0.0575
34.00
101006255
140000000
1.15
90000000
12500
800000
0.085
175000000
27653000
700000000
71200000
0
140000000
95776297
0.01
95776297
0
10000000
0.01
-2753889000
283910000
85185000
117600000
3900000
752000
1844000
-24000
1519000
-198725000
8900000
49521000
221000
958000
2554230000
100020000
1505000
772000
11600000
15500000
20000000
15500000
71795000
799000
35000000
20000000
93049000
27642000
0
10657000
56094000
3296000
28482000
47978000
3698000
438000
47400000
128502000
85185000
402000
609000
472000
3508000
821000
95062000
10000000
6984000
0.02
996000
2700000
250000
19400000
9995000
7202000
19400000
0.92
1643000
687000
3
3300000
4100000
3800000
0.0875
20000000
25000000
25000000
18900000
18900000
18900000
8900000
7300000
28500000
90000000
8900000
23100000
74800000
117600000
800000
0.0584
30100000
49500000
30100000
150000000
25000000
1000000
300000
800000
0.0975
8900000
55000000
1600000
1600000
367000
27690000
27642000
415000
27600000
23100000
75000000
71795000
3205000
74800000
71800000
800000
109100000
800000
800000
800000
1800000
17389000
202000
62992000
34957000
875000
8531000
3556000
748000
24000
0
100000
0
0
59074000
17500000
13500000
0
140000000
95680831
0.01
95680831
0
10000000
0.01
-2737565000
290656000
107063000
123200000
3814000
7381000
3419000
-24000
3263000
-183593000
49521000
619000
957000
2553039000
99575000
875000
1376000
71339000
355000
92051000
27635000
0
7937000
77488000
2120000
28927000
16730000
22895000
2331000
302000
30557000
20500000
128502000
107063000
211000
648000
309000
4364000
144000
95942000
9300000
5093000
754000
1000000
9281000
8845000
0.95
3
18400000
18400000
8900000
8900000
22900000
74500000
123200000
7400000
30100000
0
1400000
426000
27690000
27635000
481000
27600000
22900000
75000000
71339000
3661000
74500000
71300000
115200000
7400000
7400000
7400000
-3827000
3827000
4784000
2549212000
1600000
17389000
202000
62992000
34957000
875000
8531000
3556000
1167000
209000
P30D
1.00
29
20
1.30
1000
17900000
500000
72000000
17300000
P5Y
P65M
40951
0.03
0.2
4000000
1000000
4347826
5000000
869565
2016-04-04
1000000
17300000
16700000
600000
5800000
350000000
370000000
30600000
21000
40000000
20000000
33500000
3464616
93500000
57700000
44500000
11600000
1800000
0
10200000
30600000
3400000
5300000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>4. Accrued Expenses and Other Current Liabilities</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Accrued expenses and other current liabilities consist of the
following (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="67%"></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31, 2017</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31, 2016</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Salary and related expenses</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,900</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,814</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Current portion of milestone rights liability</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,643</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Professional fees</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,505</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">875</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Discounts and allowances for commercial product sales</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">996</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">754</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Sales and marketing services</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">821</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">144</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Restructuring</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">772</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,376</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accrued interest</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">221</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">619</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Other</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">799</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">355</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accrued expenses and other current liabilities</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">10,657</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7,937</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
</div>
17205570
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>7. Collaboration Arrangements</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<i>Receptor Collaboration and License Agreement</i> — On
January 20, 2016, the Company entered into a Collaboration and
License Agreement (the “CLA”) with Receptor Life
Sciences, Inc. (“Receptor”) pursuant to which the
Company performed initial formulation studies on compounds
identified by Receptor and Receptor obtained the option to acquire
an exclusive license to develop, manufacture and commercialize
certain products that use MannKind’s technology to deliver
the compounds via oral inhalation.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
The Company received $0.4 million in nonrefundable payments in
2016 prior to Receptor exercising the option. On December 30,
2016, following successful completion of the studies, Receptor
exercised its option and paid the Company a $1.0 million
nonrefundable option exercise and license fee. Under the CLA, the
Company may receive the following additional payments:</p>
<p style="font-size:6pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" border="0" cellpadding="0" cellspacing="0" width="100%">
<tr style="page-break-inside:avoid">
<td width="5%"> </td>
<td width="2%" valign="top" align="left">•</td>
<td width="1%" valign="top"> </td>
<td align="left" valign="top">Nonrefundable milestone payments upon
the completion of certain technology transfer activities and the
achievement of specified sales targets;</td>
</tr>
</table>
<p style="font-size:6pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" border="0" cellpadding="0" cellspacing="0" width="100%">
<tr style="page-break-inside:avoid">
<td width="5%"> </td>
<td width="2%" valign="top" align="left">•</td>
<td width="1%" valign="top"> </td>
<td align="left" valign="top">Royalties upon Receptor’s and
its sublicensees’ sale of the product; and</td>
</tr>
</table>
<p style="font-size:6pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" border="0" cellpadding="0" cellspacing="0" width="100%">
<tr style="page-break-inside:avoid">
<td width="5%"> </td>
<td width="2%" valign="top" align="left">•</td>
<td width="1%" valign="top"> </td>
<td align="left" valign="top">Milestones upon total worldwide sales
reaching certain agreed upon levels.</td>
</tr>
</table>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
The Company evaluated the accounting for the payments received in
2016 under the multiple element accounting guidance and determined
that the $0.4 million in payments received prior to Receptor
exercising its option are separable from the other elements of the
agreement and represented payments to offset costs incurred.
