three months ended March 31, 2015, there were no
additional borrowings under or amendments to the Loan
Arrangement.</p>
</div>
<div>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
The following is a summary of the carrying values and estimated
fair values of the 2015 notes and the facility financing obligation
(i.e., the 2019 notes and Tranche B notes) (in millions):</p>
<p style="font-size:1px;margin-top:12px;margin-bottom:0px">
 </p>
<table cellspacing="0" cellpadding="0" width="92%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:8pt" align="center">
<tr>
<td width="66%"></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-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1.00pt solid #000000"><b>March 31,
2015</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1.00pt solid #000000"><b>December 31,
2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>Carrying<br />
value</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>Estimated<br />
fair value</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>Carrying<br />
value</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>Estimated<br />
fair value</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
2015 notes</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">99.6</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">102.1</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">99.4</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">102.9</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Facility financing obligation</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">73.4</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">76.1</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">73.0</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">75.1</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
</table>
</div>
<div>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Accrued expenses and other current liabilities are comprised of the
following (in thousands):</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="76%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>March 31,<br />
2015</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>December 31,<br />
2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Salary and related expenses</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7,386</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">14,928</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accrued interest</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,022</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,396</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Construction in progress</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">579</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,343</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Other</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,394</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">7,539</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accrued expenses and other current liabilities</p>
</td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">12,381</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">26,206</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
73600
398916000
2015-03-31
<div>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Senior convertible notes consist of the following (in
thousands):</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="74%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>March 31,<br />
2015</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 />
2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
<b>2015 notes</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Principal amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">100,000</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">100,000</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Unaccreted debt issuance expense</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(407</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(645</td>
<td nowrap="nowrap" valign="bottom">) </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Net carrying amount</p>
</td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">99,593</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">99,355</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
false
--12-31
2015
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>13. Income taxes</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
As required by ASC 740 <i>Income Taxes</i> (“ASC 740”),
management of the Company has evaluated the positive and negative
evidence bearing upon the realizability of its deferred tax assets
and concluded, in accordance with the applicable accounting
standards, that net deferred tax assets should be fully
reserved.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
ASC 740-10-25 <i>Income Taxes Recognition</i> clarifies the
accounting and disclosure for uncertainty in tax positions, as
defined. This guidance seeks to reduce the diversity in practice
associated with certain aspects of the recognition and measurement
related to accounting for income taxes. The Company believes that
its income tax filing positions and deductions will be sustained on
audit and does not anticipate any adjustments that will result in a
material change to its financial position. Therefore, no reserves
for uncertain income tax positions have been recorded pursuant to
this guidance. Tax years since 1993 remain subject to examination
by the major tax jurisdictions in which the Company is subject to
tax.</p>
</div>
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>6. Senior convertible notes</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Senior convertible notes consist of the following (in
thousands):</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="74%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>March 31,<br />
2015</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 />
2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
<b>2015 notes</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Principal amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">100,000</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">100,000</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Unaccreted debt issuance expense</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(407</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(645</td>
<td nowrap="nowrap" valign="bottom">) </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Net carrying amount</p>
</td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">99,593</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">99,355</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
On August 18, 2010, the Company completed a Rule 144A offering
of $100.0 million aggregate principal amount of 2015 notes. The
2015 notes are governed by the terms of an indenture dated as of
August 24, 2010 (the “2015 Note Indenture”). The
2015 notes bear interest at the rate of 5.75% per year on the
principal amount, payable in cash semi-annually in arrears on
February 15 and August 15 of each year, beginning
February 15, 2011. In connection with the 2015 notes, the
Company had accrued interest of $1.0 million and $2.4 million as of
March 31, 2015 and December 31, 2014, respectively. The
2015 notes are general, unsecured, senior obligations of the
Company and effectively rank junior in right of payment to all of
the Company’s secured debt, to the extent of the value of the
assets securing such debt, and to the debt and all other
liabilities of the Company’s subsidiaries. The maturity date
of the 2015 notes is August 15, 2015 and payment is due in
full on that date for unconverted securities. Holders of the 2015
notes may convert, at any time prior to the close of business on
the business day immediately preceding the stated maturity date,
any outstanding principal into shares of the Company’s common
stock at an initial conversion rate of 147.0859 shares per $1,000
principal amount, which is equal to a conversion price of
approximately $6.80 per share, subject to adjustment. Except in
certain circumstances, if the Company undergoes a fundamental
change: (1) the Company will pay a make-whole premium on the
2015 notes converted in connection with a fundamental change by
increasing the conversion rate on such 2015 notes, which amount, if
any, will be based on the Company’s common stock price and
the effective date of the fundamental change, and (2) each
holder of 2015 notes will have the option to require the Company to
repurchase all or any portion of such holder’s 2015 notes at
a repurchase price of 100% of the principal amount of the 2015
notes to be repurchased plus accrued and unpaid interest, if any.
