0000899460 us-gaap:SeriesCPreferredStockMember 1991-02-14 2011-09-30 0000899460 us-gaap:SeriesBPreferredStockMember 1991-02-14 2011-09-30 0000899460 2011-10-21 0000899460 2010-06-30 0000899460 2011-09-30 0000899460 2010-12-31 0000899460 2011-01-01 2011-09-30 0000899460 2010-01-01 2010-09-30 0000899460 1991-02-14 2011-09-30 0000899460 2011-07-01 2011-09-30 0000899460 2010-07-01 2010-09-30 0000899460 2009-12-31 0000899460 2010-09-30 iso4217:USD xbrli:shares xbrli:shares iso4217:USD MANNKIND CORP 0000899460 --12-31 No No Yes Accelerated Filer 10-Q false 2011-09-30 Q3 2011 414517434 131339001

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1. Description of business and basis of presentation The accompanying unaudited condensed consolidated financial statements of MannKind Corporation and its subsidiaries (the “Company”), have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest audited annual financial statements. The audited statements for the year ended December 31, 2010 are included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2010 filed with the SEC on March 16, 2011 (the “Annual Report”). 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 and nine months ended September 30, 2011 may not be indicative of the results that may be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates or assumptions. The more significant estimates reflected in these accompanying financial statements involve assessing long-lived assets for impairment, accrued expenses, the 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. Business — The Company is a biopharmaceutical company focused on the discovery and development of therapeutic products for diseases such as diabetes and cancer. The Company’s lead product candidate, AFREZZA (insulin human [rDNA origin]) Inhalation Powder, is an ultra rapid-acting insulin therapy in late-stage clinical investigation for the treatment of adults with type 1 or type 2 diabetes for the control of hyperglycemia. AFREZZA consists of the Company’s proprietary Technosphere particles onto which insulin molecules are loaded. These loaded particles are then aerosolized and inhaled deep into the lung using the Company’s AFREZZA inhaler. Basis of Presentation — The Company is considered to be in the development stage as its primary activities since incorporation have been establishing its facilities, recruiting personnel, conducting research and development, business development, business and financial planning, and raising capital. Since its inception through September 30, 2011 the Company has reported accumulated net losses of $1.9 billion, which include a goodwill impairment charge of $151.4 million, and cumulative negative cash flow from operations of $1.5 billion. It is costly to develop therapeutic products and conduct clinical trials for these products. At September 30, 2011, the Company’s capital resources consisted of cash, cash equivalents, and marketable securities of $23.3 million and $45.0 million of available borrowings under the loan agreement with an entity controlled by the Company’s principal stockholder (see Note 12 — Related-party arrangements). Based upon the Company’s current expectations, management believes the Company’s existing capital resources will enable it to continue planned operations into the first quarter of 2012. However, the Company cannot provide assurances that its plans will not change or that changed circumstances will not result in the depletion of its capital resources more rapidly than it currently anticipates. If the Company is not successful in raising additional capital through equity or debt financing, entering a business collaboration, establishing other funding facilities, licensing arrangements, assets sales or other means, or increasing the borrowings available under the loan arrangement with its related party, the Company will be required to reduce expenses through the delay, reduction or curtailment of its projects, including AFREZZA development activities, or further reduction of costs for facilities and administration, and there will be substantial doubt about its ability to continue as a going concern. Fair Value of Financial Instruments — The carrying amounts of financial instruments, which include cash equivalents, marketable securities and accounts payable, approximate their fair values due to their relatively short maturities. The fair value of the note payable to related party cannot be reasonably estimated as the Company would not be able to obtain a similar credit arrangement in the current economic environment.   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 September 30, 2011 and December 31, 2010, the Company held $15.8 million and $52.8 million, respectively of cash equivalents, consisting of money market funds, U.S. Treasury notes and commercial paper. The $15.8 million of cash equivalents at September 30, 2011 consisted entirely of money market funds. The fair value of these investments was determined by using quoted prices for identical investments in an active market (Level 1 in the fair value hierarchy). The Company’s marketable securities consist principally of a certificate of deposit with a maturity greater than 90 days, held as collateral for the Company’s commercial credit card programs and a common stock investment that are classified as available-for-sale securities. The certificate of deposit is stated at fair value based on quoted prices for similar instruments in an active market (Level 2 in the fair value hierarchy) and the common stock investment is stated at fair value based on quoted prices in an active market (Level 1 in the fair value hierarchy). As of September 30, 2011 and December 31, 2010, there were marketable securities of $0.5 million and $4.4 million, respectively. The following is a summary of the carrying values and estimated fair values of the Company’s senior convertible notes due in 2013 and 2015 (in millions).   <table cellspacing="0" cellpadding="0" width="92%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="65%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">December 31, 2010</td> <td valign="bottom"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">Carrying value</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">Estimated fair value</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">Carrying value</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">Estimated fair value</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Notes due 2013 </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">113.7</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">61.2</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">113.3</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">69.1</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Notes due 2015 </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">96.6</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">76.5</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">96.0</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">134.1</td> <td nowrap="nowrap" valign="bottom"> </td> </tr>  </table> The estimated fair value of the senior convertible notes due 2013 was calculated based on quoted prices in an active market (Level 1 in the fair value hierarchy). The estimated fair value of the senior convertible notes due 2015 was calculated based on model-derived valuations, based on the market approach (Level 2 in the fair value hierarchy). Derivative financial instruments are reported in “Other assets” or “Accrued expenses and other current liabilities” in the condensed consolidated balance sheets and measured at fair value. The fair value of foreign exchange hedging contracts equals the carrying value at each balance sheet date. The fair value of these contracts are determined using methodologies based on market observable inputs (Level 2 in the fair value hierarchy), including foreign currency spot rates. The Company has used derivative financial instruments to manage its exposure to foreign currency exchange risks related to quarterly purchases on insulin. The Company does not use derivative financial instruments for trading or speculative purposes, nor does it use leveraged financial instruments. Credit risk related to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and through periodic settlements of positions. The Company’s derivative financial instruments are not designated as hedging instruments for accounting purposes, and gains or losses resulting from changes in the fair value are reported in “Other income (expense)”, in the condensed consolidated statements of operations. The Company entered into foreign exchange hedging contracts with notional amounts totaling zero and $25.5 million at September 30, 2011 and December 31, 2010, respectively. The Company recorded an unrealized loss of $567,000 on the outstanding contracts at December 31, 2010. The Company recorded a realized gain of zero and $1.3 million for the three and nine months ended September 30, 2011, respectively and a realized loss of $961,000 and $1.3 million related to these foreign exchange hedging contracts for the three and nine months ended September 30, 2010, respectively. The Company terminated these contracts during the quarter ended March 31, 2011. Recently Issued Accounting Standards — In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-05 for Comprehensive Income (Topic 220): “Presentation of Comprehensive Income”. This update improves the comparability, consistency and transparency of financial reporting and increases the prominence of items reported in other comprehensive income. This update is effective for interim and annual periods beginning after December 15, 2011. The adoption of this update will have an impact on the disclosure of comprehensive income on the Company’s consolidated financial statements. In May 2011, the FASB issued Accounting Standards Update No. 2011-04 for Fair Value Measurement (Topic 820): “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. This update addresses how to measure fair value and requires new disclosures about fair value measurements. The amendments in this update are effective for interim and annual periods beginning after December 15, 2011. The Company is currently evaluating the impact the adoption of this update will have on its consolidated financial statements.

2. Investment in securities The following is a summary of the available-for-sale securities classified as current assets (in thousands).   <table cellspacing="0" cellpadding="0" width="100%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="62%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="10" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="10" align="center" style="border-bottom:1px solid #000000">December 31, 2010</td> <td valign="bottom"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">Cost Basis</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">Gross Unrealized Gain</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">Fair Value</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">Cost Basis</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">Gross Unrealized Gain</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">Fair Value</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Available-for-sale securities </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">467</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">46</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">513</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,295</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">75</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,370</td> <td nowrap="nowrap" valign="bottom"> </td> </tr>  </table> The Company’s available-for-sale securities at September 30, 2011 consist of a $0.4 million certificate of deposit with a maturity greater than 90 days, held as collateral for the Company’s commercial credit card programs, and a common stock investment. The Company’s available-for-sale securities at December 31, 2010 consist principally of $4.2 million of certificates of deposit with a maturity greater than 90 days, held as collateral primarily for foreign exchange hedging instruments, and a common stock investment. Gross realized gains and losses for available-for-sale securities were insignificant and recorded as “Other income (expense)” in the condensed consolidated statements of operations. Gross unrealized gains and losses are included in “Other comprehensive gain (loss)” (see Note 5 — Comprehensive loss).