Therefore, those payments reduced the Company’s research and
development expense in 2016. The $1.0 million license fee
received in 2016 does not have standalone value from the follow-on
transfer of technology. Therefore, the license fee was recorded in
deferred payments from collaboration as of December 31, 2016
and will be recognized in net revenue — collaboration over
four years. Recognized revenue related to this license agreement
amounted to $0.1 million for the three months ended March 31,
2017. See Note 1 — Description of Business and Summary of
Significant Accounting Policies for additional information on the
Company’s accounting for multiple element arrangements.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
On March 15, 2017, the Company entered into a Manufacturing
and Supply Agreement with Receptor pursuant to which the Company
will provide certain raw materials to Receptor. On
March 16, 2017, the Company agreed to provide certain
additional research and formulation consulting services to
Receptor.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<i>Sanofi License Agreement and Sanofi Supply Agreement</i> —
On August 11, 2014, the Company executed a license and
collaboration agreement (the “Sanofi License
Agreement”) with Sanofi-Aventis Deutschland GmbH (which
subsequently assigned its rights and obligations under the
agreement to Sanofi-Aventis U.S. LLC (Sanofi)), pursuant to which
Sanofi was responsible for global commercial, regulatory and
development activities for Afrezza. The Company manufactured
Afrezza at its manufacturing facility in Danbury, Connecticut to
supply Sanofi’s demand for the product pursuant to a supply
agreement dated August 11, 2014 (the “Sanofi Supply
Agreement”).</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
During the term of the Sanofi License Agreement, worldwide profits
and losses were determined based on the difference between the net
sales of Afrezza and the costs and expenses incurred by the Company
and Sanofi that were specifically attributable or related to the
development, regulatory filings, manufacturing, or
commercialization of Afrezza. These profits and losses were shared
65% by Sanofi and 35% by the Company. On January 4, 2016, the
Company received a 90-day notification from Sanofi of its election
to terminate in its entirety the Sanofi License Agreement. The
effective date of termination was April 4, 2016. On
April 5, 2016, the Company assumed responsibility for the
worldwide development and commercialization of Afrezza from Sanofi.
Under the terms of the transition agreement, Sanofi continued to
fulfill orders for Afrezza in the United States until the Company
began distributing MannKind-branded Afrezza product to major
wholesalers during the week of July 25, 2016.</p>
<p style="font-size:1px;margin-top:12px;margin-bottom:0px">
 </p>
<p style="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
The Company analyzed the agreements entered into with Sanofi at
their inception and determined that prior to December 31,
2015, because 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 recorded the
$150.0 million up-front payment and the two milestone payments
of $25.0 million each as deferred payments from collaboration.
In addition, as of December 31, 2015, the Company had recorded
$17.5 million in Afrezza product shipments to Sanofi as
deferred sales from collaboration and recorded $13.5 million
as deferred costs from collaboration. Deferred costs from
collaboration represented the costs of product manufactured and
shipped to Sanofi, as well as certain direct costs associated with
a firm purchase commitment entered into in connection with the
collaboration with Sanofi.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
During the three months ended September 30, 2016, Sanofi
provided enough information to the Company to enable it to
reasonably estimate the remaining costs under the Sanofi License
Agreement and the Sanofi Supply Agreement. Accordingly, the fixed
or determinable fee requirement for revenue recognition was met and
there were no future obligations to Sanofi. Therefore, the Company
recognized $172.0 million of net revenue — collaboration for
the year ended December 31, 2016. The revenue recognized
includes the upfront payment of $150.0 million and the two
milestone payments of $25.0 million each, net of $64.9 million of
net loss share with Sanofi, as well as $17.5 million in sales of
Afrezza and $19.4 million from sales of bulk insulin, both to
Sanofi. These payments and sales were made pursuant to the
contractual terms of the agreements with Sanofi.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<i>Sanofi Loan Facility</i> — On September 23, 2014, the
Company entered into the Sanofi Loan Facility, consisting of a
senior secured revolving promissory note and a guaranty and
security agreement (the “Security Agreement”) with an
affiliate of Sanofi, which provided 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.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Advances under the Sanofi Loan Facility bore interest at a rate of
8.5% per annum and were payable in-kind and compounded
quarterly and added to the outstanding principal balance under the
Sanofi Loan Facility. The Company was 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.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
The Company’s total portion of the loss sharing was $57.7
million for the year ended December 31, 2015, of which $44.5
million was borrowed under the Sanofi Loan Facility as of
December 31, 2015. Subsequent to December 31, 2015, the
Company borrowed $17.9 million under the Sanofi Loan Facility to
finance the portion of the Company’s loss for the quarters
ended December 31, 2015 and March 31, 2016. The total
amount owed to Sanofi at September 30, 2016 was $71.2 million,
which included $5.8 million of paid-in-kind interest.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
On November 9, 2016, the Company entered into a settlement
agreement with Sanofi (the “Settlement Agreement”).