The Company may elect to redeem some or all of the 2015 notes if
the closing stock price has equaled 150% of the conversion price
for at least 20 of the 30 consecutive trading days ending on the
trading day before the Company’s redemption notice. The
redemption price will equal 100% of the principal amount of the
2015 notes to be redeemed, plus accrued and unpaid interest, if
any, up to, but excluding, the redemption date, plus a make-whole
payment equal to the sum of the present values of the remaining
scheduled interest payments through and including August 15,
2015 (other than interest accrued up to, but excluding, the
redemption date). The Company will be obligated to make the
make-whole payment on all of the 2015 notes called for redemption
and converted during the period from the date the Company mailed
the notice of redemption to and including the redemption date. The
Company may elect to make the make-whole payment in cash or shares
of its common stock, subject to certain limitations. Under the
terms of the 2015 Note Indenture, the conversion option can be
net-share settled and the maximum number of shares that could be
required to be delivered under the contract, including the
make-whole shares, is fixed and less than the number of authorized
and unissued shares less the maximum number of shares that could be
required to be delivered during the contract period under existing
commitments. Applying the Company’s sequencing policy, the
Company performed an analysis at the time of the offering of the
2015 notes and each reporting date since and has concluded that the
number of available authorized shares at the time of the offering
and each subsequent reporting date was sufficient to deliver the
number of shares that could be required to be delivered during the
contract period under existing commitments.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
The Company incurred approximately $4.2 million in issuance costs
which are recorded as an offset to the 2015 notes in the
accompanying condensed consolidated balance sheets. These costs are
being accreted to interest expense using the effective interest
method over the term of the 2015 notes.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
The 2015 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 14 –
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-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Accretion of debt issuance expense in connection with the 2015
notes during the three months ended March 31, 2015 and 2014
was $238,000 and $223,000, respectively.</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: 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, 2014 filed with the SEC on March 2,
2015 (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, 2015 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 and development
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. In August 2014, we entered into 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-Aventis U.S. LLC (“Sanofi”)),
pursuant to which Sanofi conducts all sales and marketing
activities related to AFREZZA (see Note 7 –
Collaboration arrangement). AFREZZA became available by
prescription in United States retail pharmacies in February
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: 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, and raising capital. It is costly to develop
therapeutic products and conduct associated clinical studies. As of
March 31, 2015, the Company had an accumulated deficit of $2.5
billion and a stockholders’ deficit of $97.0 million.
Historically the Company has reported negative cash flow from
operations other than for the nine months ended September 30,
2014 and for the three months ended March 31, 2015, as a
result of receipt of the upfront payment and milestone payments
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">
At March 31, 2015, the Company’s capital resources
consisted of cash and cash equivalents of $120.8 million. The
Company expects to continue to incur significant expenditures to
support commercial manufacturing of AFREZZA and the development of
other product candidates. In addition, the Company had $232.5
million principal amount of outstanding debt as of March 31,
2015, including $100.0 million principal amount of outstanding
5.75% Senior Convertible Notes due 2015 (the “2015
notes”), which have a maturity date of August 15, 2015.