3. Accrued expenses and other current liabilities Accrued expenses and other current liabilities are comprised of the following (in thousands):   <table cellspacing="0" cellpadding="0" width="76%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="72%"> </td> <td valign="bottom" width="8%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="8%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">December 31, 2010</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Salary and related expenses </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">8,660</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5,624</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Research and clinical trial costs </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">820</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">668</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Accrued interest </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,868</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,993</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Construction in progress </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">163</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">149</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Other </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,204</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,406</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> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> Accrued expenses and other current liabilities </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">15,715</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">14,840</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> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

4. Accounting for stock-based compensation Total stock-based compensation expense recognized in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010 was as follows (in thousands):   <table cellspacing="0" cellpadding="0" width="92%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="71%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Three months  ended September 30,</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Nine months  ended September 30,</td> <td valign="bottom"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2010</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Stock-based compensation </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,321</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,338</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">8,023</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">11,343</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> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table> The Company issued stock awards to employees during the nine months ended September 30, 2011 primarily with a four-year vesting schedule. The grant date fair value of the 3,310,800 stock options and 2,462,590 restricted stock units issued during the nine months ended September 30, 2011 were $6.7 million and $7.7 million, respectively, with a grant date fair value per share of $2.03 and $3.12, respectively. As of September 30, 2011, there was $14.2 million and $16.8 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 2.4 years.

5. Comprehensive loss Accounting Standards Codification (“ASC”) 220-10-45 Comprehensive Income Other Presentation requires reporting and displaying comprehensive income (loss) and its components, which, for the Company, includes net loss and unrealized gains and losses on investments and cumulative translation gains and losses. In accordance with this guidance, the accumulated balance of other comprehensive income (loss) is disclosed as a separate component of stockholders’ equity. For the three and nine months ended September 30, 2011 and 2010, comprehensive loss consisted of (in thousands):   <table cellspacing="0" cellpadding="0" width="92%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="62%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Three months ended September 30,</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Nine months ended September 30,</td> <td valign="bottom"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2010</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Net loss </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(38,402</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(45,303</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(124,407</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(132,254</td> <td nowrap="nowrap" valign="bottom">) </td> </tr> <tr> <td valign="top"> Other comprehensive loss: </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> <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 bgcolor="#cceeff"> <td valign="top"> Unrealized gain (loss) on investments </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">15</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(30</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">286</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Cumulative translation (loss) gain </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(8</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(5</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> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Comprehensive loss </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(38,395</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(45,302</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(124,436</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(131,973</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> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

6. Net loss per common share Basic net loss per share excludes dilution for potentially dilutive securities and is computed by dividing loss applicable to common stockholders by the weighted average number of common shares outstanding during the period excluding the shares loaned under the share lending arrangement (see Note 10 — Common and preferred stock). As of September 30, 2011, 9,000,000 shares of the Company’s common stock, which were loaned to a share borrower pursuant to the terms of a share lending agreement as described in   Note 10, were issued and are outstanding, and holders of the borrowed shares have all the rights of a holder of the Company’s common stock. However, because the share borrower must return all borrowed shares to the Company (or, in certain circumstances, the cash value thereof), the borrowed shares are not considered outstanding for the purpose of computing and reporting basic or diluted earnings (loss) per share. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Potentially dilutive securities are excluded from the computation of diluted net loss per share for all of the periods presented in the accompanying 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 33,895,480 shares and 31,034,946 shares as of September 30, 2011 and 2010, respectively, and exclude the 9,000,000 shares loaned under the share lending arrangement.