Under the terms of the Settlement Agreement, the promissory note
between the Company and Aventisub LLC, a Sanofi affiliate, was
terminated, with Aventisub agreeing to forgive the full outstanding
loan balance of $72.0 million. Sanofi also agreed to purchase $10.2
million of insulin from the Company in December 2016 under an
existing insulin put option as well as make a cash payment of $30.6
million to the Company in early January 2017 as acceleration and in
replacement of all other payments that Sanofi would otherwise have
been required to make in the future pursuant to the insulin put
option, without the Company being required to deliver any insulin
for such payment. The Company was also relieved of its obligation
to pay Sanofi $0.5 million in previously uncharged costs pursuant
to the Sanofi License Agreement. The Company and Sanofi also agreed
to a general release of potential claims against each other.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
The settlement was accounted for in the year ended
December 31, 2016, except for the $30.6 million cash payment
received under the insulin put option agreement which reduced the
receivable from Sanofi between December 31, 2016 and
March 31, 2017.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>10. Commitments and Contingencies</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<i>Guarantees and Indemnifications</i> — In the ordinary
course of its business, the Company makes certain indemnities,
commitments and guarantees under which it may be required to make
payments in relation to certain transactions. The Company, as
permitted under Delaware law and in accordance with its Bylaws,
indemnifies its officers and directors for certain events or
occurrences, subject to certain limits, while the officer or
director is or was serving at the Company’s request in such
capacity. The term of the indemnification period is for the
officer’s or director’s lifetime. The maximum amount of
potential future indemnification is unlimited; however, the Company
has a director and officer insurance policy that may enable it to
recover a portion of any future amounts paid. The Company believes
the fair value of these indemnification agreements is minimal. The
Company has not recorded any liability for these indemnities in the
accompanying condensed consolidated balance sheets. However, the
Company accrues for losses for any known contingent liability,
including those that may arise from indemnification provisions,
when future payment is probable and the amount can be reasonably
estimated. No such losses have been recorded to date.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Litigation</i> — The Company is subject to legal
proceedings and claims which arise in the ordinary course of its
business. As of March 31, 2017, the Company believes that the
final disposition of such matters will not have a material adverse
effect on the financial position, results of operations or cash
flows of the Company and no accrual has been recorded. The Company
maintains liability insurance coverage to protect the
Company’s assets from losses arising out of or involving
activities associated with ongoing and normal business operations.
The Company records a provision for a liability when it is both
probable that a liability has been incurred and the amount of the
loss can be reasonably estimated. The Company’s policy is to
accrue for legal expenses in connection with legal proceedings and
claims as they are incurred.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Following the public announcement of Sanofi’s election to
terminate the Sanofi License Agreement and the subsequent decline
in our stock price, two motions were submitted to the district
court at Tel Aviv, Economic Department for the certification of a
class action against MannKind and certain of our officers and
directors. In general, the complaints alleged that MannKind and
certain of our officers and directors violated Israeli and U.S.
securities laws by making materially false and misleading
statements regarding the prospects for Afrezza, thereby
artificially inflating the price of its common stock. The
plaintiffs are seeking monetary damages. In November 2016, the
district court dismissed one of the actions without prejudice. In
the remaining action, the district court will be asked to determine
whether Israeli or U.S. law is applicable before the case can be
certified as a class action. The deadline for plaintiff’s
motion regarding the applicable law is due on May 14, 2017.
The Company will vigorously defend against the claims advanced.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Contingencies</i> — 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 6 – Borrowings).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Commitments</i> — On July 31, 2014, the Company
entered into a supply agreement (the “Insulin Supply
Agreement”) with Amphastar France Pharmaceuticals S.A.S., a
French corporation (“Amphastar”), pursuant to which
Amphastar manufactures for and supplies to the Company certain
quantities of recombinant human insulin for use in Afrezza. Under
the terms of the Insulin Supply Agreement, Amphastar is responsible
for manufacturing the insulin in accordance with the
Company’s specifications and agreed-upon quality
standards.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On November 9, 2016, the supply agreement with Amphastar was
amended to extend the term over which the Company is required to
purchase insulin, without reducing the total amount of insulin to
be purchased. Under the amendment, annual minimum quantities of
insulin to be purchased for calendar years 2017 through 2023 total
an aggregate purchase price of €93.0 million at
March 31, 2017. The Insulin Supply Agreement specifies that
Amphastar will be deemed to have satisfied its obligations with
respect to quantity, if the actual quantity supplied is within plus
or minus ten percent (+/- 10%) of the quantity set forth in the
applicable purchase order. In addition, the aggregate cancellation
fees that the Company would incur in the event that the above
insulin quantities are not purchased was lowered from
$5.3 million for the period October 1, 2016 through 2018
to $3.4 million over the same period. The Company has not yet
purchased any insulin under the amended agreement in 2017. The
annual purchase requirements under the contract are as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
</p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0">
<tr>
<td width="83%"></td>
<td valign="bottom" width="4%"></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">2017</td>
<td valign="bottom">  </td>
<td valign="top" nowrap="nowrap">€ 2.7 million</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">2018</td>
<td valign="bottom">  </td>
<td valign="top" nowrap="nowrap">€ 8.9 million</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">2019</td>
<td valign="bottom">  </td>
<td valign="top" nowrap="nowrap">
€ 11.6 million</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">2020</td>
<td valign="bottom">  </td>
<td valign="top" nowrap="nowrap">
€ 15.5 million</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">2021</td>
<td valign="bottom">  </td>
<td valign="top" nowrap="nowrap">
€ 15.5 million</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">2022</td>
<td valign="bottom">  </td>
<td valign="top" nowrap="nowrap">
€ 19.4 million</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">2023</td>
<td valign="bottom">  </td>
<td valign="top" nowrap="nowrap">
€ 19.4 million</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Unless earlier terminated, the term of the Insulin Supply Agreement
with Amphastar expires on December 31, 2023 and can be renewed
for additional, successive two year terms upon 12 months’
written notice given prior to the end of the initial term or any
additional two year term. The Company and Amphastar each have
normal and customary termination rights, including termination for
material breach that is not cured within a specific time frame or
in the event of liquidation, bankruptcy or insolvency of the other
party. In addition, the Company may terminate the Insulin Supply
Agreement upon two years’ prior written notice to Amphastar
without cause or upon 30 days’ prior written notice to
Amphastar if a controlling regulatory authority withdraws approval
for Afrezza, provided, however, in the event of a termination
pursuant to either of the latter two scenarios, the provisions of
the Insulin Supply Agreement require the Company to pay the full
amount of all unpaid purchase commitments due over the initial term
within 60 calendar days of the effective date of such
termination.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
At March 31, 2017, the Company has other firm commitments with
suppliers for an aggregate of $0.8 million.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<b>9. Stock-Based Compensation Expense</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
In March 2016, the FASB issued ASU No. 2016-09,
<i>Compensation—Stock Compensation (Topic 718)</i>:
<i>Improvements to Employee Share-Based Payment Accounting</i>. The
new standard involves several aspects of the accounting for
share-based payment transactions, including the income tax
consequences, classification of awards as either equity or
liabilities and classification on the statement of cash flows. For
public business entities, the amendments in this standard are
effective for annual periods beginning after December 15,
2016, and interim periods within those annual periods. The Company
implemented the standard on January 1, 2017 and the standard