See Note 5 – Related-party arrangements, Note 6 –
Senior convertible notes, Note 7 – Collaboration
arrangement—Sanofi Loan Facility, and Note 14 –
Facility Agreement. In addition, the Company’s facility
agreement (the “Facility Agreement”) with Deerfield
Private Design Fund II, L.P. and Deerfield Private Design
International II, L.P. (collectively, “Deerfield”) (see
Note 14 – Facility Agreement) contains a financial
covenant that requires the Company’s cash and cash
equivalents, which include available borrowings under the
Company’s loan arrangement (the “Loan
Arrangement”) with The Mann Group LLC (“The Mann
Group”), on the last day of each fiscal quarter to not be
less than $25.0 million. Should the holders of the notes not elect
to convert such notes into the Company’s common stock prior
to their due date, the Company intends to refinance the 2015 notes
or raise additional funds to settle the 2015 notes. The Company
cannot be certain that it will achieve its projected cashflows or
be able to refinance the 2015 notes, 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 these uncertainties.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On August 11, 2014, the Company executed a license and
collaboration agreement (the “Sanofi License
Agreement”) and a supply agreement (the “Sanofi Supply
Agreement”) with Sanofi-Aventis Deutschland GmbH (which
subsequently assigned its rights and obligations under the
agreement to Sanofi-Aventis U.S. LLC (“Sanofi”)),
pursuant to which Sanofi is responsible for global commercial,
regulatory and development activities for AFREZZA. The Sanofi
License Agreement became effective on September 23, 2014. The
Company manufactures AFREZZA at its manufacturing facility in
Danbury, Connecticut to supply Sanofi’s demand for the
product. In addition, the Company and Sanofi are planning to
collaborate to expand manufacturing capacity to meet global demand
as necessary.</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>
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Under the Sanofi License Agreement, Sanofi paid us an up-front cash
payment of $150.0 million in the third quarter of 2014, and $50.0
million in milestone payments in the first quarter of 2015. The
foregoing milestone payments were earned as of December 31,
2014. We are also eligible to receive up to $725.0 million in
additional milestone payments under the Sanofi License Agreement if
certain development, regulatory and sales milestones are achieved
Worldwide profits and losses, which are determined based on the
difference between the net sales of AFREZZA and the costs and
expenses incurred by us and Sanofi that are specifically
attributable or related to the development, regulatory filings,
manufacturing, or commercialization of AFREZZA, will be shared 65%
by Sanofi and 35% by us. In connection with the Sanofi License
Agreement, an affiliate of Sanofi provided us with a secured loan
facility (the “Sanofi Loan Facility”) of up to $175.0
million to fund our 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
its Loan Arrangement (see Note 5 – Related-party
arrangements), potential proceeds from the exercise of warrants
issued in its February 2012 public offering of approximately $14.9
million, and the Company’s at-the-market issuance sales
agreements which allow the Company to sell up to $50.0 million in
common stock provided no sales may be made except pursuant to an
effective registration statement. The registration statement under
which the shares that may be sold pursuant to the at-the-market
issuance sales agreements are registered will expire in August
2015. The Company cannot provide assurances that its plans will not
change or that changed circumstances will not result in the
depletion of its capital resources more rapidly than it currently
anticipates. The Company may need to raise additional capital,
whether through 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 9 – 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, a new standard was issued 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 guidance 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. The standard is effective beginning the first quarter of
the Company’s 2018 fiscal year (with early adoption not
permitted) and may be adopted either by restating all years
presented in the Company’s financial statements or by
recording the impact of adoption as an adjustment to retained
earnings at the beginning of fiscal 2018 The Company is assessing
the potential impact of the new standard on its consolidated
statements of financial position and results of operations and
comprehensive income (loss) and has not yet selected a transition
method.</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>
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 </p>
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In April 2015, the FASB issued ASU 2015 03, “Simplifying the
Presentation of Debt Issuance Costs.” The guidance requires
debt issuance costs to be presented in the balance sheet as a
direct deduction from the carrying value of the associated debt,
consistent with the presentation of a debt discount. The guidance
is effective for annual reporting periods beginning after
December 15, 2015 and interim periods thereafter. Early
adoption is permitted. The Company does not believe the adoption of
the new standard will have a material impact on its consolidated
financial statements and disclosures.</p>
</div>
0000899460
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>10. Accounting for stock-based compensation</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Total stock-based compensation expense recognized in the
accompanying condensed consolidated statements of operations for
the three months ended March 31, 2015 and 2014 was $2.0
million and $5.2 million, respectively. The Company issued stock
awards to employees during the three months ended March 31,
2015 with a four-year vesting schedule. The grant date fair value
of the 36,300 restricted stock units and 73,600 stock options
issued was $262,086 and $382,720, respectively, with a grant date
fair value per share of $7.22 and $5.20, respectively.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
As of March 31, 2015, there was $9.0 million and $10.0 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 2.6 years. The
Company evaluates stock awards with performance conditions as to
the probability that the performance conditions will be met and
estimates the date at which the performance conditions will be met
in order to properly recognize stock-based compensation expense
over the requisite service period. As of March 31, 2015, there
were no unrecognized expenses related to performance options and
restricted stock units, for milestones not considered probable of
achievement.</p>
</div>
-0.08
<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. 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: 0px; -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>
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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: 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 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: 0px; -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, 2015
and December 31, 2014, the Company held $120.8 million and
$120.8 million, respectively, of cash and cash equivalents,
consisting primarily of money market funds of $120.5 million and