7. Restructuring charges On February 10, 2011, the Company announced that following receipt of the Complete Response letter from the United States Food and Drug Administration (“FDA”) regarding the new drug application (“NDA”) for AFREZZA, it implemented a restructuring to streamline operations, reduce operating expenses, extend the cash runway and focus its resources on securing the FDA’s approval of the NDA for AFREZZA. In connection with the restructuring, the Company reduced its total workforce by approximately 41% to 257 employees. The Company recorded charges of approximately $6.7 million for employee severance and other related termination benefits and recognized an initial liability of $6.7 million in February, which approximated fair value.   <table cellspacing="0" cellpadding="0" width="68%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="87%"> </td> <td valign="bottom" width="8%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">Workforce Reduction</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Restructuring Balance, February 11, 2011 </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6,659</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Cash payments </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(6,032</td> <td nowrap="nowrap" valign="bottom">) </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Adjustment </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(222</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> </td> </tr> <tr> <td valign="top"> Restructuring Balance, September 30, 2011 </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">405</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> </td> </tr>  </table> During the quarter ended September 30, 2011, the Company adjusted the restructuring balance based on the election of certain termination benefits by a portion of the terminated employees. The remaining restructuring balance as of September 30, 2011 primarily consists of the remaining health benefits which are paid out over six months subsequent to termination. The net $6.4 million of costs associated with the restructuring are included in “Research and development” and “General and administrative” operating expenses in the condensed consolidated statements of operations as $4.8 million and $1.6 million, respectively, for the nine months ended September 30, 2011.

8. State research and development credit exchange receivable The State of Connecticut provides certain companies with the opportunity to exchange certain research and development income tax credit carryforwards for cash in exchange for forgoing the carryforward of the research and development income tax credits. The program provides for an exchange of research and development income tax credits for cash equal to 65% of the value of corporation tax credit available for exchange. Estimated amounts receivable under the program are recorded as a reduction of research and development expenses. At September 30, 2011 and December 31, 2010, the estimated amounts receivable under the program were $1.2 million and $1.3 million, respectively.

9. Property and equipment — net Property and equipment — net consist of the following (dollar amounts in thousands):   <table cellspacing="0" cellpadding="0" width="84%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="65%"> </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> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">Estimated Useful Life (Years)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">December 31, 2010</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Land </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td 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> <td valign="top"> Buildings </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"> <td valign="top"> Building improvements </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">113,878</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">113,489</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Machinery and equipment </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">83,819</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">73,812</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Furniture, fixtures and office equipment </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">5,369</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5,369</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Computer equipment and software </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">16,332</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">16,306</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Leasehold improvements </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">53</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">53</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Construction in progress </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">8,946</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">14,496</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">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <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">288,618</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">283,746</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr> <td valign="top"> Less accumulated depreciation and amortization </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">(92,244</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(81,390</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">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Property and equipment — net </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">196,374</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">202,356</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">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>   Leasehold improvements are amortized over four years which is the shorter of the term of the lease or the service lives of the improvements. Depreciation and amortization expense related to property and equipment for the three and nine months ended September 30, 2011 and 2010 was as follows (in thousands):   <table cellspacing="0" cellpadding="0" width="92%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="70%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Three months  ended September 30,</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Nine months ended September 30,</td> <td valign="bottom"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2010</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Depreciation and amortization expense </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,745</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,102</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">11,124</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">12,444</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> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