did not have a material impact on the Company’s financial
statements as:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 6pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr style="PAGE-BREAK-INSIDE: avoid">
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">The Company, as of December 31,
2016, had not recognized $11.6 million of excess tax benefits
related to windfalls. As a result of adoption, it will now
recognize these benefits as deferred tax assets. However,
after assessment for realizability, the Company has also recorded a
full valuation allowance against the deferred tax assets. This
resulted in a zero cumulative effect adjustment to accumulated
deficit as a result of the adoption. For the quarter ended
March 31, 2017, all shortfalls related to non-qualified
options and restricted stock units have been recorded as an income
tax expense for the period, offset by a full valuation
allowance.</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 6pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr style="PAGE-BREAK-INSIDE: avoid">
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">Due to the full valuation allowance
for the Company’s deferred tax assets, the excess income tax
benefits have never been recorded in additional paid-in-capital.
The Company does not contemplate any impact going forward as any
amounts to be recorded in the condensed consolidated statements of
operations would be fully offset by the valuation allowance nor
result in a related classification in cash flows for operating
activities.</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 6pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr style="PAGE-BREAK-INSIDE: avoid">
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">The Company will continue to
recognize forfeitures through estimates consistent with our past
practices as opposed to when they occur.</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 6pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr style="PAGE-BREAK-INSIDE: avoid">
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">The Company already classifies cash
paid to taxing authorities arising from the withholding of shares
from employees in cash flows from financing activities.</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Total stock-based compensation expense recognized in the
accompanying condensed consolidated statements of operations for
the three months ended March 31, 2017 and 2016 was $1.3
million for both periods.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
During the three months ended March 31, 2017, the Company
issued 77,680 restricted units to certain employees which vest over
a four-year period. The grant date fair value of the restricted
stock units was $0.2 million with a weighted average grant date
fair value per share of $2.70.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
During the three months ended March 31, 2017, the Company
granted certain employees stock options to purchase an aggregate of
583,180 shares of common stock at a weighted average exercise price
of $2.70 per share of which 463,000 of these awards vest in four
equal tranches upon the achievement of certain product sales
targets. The remaining 120,180 options vest over a four year
period. The grant date fair value of these awards is $1.1 million
with a weighted average grant date fair value of $1.86 per share,
as determined using a Black-Scholes option pricing model.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
As of March 31, 2017, there was $4.1 million, $3.3 million and
$3.8 million of unrecognized compensation expense related to
restricted stock units, options with performance conditions and
options that vest over the vesting period, respectively, which are
expected to be recognized over the weighted average vesting period
of 2.8 years. The Company evaluates stock awards with performance
conditions as the probability that the performance conditions will
be met and uses that information to estimate the date at which
those performance conditions will be met in order to properly
recognize stock-based compensation expense over the requisite
service period.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On a period basis and as of March 31, 2017, the Company
reviewed the probability of achieving the performance conditions
for each of the four vesting tranches of the performance-based
stock options that were granted during the three months ended
March 31, 2017 and in prior years and determined that it was
probable that the Company would achieve the first vesting tranche
in December 2017. Therefore, the Company recorded compensation
expense related to performance-based stock options of $0.1 million
during the three months ended March 31, 2017. The Company
further determined that no compensation costs would be recognized
for the second, third and fourth vesting tranches as the
probability of achieving those performance conditions has not been
determined.</p>
</div>
Q1
2017
10-Q
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Net Loss Per Share of Common Stock</i> — 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. Diluted net loss per
share reflects the potential dilution under the treasury method
that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock. For periods
where the Company has presented a net loss, potentially dilutive
securities are excluded from the computation of diluted net loss
per share as they would be anti-dilutive.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The computation of basic and diluted net loss per share for the
three months ended March 31, 2017 and 2016 excludes the common
stock equivalents of the following potentially dilutive securities
because their inclusion would be anti-dilutive:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="75%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center">
<b>Three Months Ended March 31,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2017</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2016</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Restricted stock units</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">709,004</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">789,201</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Senior convertible notes</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">814,561</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">814,561</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Warrants</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">9,740,597</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">31,861</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Stock options</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,941,408</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,820,494</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top"></td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">17,205,570</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6,456,117</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
</div>
0000899460
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Fair Value of Financial Instruments</i> — The carrying
amounts reported in the accompanying condensed consolidated
financial statements for cash, accounts receivable, accounts
payable and accrued expenses and other current liabilities
approximate their fair value due to their relatively short
maturities. The fair value of the cash equivalents, note
payable to principal stockholder, senior convertible notes,
the facility financing obligation, the milestone rights liability
and the warrant liability are disclosed in Note 8 — Fair
Value of Financial Instruments.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>2. Inventories</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Inventories consist of the following (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="66%"></td>
<td valign="bottom" width="12%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="12%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31, 2017</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31, 2016</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Work-in-process</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,296</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,120</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Finished goods</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">402</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">211</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Total inventory</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,698</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,331</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Work-in-process and finished goods as of March 31, 2017 and
December 31, 2016 include conversion costs but not materials
cost because the materials used in its production were previously
written off.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Inventories</i> — Inventories are stated at the lower of
cost or net realizable value. The Company determines the cost of
inventory using the first-in, first-out, or FIFO, method. The
Company capitalizes inventory costs associated with the
Company’s products based on management’s judgment that
future economic benefits are expected to be realized; otherwise,
such costs are expensed as cost of goods sold. The Company
periodically analyzes its inventory levels to identify inventory
that may expire or has a cost basis in excess of its estimated net
realizable value and writes down such inventories, as appropriate.