$118.5 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: 0px; -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>Senior convertible 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: 0px; -webkit-text-stroke-width: 0px">
The following is a summary of the carrying values and estimated
fair values of the 2015 notes and the facility financing obligation
(i.e., the 2019 notes and Tranche B notes) (in millions):</p>
<p style="MARGIN-BOTTOM: 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>
<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="92%" align="center" border="0">
<tr>
<td width="66%"></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, 2015</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, 2014</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="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
2015 notes</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">99.6</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">102.1</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">99.4</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">102.9</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Facility financing obligation</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">73.4</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">76.1</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">73.0</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">75.1</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: 0px; -webkit-text-stroke-width: 0px">
The estimated fair value of the 2015 notes was calculated based on
model-derived valuations whose inputs were observable, such as the
Company’s stock price, and non-observable, such as the
Company’s longer-term historical volatility (Level 3 in the
fair value hierarchy). As there is no current observable market for
the 2015 notes, the Company determined the estimated fair value
using a convertible bond valuation model within a lattice
framework. The convertible bond valuation model combined expected
cash outflows with market-based assumptions regarding risk-adjusted
yields, stock price volatility and recent price quotes and trading
information regarding Company issued debt instruments and shares of
common stock into which the notes are convertible.</p>
<p style="MARGIN-BOTTOM: 0pt; 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: 0px; -webkit-text-stroke-width: 0px">
As discussed in Note 14 — Facility Agreement, in connection
with the Facility Agreement, the Company issued 2019 notes and
certain rights to receive payments of up to $90.0 million upon the
occurrence of specified strategic and sales milestones (the
“Milestone Rights”). 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. At March 31, 2015 the market discount rate was
recalculated at 12.0% for the 2019 notes and 11.0% for the Tranche
B notes (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: 0px; -webkit-text-stroke-width: 0px">
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 (15%) was selected based on an estimation of
required rate of returns for similar investment opportunities using
available market data. As of March 31, 2015, the fair value of
the Milestone Rights is estimated at $47.6 million.</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">
There were no material re-measurements to fair value during the
three months ended March 31, 2015 of financial assets and
liabilities that are not measured at fair value on a recurring
basis. There were no transfers of assets or liabilities
between the fair value measurement levels during the 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: 18pt; 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: 0px; -webkit-text-stroke-width: 0px">
As discussed in Note 7 — 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. As of March 31, 2015, the
Company borrowed $3.0 million under the Sanofi Loan Facility
and the estimated fair value was determined to approximate the
carrying value based on the consideration of the key elements of
time value of money, namely the amount of time to settlement and
the estimated discount rate appropriate for the liability. This
analysis was performed using a discounted cash flow model in which
time outstanding and discount rate were the primary variables.</p>
</div>
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>3. Property and equipment</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Property and equipment — net consist of the following (dollar
amounts in thousands):</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="84%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="66%"></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-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>Estimated<br />
Useful<br />
Life<br />
(Years)</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>March 31,<br />
2015</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 />
2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Land</p>
</td>
<td valign="bottom">  </td>
<td nowrap="nowrap" valign="bottom"> </td>
<td nowrap="nowrap" valign="bottom" align="right">
—  </td>
<td nowrap="nowrap" valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,273</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,273</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Buildings</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">39-40</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">54,948</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">54,948</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Building improvements</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5-40</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">114,131</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">114,131</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Machinery and equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3-15</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">82,120</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">80,919</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Furniture, fixtures and office equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5-10</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,015</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,015</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Computer equipment and software</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">10,499</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">10,465</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Leasehold improvements</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">17</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">17</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Construction in progress</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">41,997</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">39,580</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<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">314,000</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">310,348</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
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">(120,546</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(118,221</td>
<td nowrap="nowrap" valign="bottom">) </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
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">193,454</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">192,127</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Leasehold improvements are amortized over four years which is the