10. Common and preferred stock In June 2011, the Company’s stockholders approved an increase in its authorized shares of common stock from 200,000,000 to 250,000,000. As such, the Company is authorized to issue 250,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of undesignated preferred stock, par value $0.01 per share, issuable in one or more series designated by the Company’s board of directors. No other class of capital stock is authorized. As of September 30, 2011 and December 31, 2010, 131,337,279 and 127,793,178 shares of common stock, respectively, were issued and outstanding. Included in the common stock outstanding as of September 30, 2011 are 9,000,000 shares of common stock loaned to Bank of America under a share lending agreement in connection with the offering of the $100.0 million aggregate principal amount of 5.75% Senior Convertible Notes due 2015 (see Note 13 — 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 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. As of September 30, 2011 the Company had not issued any shares of undesignated preferred stock. In August 2010, the Company entered into an agreement with Seaside 88, LP (“Seaside”) for the sale of up to 18,200,000 shares of common stock in increments of 700,000 shares on a bi-weekly basis with the first closing date scheduled for September 22, 2010 provided that certain conditions are met, including for a particular closing to take place, the ten-day volume weighted average trading price for the Company’s common stock immediately prior to such closing must meet or exceed a minimum priced set by the Company at $6.50 per share. If the ten-day volume weighted average trading price for a particular closing was below $6.50 per share, then that closing would not occur and the aggregate number of shares to be purchased would be reduced by 700,000 shares. The purchase price per share at each closing was equal to 92% of that 10-day volume weighted average price. During the quarter ended March 31, 2011, the Company issued and sold a total of 1.4 million shares of common stock to Seaside for net proceeds of $9.7 million. No additional shares of common stock were sold to Seaside under this agreement subsequent to the quarter ended March 31, 2011. As of September 30, 2011, the Company had issued and sold a total of 3,500,000 shares of common stock to Seaside for net proceeds of $23.8 million in accordance with the agreement. The agreement with Seaside terminated during the quarter ended September 30, 2011. In conjunction with the Seaside agreement, in August 2010, the Company entered into a common stock purchase agreement with The Mann Group LLC (“The Mann Group”), an entity controlled by the Company’s principal stockholder. Under this common stock purchase agreement, the Company was required to issue and sell, and The Mann Group was obligated to purchase at a price equal to the greater of $7.15 per share (the closing bid price of the Company’s common stock on August 10, 2010) and the closing bid price of common stock on the trading day immediately preceding the applicable closing date, the same number of shares of the Company’s common stock that Seaside purchased on each closing date under its agreement with the Company (see Note 12 — Related-party arrangements). During the quarter ended March 31, 2011, the Company issued and sold a total of 1.4 million shares of common stock to The Mann Group that resulted in reduction in the note payable to related party of $11.1 million. No additional shares were sold to The Mann Group under this agreement subsequent to the quarter ended March 31, 2011. As of September 30, 2011, the Company had issued and sold a total of 3,500,000 shares of common stock to The Mann Group that had resulted in total reduction in the note payable to related party of $27.8 million. The agreement with The Mann Group terminated during the quarter ended September 30, 2011.