In addition, the Company’s products are subject to strict
quality control and monitoring which the Company performs
throughout the manufacturing process. If certain batches or units
of product no longer meet quality specifications or may become
obsolete or are forecasted to become obsolete due to expiration,
the Company will record a charge to write down such unmarketable
inventory to its estimated net realizable value.</p>
</div>
8507000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<b>1. Description of Business and Significant Accounting
Policies</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
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, 2016 filed with the SEC on March 16,
2017 (the “Annual Report”).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
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, 2017 may not be indicative of the results that may
be expected for the full year.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
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. Management considers many factors in selecting
appropriate financial accounting policies, and in developing the
estimates and assumptions that are used in the preparation of the
financial statements. Management must apply significant judgment in
this process. The more significant estimates reflected in these
accompanying condensed consolidated financial statements include
revenue recognition, assessing long-lived assets and deferred
product costs for impairment, accrued expenses, inventory
recoverability, valuation of the facility financing obligation,
loss on purchase commitments, warrant liability, milestone rights,
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; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Business</i> — MannKind is a biopharmaceutical company
focused on the discovery, development and commercialization of
therapeutic products for diseases such as diabetes. The
Company’s only approved product, Afrezza (insulin human [rDNA
origin]) inhalation powder, is a rapid-acting inhaled insulin that
was approved by the U.S. Food and Drug Administration (the
“FDA”) on June 27, 2014 to improve glycemic
control in adult patients with diabetes.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On August 11, 2014, the Company executed a license and
collaboration agreement (the “Sanofi License
Agreement”) with Sanofi-Aventis Deutschland GmbH, which
subsequently assigned its rights and obligations under the
agreement to Sanofi-Aventis U.S. LLC (“Sanofi”),
pursuant to which Sanofi was responsible for global commercial,
regulatory and development activities for Afrezza.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On January 4, 2016, the Company received written notification
from Sanofi of its election to terminate in its entirety the Sanofi
License Agreement. The effective date of termination was
April 4, 2016, which was when the Company assumed
responsibility for worldwide development and commercialization of
Afrezza. Under the terms of the transition agreement, Sanofi
continued to fulfill orders for Afrezza in the United States until
the Company began distributing MannKind-branded Afrezza product to
major wholesalers in late July 2016. The Company began recognizing
commercial product sales revenue when MannKind-branded Afrezza was
dispensed from pharmacies to patients in August 2016.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On November 9, 2016, the Company entered into a settlement
agreement with Sanofi (the “Settlement Agreement”).
Under the terms of the Settlement Agreement, the promissory note
(the “Sanofi Loan Facility”) between the Company and
Aventisub LLC (“Aventisub”), a Sanofi affiliate, was
terminated with Aventisub agreeing to fully forgive the outstanding
loan balance of $72.0 million. Sanofi also purchased $10.2 million
of insulin from the Company in December 2016 under an existing
insulin put option and made a cash payment of $30.6 million to the
Company in early January 2017 as acceleration and in replacement of
all other payments that Sanofi would otherwise have been required
to make in the future pursuant to the insulin put option, without
the Company being required to deliver any insulin for such payment.
The Company was also relieved of its obligation to pay Sanofi $0.5
million in previously uncharged costs pursuant to the Sanofi
License Agreement. The Company and Sanofi also agreed to a general
release of potential claims against each other.</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">
During their initial transition of the commercial responsibilities
from Sanofi, the Company utilized a contract sales organization to
promote Afrezza while the Company focused its internal resources on
establishing a channel strategy, entering into distribution
agreements and developing co-pay assistance programs, a voucher
program, data agreements and payor relationships. In early 2017,
the Company recruited its own sales force and intends to continue
the commercialization of Afrezza in the United States through its
own commercial organization. The Company’s current strategy
for future commercialization of Afrezza outside of the United
States, subject to receipt of the necessary foreign regulatory
approvals, is to seek and establish partnerships in foreign
jurisdictions where there are appropriate commercial
opportunities.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
As of and for the three months ended March 31, 2017, the
Company has reported an accumulated deficit of $2.8 billion and has
reported negative cash flow from operations for each year since
inception, except for the current quarter, when the Company
received the $30.6 million settlement payment from Sanofi and in
2014, when the Company received the $150.0 million upfront payment
from Sanofi.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
At March 31, 2017, the Company’s capital resources
consisted of cash and cash equivalents of $48.0 million. The
Company expects to continue to incur significant expenditures to
support commercial manufacturing and sales and marketing of Afrezza
and the development of their product candidates. The facility
agreement (the “Facility Agreement”) with Deerfield
Private Design Fund II, L.P. (“Deerfield Private Design
Fund”) and Deerfield Private Design International II, L.P.