shorter of the term of the lease or the service lives of the
improvements.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Depreciation and amortization expense related to property and
equipment for the three months ended March 31, 2015 and 2014
was $2.3 million and $2.5 million, respectively.</p>
</div>
<div>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Accretion of debt issuance cost and debt discount in connection
with the Facility financing agreement during the three months ended
March 31, 2015 and 2014 are as follows (in thousands):</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="62%"></td>
<td valign="bottom" width="15%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="15%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000">
<b>Three months ended<br />
March 31, 2015</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000">
<b>Three months ended<br />
March 31, 2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accretion expense- debt issuance cost</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">282</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accretion expense- debt discount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">364</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6,367</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
</table>
</div>
Q1
45171595
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<b><i>Fair Value of Financial Instruments —</i></b> The
carrying amounts reported in the accompanying financial statements
for cash and cash equivalents, accounts payable and accrued
liabilities approximate their fair value due to their relatively
short maturities. The fair value of the cash equivalents, note
payable to related party, senior convertible notes, and the
Facility Agreement are discussed in Note 9 – Fair Value of
Financial Instruments.</p>
</div>
<div>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Property and equipment — net consist of the following (dollar
amounts in thousands):</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="84%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="66%"></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-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>Estimated<br />
Useful<br />
Life<br />
(Years)</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>March 31,<br />
2015</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 />
2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Land</p>
</td>
<td valign="bottom">  </td>
<td nowrap="nowrap" valign="bottom"> </td>
<td nowrap="nowrap" valign="bottom" align="right">
—  </td>
<td nowrap="nowrap" valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,273</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,273</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Buildings</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">39-40</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">54,948</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">54,948</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Building improvements</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5-40</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">114,131</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">114,131</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Machinery and equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3-15</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">82,120</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">80,919</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Furniture, fixtures and office equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5-10</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,015</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,015</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Computer equipment and software</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">10,499</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">10,465</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Leasehold improvements</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">17</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">17</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Construction in progress</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">41,997</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">39,580</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<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">314,000</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">310,348</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
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">(120,546</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(118,221</td>
<td nowrap="nowrap" valign="bottom">) </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
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">193,454</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">192,127</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
36300
-7000
0
0
-3831000
872000
7119000
-46154000
-30658000
0
-21738000
-30665000
1413000
-7000
4203000
7000
-30658000
3000
4749000
6251000
762000
0
1094000
2000000
2300000
7050000
21738000
714000
238000
9622000
3000
-10660000
0
2988000
1186000
0
-4203000
9377000
10479000
-4182000
1882000
2003000
743000
0
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>9. Common and preferred stock</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Included in the common stock outstanding as of March 31, 2015
and December 31, 2014 are 9,000,000 shares of common stock
loaned to Bank of America, N.A. under a share lending agreement in
connection with the offering of $100.0 million aggregate principal
amount of 2015 notes (see Note 6 — Senior convertible notes).
Bank of America is obligated to return the borrowed shares (or, in
certain circumstances, the cash value thereof) to the Company on or
about the 45th business day following the date as of which the
entire principal amount of the 2015 notes ceases to be outstanding,
subject to extension or acceleration in certain circumstances or
early termination at Bank of America’s option. The Company
did not receive any proceeds from the sale of the borrowed shares
by Bank of America, but the Company did receive a nominal lending
fee of $0.01 per share from Bank of America for the use of borrowed
shares.</p>
</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: 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, and raising capital. It is costly to develop
therapeutic products and conduct associated clinical studies. As of
March 31, 2015, the Company had an accumulated deficit of $2.5
billion and a stockholders’ deficit of $97.0 million.
Historically the Company has reported negative cash flow from
operations other than for the nine months ended September 30,
2014 and for the three months ended March 31, 2015, as a
result of receipt of the upfront payment and milestone payments
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">
At March 31, 2015, the Company’s capital resources
consisted of cash and cash equivalents of $120.8 million. The
Company expects to continue to incur significant expenditures to
support commercial manufacturing of AFREZZA and the development of
other product candidates. In addition, the Company had $232.5
million principal amount of outstanding debt as of March 31,
2015, including $100.0 million principal amount of outstanding
5.75% Senior Convertible Notes due 2015 (the “2015
notes”), which have a maturity date of August 15, 2015.