11. Commitments and contingencies Supply Commitments — In November 2007, the Company entered into a long-term supply agreement (the “Supply Agreement”) with N.V. Organon (“Organon”), now a subsidiary of Merck & Co., Inc., pursuant to which Organon manufactured and supplied specified quantities of recombinant human insulin to the Company. In June 2011, the Company entered into a letter agreement (the “Letter Agreement”) with Organon to settle a dispute that arose between the Company and Organon in connection with the termination by the Company of the Supply Agreement. Under the terms of the Letter Agreement, the Company paid Organon an aggregate of $16.0 million in two installments, each of which was paid after the Company received certain quantities of recombinant human insulin manufactured and supplied by Organon. The Letter Agreement is in full and final settlement of, and the Company and Organon agreed to release each other from, any and all actions and claims that the Company and Organon had or may have against each other in connection with the dispute regarding the Supply Agreement and related maters. The Company has concluded that the Letter Agreement represents a multiple element arrangement consisting of two elements representing the purchase of insulin and a contract cancellation fee. The Company has allocated the $16.0 million settlement first to the fair value of the insulin with the residual being allocated to the contract cancellation fee. During the three months ended June 30, 2011, the Company received the first of two shipments of recombinant human insulin and paid the first installment of $8.0 million. The Company expensed $4.3 million for insulin received and recorded $3.7 million for a contract cancellation fee. As of June 30, 2011, the Company recorded a loss contingency of $3.9 million in connection with the Letter Agreement representing the portion of the second $8.0 million payment related to the contract cancellation fee. During the three months ended September 30, 2011, the Company received the second shipment of insulin, paid the second installment of $8.0 million and recorded expense of $4.1 million for the insulin received. Guarantees and Indemnifications — In the ordinary course of its business, the Company makes certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. The Company, as permitted under Delaware law and in accordance with its Bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that may enable it to recover a portion of any future amounts paid. The Company believes the fair value of these indemnification agreements is minimal. The Company has not recorded any liability for these indemnities in the accompanying condensed consolidated balance sheets. However, the Company accrues for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable and the amount can be reasonably estimated. No such losses have been recorded to date. Litigation — The Company is involved in various legal proceedings and other matters. In accordance with ASC 450 Contingencies, previously the Financial Accounting Standards Board (“FASB”) Statement No. 5, Accounting for Contingencies, 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. On November 23, 2010, John Arditi, former Senior Director — GCP — Regulatory Affairs of the Company, filed a Demand for Arbitration against the Company and three of its employees — the Chief Scientific Officer, the Vice President — World Wide Regulatory Affairs, and the Chief Financial Officer — claiming that the Company terminated his employment in retaliation for his purported reporting of alleged unlawful practices in connection with the Company’s clinical trials. Mr. Arditi has asserted claims for violation of the New Jersey Conscientious Employee Protection Act, wrongful discharge, breach of contract, breach of the implied covenant of good faith and fair dealing, defamation and intentional infliction of emotional distress. Mr. Arditi is seeking, among other relief, compensatory and punitive damages and counsel fees, costs and interest. Before Mr. Arditi filed his arbitration demand, the Company completed an internal investigation and retained an independent outside firm to conduct an independent investigation of Mr. Arditi’s claims. Neither investigation found any basis for his claims. The Company believes the allegations made by Mr. Arditi are without merit and intends to defend against them vigorously. The Company has not accrued any liability in this matter, as the Company does not believe it is probable that a loss has been incurred as of September 30, 2011. In addition, the Company believes that any reasonably possible losses which may be incurred would not be material to the financial statements as a whole. Following the receipt of the Complete Response letter from the FDA regarding the NDA for AFREZZA in January 2011 and the subsequent decline of the price of the Company’s common stock, several complaints were filed in the U.S. District Court for the Central District of California against the Company and certain of its officers and directors on behalf of certain purchasers of the Company’s common stock. The complaints include claims asserted under Sections 10(b) and 20(a) of the Securities Exchange Act 1934, as amended, and have been brought as purported shareholder class actions. In general, the complaints allege that the Company and certain of its officers and directors violated federal securities laws by making materially false and misleading statements regarding the Company’s business and prospects for AFREZZA, thereby artificially inflating the price of its common stock. The plaintiffs are seeking unspecified monetary damages and other relief. The complaints have been transferred to a single court and consolidated for all purposes. The court has appointed a lead plaintiff and lead counsel and a consolidated complaint was filed on June 27, 2011. On August 12, 2011, we filed a motion to dismiss the consolidated complaint. The hearing on this motion is set for November 14, 2011. The Company plans to continue vigorously defending against the claims advanced. Based on the early stage of the claim and evaluation of the facts available at this time, the amount or range of reasonably possible losses to which the Company is exposed cannot be estimated and the ultimate resolution of this matter and the associated financial impact to the Company, if any, remains uncertain at this time. Starting in February 2011, shareholder derivative complaints were filed in the Superior Court of California for the County of Los Angeles and in the U.S. District Court for the Central District of California against the Company’s directors and certain of its officers. The complaints in the shareholder derivative actions allege breaches of fiduciary duties by the defendants and other violations of law. In general, the complaints allege that the Company’s directors and certain of its officers caused or allowed for the dissemination of materially false and misleading statements regarding the Company’s business and prospects for AFREZZA, thereby artificially inflating the price of its common stock. The plaintiffs are seeking unspecified monetary damages and other relief, including reforms to the Company’s corporate governance and internal procedures. The Superior Court of California for the County of Los Angeles has consolidated the actions pending before it. Likewise, the U.S. District Court for the Central District of California has consolidated the actions pending before it. The U.S. District Court for the Central District of California has also appointed lead plaintiffs and lead counsel. On August 12, 2011, the federal lead plaintiffs filed a consolidated complaint. On September 26, 2011, the Company and the individual defendants filed a motion to dismiss the consolidated complaint. The hearing on this motion is set for January 30, 2012. The Company plans to continue vigorously defending against the claims advanced. Based on the early stage of the claim and evaluation of the facts available at this time, the amount or range of reasonably possible losses to which the Company is exposed cannot be estimated and the ultimate resolution of this matter and the associated financial impact to the Company, if any, remains uncertain at this time.