(collectively, “Deerfield”) that resulted in the
issuance of 9.75% Senior Convertible Notes due 2019 (“2019
notes”) and the First Amendment to Facility Agreement and
Registration Rights Agreement (the “First Amendment”)
that resulted in the issuance of an additional tranche of 8.75%
Senior Convertible Notes due 2019 (“Tranche B notes”)
(see Note 6 — Borrowings) requires the Company to
maintain at least $25.0 million in cash and cash equivalents or
available borrowings under the loan arrangement, dated as of
October 2, 2007, between the Company and The Mann Group LLC
(as amended, restated, or otherwise modified as of the date hereof,
“The Mann Group Loan Arrangement”), as of the last day
of each fiscal quarter.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Additional funding sources that are, or in certain circumstances
may be, available to the Company include $30.1 million principal
amount of available borrowings under The Mann Group Loan
Arrangement. A portion of these available borrowings may be used to
capitalize accrued interest into principal, upon mutual agreement
of the parties, as it becomes due and payable under The Mann Group
Loan Arrangement (see Note 5 — Related-Party
Arrangements). The Company is seeking and will need to raise
additional capital, whether through a sale of equity or debt
securities, a strategic business collaboration with another
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. The Company
cannot provide assurances that such additional capital will be
available on acceptable terms or at all. These factors raise
substantial doubt about the Company’s ability to continue as
a going concern. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On September 14, 2016, the Company received notice from the
Listing Qualifications Department of the NASDAQ Stock Market
indicating that in the previous 30 consecutive business days, the
bid price for the common stock closed below the minimum of $1.00
per share required for continued inclusion on the NASDAQ Global
Market. The notification letter stated that the Company would be
afforded 180 calendar days, or until March 13, 2017, to regain
compliance with the minimum bid price requirement. On
March 16, 2017, the Company received a letter from the Listing
Qualifications Department of the NASDAQ Global Market indicating
that the Company had regained compliance with the $1.00 minimum
closing bid requirement following completion of the reverse stock
split described below.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On March 1, 2017, following stockholder approval, the
Company’s board of directors approved a reverse stock split
ratio of 1-for-5. On March 1, 2017, the Company filed with the
Secretary of State of the State of Delaware a Certificate of
Amendment of the Company’s Amended and Restated Certificate
of Incorporation to effect the 1-for-5 reverse stock split of the
Company’s outstanding common stock and to reduce the
authorized number of shares of the Company’s common stock
from 700,000,000 to 140,000,000 shares. The Company’s common
stock began trading on the NASDAQ Global Market on a split-adjusted
basis when the market opened on March 3, 2017. As a result,
all common stock share amounts included in these condensed
consolidated financial statements have been retroactively reduced
by a factor of five, and all common stock per share amounts have
been increased by a factor of five, with the exception of the
Company’s common stock par value.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On April 18, 2017, the Company entered into an Exchange
Agreement with Deerfield resulting in the cash repayment of $4.0
million under the Tranche B notes and the conversion of $1.0
million and $5.0 million of the Tranche B notes and the 2019 notes,
respectively to common shares (see Note 13, Subsequent Events for
disclosure of the Exchange Agreement).</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<i>Reclassifications</i> — Certain amounts from previous
periods have been reclassified to conform to the 2017 presentation.
Specifically, on the condensed consolidated statements of
operations, product manufacturing has been renamed to costs of
goods sold. The Company also reclassified (gain) loss on foreign
currency translation from the previously reported classification of
product manufacturing to loss on foreign currency translation in
the accompanying condensed consolidated statements of operations.
In addition, on the statements of cash flows, the Company
reclassified interest expense on note payable to principal
stockholder from other liabilities to conform to the 2017
presentation.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Correction of an Immaterial Error</i> — Subsequent to the
issuance of the Company’s financial statements for the year
ended December 31, 2016 on Form 10-K, the Company determined
that the common stock par value as of December 31, 2016 and
2015 should not have been adjusted for the impact of the reverse
stock split on March 3, 2017 as described above. Management
evaluated the materiality of the errors from a quantitative and
qualitative perspective and concluded that this adjustment was not
material to the Company’s financial position as of
March 31, 2017 or December 31, 2016 and 2015 and that
there was no impact to the results of operations for any periods
presented. However, the Company has elected to correct the error in
the current filing to conform to the current year presentation.