See Note 5 – Related-party arrangements, Note 6 –
Senior convertible notes, Note 7 – Collaboration
arrangement—Sanofi Loan Facility, and Note 14 –
Facility Agreement. In addition, the Company’s facility
agreement (the “Facility Agreement”) with Deerfield
Private Design Fund II, L.P. and Deerfield Private Design
International II, L.P. (collectively, “Deerfield”) (see
Note 14 – Facility Agreement) contains a financial
covenant that requires the Company’s cash and cash
equivalents, which include available borrowings under the
Company’s loan arrangement (the “Loan
Arrangement”) with The Mann Group LLC (“The Mann
Group”), on the last day of each fiscal quarter to not be
less than $25.0 million. Should the holders of the notes not elect
to convert such notes into the Company’s common stock prior
to their due date, the Company intends to refinance the 2015 notes
or raise additional funds to settle the 2015 notes. The Company
cannot be certain that it will achieve its projected cashflows or
be able to refinance the 2015 notes, 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 these uncertainties.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On August 11, 2014, the Company executed a license and
collaboration agreement (the “Sanofi License
Agreement”) and a supply agreement (the “Sanofi Supply
Agreement”) with Sanofi-Aventis Deutschland GmbH (which
subsequently assigned its rights and obligations under the
agreement to Sanofi-Aventis U.S. LLC (“Sanofi”)),
pursuant to which Sanofi is responsible for global commercial,
regulatory and development activities for AFREZZA. The Sanofi
License Agreement became effective on September 23, 2014. The
Company manufactures AFREZZA at its manufacturing facility in
Danbury, Connecticut to supply Sanofi’s demand for the
product. In addition, the Company and Sanofi are planning to
collaborate to expand manufacturing capacity to meet global demand
as necessary.</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">
Under the Sanofi License Agreement, Sanofi paid us an up-front cash
payment of $150.0 million in the third quarter of 2014, and $50.0
million in milestone payments in the first quarter of 2015. The
foregoing milestone payments were earned as of December 31,
2014. We are also eligible to receive up to $725.0 million in
additional milestone payments under the Sanofi License Agreement if
certain development, regulatory and sales milestones are achieved
Worldwide profits and losses, which are determined based on the
difference between the net sales of AFREZZA and the costs and
expenses incurred by us and Sanofi that are specifically
attributable or related to the development, regulatory filings,
manufacturing, or commercialization of AFREZZA, will be shared 65%
by Sanofi and 35% by us. In connection with the Sanofi License
Agreement, an affiliate of Sanofi provided us with a secured loan
facility (the “Sanofi Loan Facility”) of up to $175.0
million to fund our 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
its Loan Arrangement (see Note 5 – Related-party
arrangements), potential proceeds from the exercise of warrants
issued in its February 2012 public offering of approximately $14.9
million, and the Company’s at-the-market issuance sales
agreements which allow the Company to sell up to $50.0 million in
common stock provided no sales may be made except pursuant to an
effective registration statement. The registration statement under
which the shares that may be sold pursuant to the at-the-market
issuance sales agreements are registered will expire in August
2015. The Company cannot provide assurances that its plans will not
change or that changed circumstances will not result in the
depletion of its capital resources more rapidly than it currently
anticipates. The Company may need to raise additional capital,
whether through 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>Business —</i></b> MannKind is a biopharmaceutical
company focused on the discovery and development 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. In
August 2014, we entered into 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-Aventis U.S. LLC
(“Sanofi”)), pursuant to which Sanofi conducts all
sales and marketing activities related to AFREZZA (see Note 7
– Collaboration arrangement). AFREZZA became available by
prescription in United States retail pharmacies in February
2015.</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, a new standard was issued 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 guidance 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. The standard is effective beginning the first quarter of
the Company’s 2018 fiscal year (with early adoption not
permitted) and may be adopted either by restating all years
presented in the Company’s financial statements or by
recording the impact of adoption as an adjustment to retained
earnings at the beginning of fiscal 2018 The Company is assessing
the potential impact of the new standard on its consolidated
statements of financial position and results of operations and
comprehensive income (loss) and has not yet selected a transition
method.</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: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
In April 2015, the FASB issued ASU 2015 03, “Simplifying the
Presentation of Debt Issuance Costs.” The guidance requires
debt issuance costs to be presented in the balance sheet as a
direct deduction from the carrying value of the associated debt,
consistent with the presentation of a debt discount. The guidance
is effective for annual reporting periods beginning after
December 15, 2015 and interim periods thereafter. Early
adoption is permitted. The Company does not believe the adoption of
the new standard will have a material impact on its consolidated
financial statements and disclosures.</p>
</div>
P4Y
0.01
4220000
6168000
50000000
2
0.15
0.110
0.120
200000000
P40Y
P40Y
P15Y
P10Y
P12M
P5Y
P39Y
P3Y
P5Y
7.22
262086
5.20
P4Y
382720
3000000
12400000
0.65
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.
0.05
P90D
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5800000
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P3Y
P4Y
2015-08-15
0.35
2016-07-01
9000
364000
2019-12-09
150000000
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