12. Related-party arrangements In October 2007, the Company entered into a $350.0 million loan arrangement with its principal stockholder. In February 2009, the promissory note underlying the loan arrangement was revised as a result of the principal stockholder being licensed as a finance lender under the California Finance Lenders Law. Accordingly, the lender was revised to The Mann Group. Interest accrues on each outstanding advance at a fixed rate equal to the one-year LIBOR rate as reported by the Wall Street Journal on the date of such advance plus 3% per annum and is payable quarterly in arrears. The borrowing rate was 4.6% at September 30, 2011 and 4.7% at December 31, 2010. In August 2010, the Company amended and restated the promissory note to extend the maturity date from December 31, 2011 to December 31, 2012, to provide for the cancellation of indebtedness under the note as described below, to provide that The Mann Group may require the Company to prepay the note in an amount not to exceed $200.0 million (less the amount of cancelled indebtedness) upon 90 days’ prior written notice or on December 31, 2012, whichever is earlier, and to limit the Company’s ability to borrow and reborrow under the note through December 31, 2011 to an amount equal to $350.0 million less the amount of cancelled indebtedness. The Mann Group has agreed not to exercise its prepayment right if such prepayment would require the use of working capital resources to repay the loan. In the event of a default, 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 rate 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. There are no warrants associated with the loan arrangement. The principal amount outstanding under the loan arrangement was $277.2 million and $235.3 million at September 30, 2011 and December 31, 2010, respectively. As of September 30, 2011, the Company had accrued interest of $2.9 million related to the amount outstanding, had cancelled a total of $27.8 million indebtedness and had $45.0 million of available borrowings under the loan arrangement. In August 2010, the Company entered into a common stock purchase agreement with The Mann Group. Under this common stock purchase agreement, the Company was required to issue and sell, and The Mann Group was obligated to purchase, the same number of shares of the Company’s common stock that Seaside purchased on each closing date under its agreement with the Company. The price of the shares that the Company sold to The Mann Group under the agreement was equal to the greater of $7.15 per share (the closing bid price of the Company’s common stock on August 10, 2010) and the closing bid price of the Company’s common stock on the trading day immediately preceding the applicable closing date. The aggregate purchase price for the shares of common stock the Company issued and sold to The Mann Group was paid by cancelling an equal amount of the outstanding principal under the $350.0 million loan arrangement provided by The Mann Group. The common stock purchase agreement with The Mann Group terminated during the quarter ended September 30, 2011.