Since the revisions were not material, no amendments to previously
filed reports were required. The Company has revised the historical
consolidated financial information presented herein to reflect the
correction of this error for the prior period presented.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
</p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="84%" align="center" border="0">
<tr>
<td width="64%"></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; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center">2016 as</td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2"> </td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2"> </td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center">Previously</td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2"> </td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center">2016 as</td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom" nowrap="nowrap">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; WIDTH: 45.9pt; BORDER-BOTTOM: rgb(0,0,0) 1pt solid; MARGIN-TOP: 0pt">
(In thousands)</p>
</td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center">Presented</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">Adjustments</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">Adjusted</td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Common stock</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4,784</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(3,827</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">957</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Additional paid-in capital</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,549,212</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,827</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,553,039</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Revenue Recognition</i> — Revenue is recognized when the
four basic criteria of revenue recognition are met:
(1) persuasive evidence that an arrangement exists; (2)
delivery has occurred or services have been rendered; (3) the fee
is fixed or determinable; and (4) collectability is reasonably
assured. When the accounting requirements for revenue recognition
are not met, the Company defers the recognition of revenue by
recording deferred revenue on the condensed consolidated balance
sheets until such time that all criteria are met. To date, the
Company has had revenue from collaborations, commercial sales of
Afrezza, and from sales of bulk insulin, which are described more
fully below.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
<i>Revenue Recognition – Net Revenue – Collaborations
–</i> The Company enters into collaborations under which the
Company must perform certain obligations and receives periodic
payments. The Company evaluates the collaborations under the
multiple element revenue recognition accounting guidance. Revenue
arrangements with multiple elements are divided into separate units
of accounting if certain criteria are met, including whether the
delivered elements have 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. 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. The terms of and
the accounting for the Company’s collaborations are described
more fully in Note 7 — Collaboration Arrangements.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
<i>Revenue Recognition – Net Revenue – Commercial
Product Sales –</i> Between July 1, 2016 and
December 15, 2016, the Company sold Afrezza to Integrated
Commercialization Solutions Direct (ICS) and title and risk of loss
transferred to ICS upon shipment. After December 15, 2016, ICS
became a third party logistics provider and stopped taking title
and risk of loss upon shipment of Afrezza to ICS. The Company sells
Afrezza in the United States to wholesale pharmaceutical
distributors through ICS, and ultimately to retail pharmacies,
which are collectively referred to as “customers”. The
Company provides the right of return to its wholesale distributors
and, through them, to its retail pharmacy customers for unopened
product for a period beginning six months prior to and ending
twelve months after its expiration date. Once the product has been
prescribed and dispensed to the patient, any right of return ceases
to exist.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
Given the Company’s limited sales history for Afrezza, the
Company cannot reliably estimate expected returns of the product at
the time of shipment into the distribution channel. Accordingly,
the Company defers recognition of revenue on Afrezza product
shipments until the right of return no longer exists, which occurs
at the earlier of the time Afrezza is dispensed from pharmacies to
patients or expiration of the right of return. Deferred revenue is
presented net of deferred product sales discounts which are further
described in <i>Gross-to-Net Adjustments</i> below. The Company
recognizes revenue based on Afrezza patient prescriptions dispensed
as estimated by syndicated data provided by a third party. The
Company also analyzes additional data points to ensure that such
third-party data is reasonable, including data related to inventory
movements within the channel and ongoing prescription demand.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 6px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
For the three months ended March 31, 2017, net revenue from
commercial product sales consisted of $1.2 million of net sales of
Afrezza dispensed to patients. As of March 31, 2017 and
December 31, 2016, the ending balances for deferred revenue
were $1.8 million and $3.4 million, on its condensed
consolidated balance sheets, of which $1.8 million and
$1.6 million (net of estimated gross-to-net adjustments),
respectively, represents product shipped to the Company’s
third-party logistics provider and wholesale distributors, but not
yet dispensed to patients. The difference, as of December 31,
2016, represented deferred revenue from bulk insulin sales, which
is described more fully under the heading <i>Revenue Recognition
– Revenue – Bulk Insulin Sales</i> below. For the three
months ended March 31, 2017, shipments to three wholesale
distributors represented 93% of total shipments.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
<i>Gross-to-net Adjustments –</i> Estimated gross-to-net
adjustments for Afrezza include wholesaler distribution fees,
prompt pay discounts, estimated rebates and chargebacks and patient
discount and co-pay assistance programs, and are based on estimated
amounts owed or to be claimed on the related sales. These estimates
take into consideration the terms of the Company’s agreements
with its customers and the levels of inventory within the
distribution and retail channels that may result in future rebates
or discounts taken. In certain cases, such as patient support
programs, the Company recognizes the cost of patient discounts as a
reduction of revenue based on estimated utilization. If actual
future results vary, the Company may need to adjust these
estimates, which could have an effect on product revenue in the
period of adjustment. The Company records product sales deductions
in the condensed consolidated statements of operations at the time
product revenue is recognized. Gross-to-net adjustments were
approximately $0.4 million, which represents 27% of gross revenue
from product sales for the three months ended March 31, 2017.
There were no product sales and accordingly, no gross-to-net
adjustments during the three months ended March 31, 2016.
Gross-to-net items that are unpaid at the end of each period are
presented in accrued expense and other current liabilities.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 8%; MARGIN-TOP: 6pt">
<i>Wholesaler Distribution Fees –</i> The Company pays
distribution fees to certain wholesale distributors based on
contractually determined rates. The Company accrues the
distribution fees on shipment to the respective wholesale
distributors and recognizes the distribution fees as a reduction of
revenue in the same period the related revenue is recognized.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 8%; MARGIN-TOP: 6pt">
<i>Prompt Pay Discounts –</i> The Company offers cash
discounts to its customers, generally 2% of the sales price, as an
incentive for prompt payment. The Company accounts for cash
discounts by reducing accounts receivable and deferred revenue by
the prompt pay discount amount (at the time of shipment to the
wholesale distributor). The Company recognizes the discount as a
reduction of revenue in the same period the related revenue is
recognized.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 8%; MARGIN-TOP: 6pt">
<i>Rebates and Chargebacks –</i> The Company participates in
federal and state government-managed Medicare and Medicaid programs
and, as such, is required to provide rebates under these programs.