13. Senior convertible notes Senior convertible notes consist of the following (in thousands):   <table cellspacing="0" cellpadding="0" width="76%" border="0" style="border-collapse:collapse; text-align: left" 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> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">September 30 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">December 31 2010</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Notes due 2013 </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> <td valign="top"> Principal amount </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">115,000</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">115,000</td> <td nowrap="nowrap" valign="bottom"> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Unamortized debt issuance expense </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,282</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,699</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> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> Net carrying amount </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">113,718</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">113,301</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> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Notes due 2015 </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> <td valign="top"> Principal amount </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"> <td valign="top"> Unamortized debt issuance expense </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,410</td> <td nowrap="nowrap" valign="bottom">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,966</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> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr> <td valign="top"> Net carrying amount </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">96,590</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">96,034</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> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr> <tr bgcolor="#cceeff"> <td valign="top"> Senior convertible notes </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">210,308</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">209,335</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> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table> In August 2010, the Company completed a Rule 144A offering of $100.0 million aggregate principal amount of 5.75% Senior Convertible Notes due 2015. The Notes due 2015 are governed by the terms of an indenture dated as of August 24, 2010 (the “2015 Note Indenture”). The Notes due 2015 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. As of September 30, 2011 and December 31, 2010, the Company had accrued interest of $0.7 million and $2.0 million, respectively, related to the Notes due 2015. The Notes due 2015 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 Notes due 2015 is August 15, 2015 and payment is due in full on that date for unconverted securities. Holders of the Notes due 2015 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 Notes due 2015 converted in connection with a fundamental change by increasing the conversion rate on such Notes due 2015, 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 Notes due 2015 will have the option to require the Company to repurchase all or any portion of such holder’s Notes due 2015 at a repurchase price of 100% of the principal amount of the Notes due 2015 to be repurchased plus accrued and unpaid interest, if any. The Company may elect to redeem some or all of the Notes due 2015 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 Notes due 2015 to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, plus a make-whole payment equal to the sum of the present values of the remaining scheduled interest payments through and including August 15, 2015 (other than interest accrued up to, but excluding, the redemption date). The Company will be obligated to make the make-whole payment on all the Notes due 2015 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. The Company performed an analysis at the time of the offering of the Notes due 2015 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 in excess of the maximum number of shares that could be required to be delivered during the contract period under existing commitments, including the outstanding convertible notes, stock options, restricted stock units, warrants, and other potential common stock issuances. The Company incurred approximately $4.2 million in issuance costs which are recorded as an offset to the Notes due 2015 in the accompanying condensed consolidated balance sheets. These costs are being amortized to interest expense using the effective interest method over the term of the Notes due 2015.   In December 2006, the Company completed a registered offering of $115.0 million aggregate principal amount of 3.75% Senior Convertible Notes due 2013. The Notes due 2013 are governed by the terms of an indenture dated as of November 1, 2006 and a First Supplemental Indenture, dated as of December 12, 2006 (the “2013 Note Indenture”). The Notes due 2013 bear interest at the rate of 3.75% per year on the principal amount, payable in cash semi-annually in arrears on June 15 and December 15 of each year, beginning June 15, 2007. As of September 30, 2011 and December 31, 2010, the Company had accrued interest of $1.3 million and $0.2 million, respectively, related to the Notes due 2013. The Notes due 2013 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 Notes due 2013 is December 15, 2013 and payment is due in full on that date for unconverted securities. Holders of the Notes due 2013 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 44.5002 shares per $1,000 principal amount, which is equal to a conversion price of approximately $22.47 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 Notes due 2013 converted in connection with a fundamental change by increasing the conversion rate on such 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 Notes due 2013 will have the option to require the Company to repurchase all or any portion of such holder’s Notes at a repurchase price of 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest, if any. Under the terms of the 2013 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. The Company performed an analysis at the time of the offering of the Notes due 2013 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 in excess of the maximum number of shares that could be required to be delivered during the contract period under existing commitments, including the outstanding convertible notes, stock options, restricted stock units, warrants, and other potential common stock issuances. The Company incurred approximately $3.7 million in issuance costs which are recorded as an offset to the Notes due 2013 in the accompanying condensed consolidated balance sheets. These costs are being amortized to interest expense using the effective interest method over the term of the Notes due 2013. Amortization of debt issuance expense in connection with the offerings of the Notes due 2015 and the Notes due 2013 during the three and nine months ended September 30, 2011 and 2010 was as follows (in thousands):   <table cellspacing="0" cellpadding="0" width="92%" border="0" style="border-collapse:collapse; text-align: left" align="center">  <tr> <td width="76%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Three months  ended September 30,</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000">Nine months  ended September 30,</td> <td valign="bottom"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000">2010</td> <td valign="bottom"> </td> </tr>   <tr bgcolor="#cceeff"> <td valign="top"> Amortization expense </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">329</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">207</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">973</td> <td nowrap="nowrap" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">472</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> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">   </td> <td valign="bottom">   </td> <td> </td> </tr>  </table>

14. Income taxes As required by ASC 740 Income Taxes (“ASC 740”), formerly FASB Statement No. 109 Accounting for Income Taxes, management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Management has concluded, in accordance with the applicable accounting standards, that it is more likely than not that the Company may not realize the benefit of its deferred tax assets due to its history of operating losses. Accordingly, the net deferred tax assets have been fully reserved. ASC 740-10-25 Income Taxes Recognition 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.

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