The Company continues to pursue participation in certain other
qualifying federal and state government programs whereby discounts
and rebates are provided to participating entities. Rebates
provided through these other qualifying programs are included in
the Medicaid and Medicare rebate accrual. Chargebacks are discounts
that occur when contracted customers purchase directly from an
intermediary wholesale purchaser. Contracted customers, which
currently consist primarily of Federal government entities
purchasing off the Federal Supply Schedule, generally purchase the
product at its contracted price, plus a mark-up from the
wholesaler. The wholesaler, in-turn, charges back to the Company
the difference between the price initially paid by the wholesaler
and the contracted price paid to the wholesaler by the
customer.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 8%; MARGIN-TOP: 6pt">
The Company accounts for these rebates and chargebacks by
establishing an accrual based on contractual discount rates,
expected utilization under each contract and an estimate of the
amount of inventory in the distribution channel that will become
subject to such rebates and chargebacks based on historical payor
data provided by a third-party vendor along with additional data
including a forecasted participation rates. From that data, as well
as input received from the commercial team, an estimated
participation rate for each program is determined and applied at
the rate for those sales. Any new information regarding changes in
the programs’ regulations and guidelines or any changes in
the Company’s government price reporting calculations that
would impact the amount of the rebates will also be taken into
account in determining or modifying the appropriate reserve. The
time period between the date the product is sold into the channel
and the date such rebates may be paid can be up to approximately
six to nine months. As such, continuous monitoring of these
estimates will be performed on a periodic basis, and if necessary,
adjusted to reflect new facts and circumstances. Rebates and
chargebacks are recognized as a reduction of gross revenue in the
period the related revenue is recognized.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 8%; MARGIN-TOP: 6pt">
<i>Other Rebates and Discounts –</i> The Company has entered
into agreements with certain third-party payors and with pharmacy
benefit managers that act as an intermediary with certain
third-party payors in the fulfillment of prescriptions. Under these
agreements, the Company has agreed to provide certain contracted
discounts to ease access to reimbursement for Afrezza patients
including, but not limited to, the removal of prior authorization
or step edit requirements or modifying the reimbursement tier under
the payor’s formulary. The Company accounts for these charges
by establishing an accrual based on the contracted discount rates
and, with input received from management, estimated participation
rates.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 6px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 8%; MARGIN-TOP: 0pt">
<i>Patient Discount and Co-Pay Assistance Programs –</i> The
Company offers discount card programs to patients for Afrezza in
which patients receive discounts on their prescriptions or a
reduction in their co-pay amounts that are reimbursed by the
Company. The Company estimates the total amount that will be
redeemed based on levels of inventory in the distribution and
retail channels and recognizes the discount as a reduction of gross
revenue in the same period the related revenue is recognized.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
<i>Deferred Costs from Commercial Product Sales</i> —
Deferred costs from commercial product sales represents the cost of
product (including labor, overhead and shipping costs to the third
party logistics provider) shipped to wholesale distributors, but
not dispensed by retail pharmacies to patients. If the Company
estimates that inventory that has been shipped to wholesale
distributors will be returned for credit because there is a risk of
product expiry, deferred costs of commercial product sales is
reduced and cost of goods sold is increased for the cost of such
inventory.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
<i>Revenue Recognition — Revenue — Bulk Insulin
Sales</i> — Revenue from bulk insulin sales are recognized
after delivery and customer acceptance of the bulk insulin. When
the accounting requirements for revenue recognition of bulk insulin
sales are not met, the Company defers recognition of revenue until
such time that all criteria are met. The ending balance in deferred
revenue related to bulk insulin sales was approximately $1.8
million as of December 31, 2016. There was no deferred revenue
related to bulk insulin sales as of March 31, 2017.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Cost of Goods Sold</i> — Cost of goods sold includes the
costs related to Afrezza product dispensed by retail pharmacies to
patients as the following costs which are recorded as expenses in
the period in which they are incurred rather than as a portion of
the inventory cost: under-absorbed labor and overhead, the impact
of annual revaluations of inventory and deferred cost of commercial
sales to standard cost, and write-offs of inventory and deferred
costs of commercial sales.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Accounts Receivable and Allowances</i> — Accounts
receivable are recorded at the invoiced amount and are not interest
bearing. The Company maintains an allowance for doubtful accounts
for estimated losses resulting from the inability of its customers
to make required payments. The Company makes ongoing assumptions
relating to the collectability of its accounts receivable in its
calculation of the allowance for doubtful accounts. If the Company
estimates that inventory that has been shipped to wholesale
distributors will be returned for credit because there is risk of
product expiration, the Company reduces deferred revenue and
increases the allowance for returns for such inventory. As of
December 31, 2016, there was no allowance for returns. As of
March 31, 2017, there was $0.3 million in allowance for
returns. As of March 31, 2017 and December 31, 2016,
there was no allowance for doubtful accounts. As of March 31,
2017 and December 31, 2016, the Company has three wholesale
distributors representing approximately 92% and 95% of gross
accounts receivable, respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Inventories</i> — Inventories are stated at the lower of
cost or net realizable value. The Company determines the cost of
inventory using the first-in, first-out, or FIFO, method. The
Company capitalizes inventory costs associated with the
Company’s products based on management’s judgment that
future economic benefits are expected to be realized; otherwise,
such costs are expensed as cost of goods sold. The Company
periodically analyzes its inventory levels to identify inventory
that may expire or has a cost basis in excess of its estimated net
realizable value and writes down such inventories, as appropriate.
In addition, the Company’s products are subject to strict
quality control and monitoring which the Company performs
throughout the manufacturing process. If certain batches or units
of product no longer meet quality specifications or may become
obsolete or are forecasted to become obsolete due to expiration,
the Company will record a charge to write down such unmarketable
inventory to its estimated net realizable value.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Recognized Loss on Purchase Commitments</i> — The Company
assesses whether losses on long term purchase commitments should be
accrued. Losses that are expected to arise from firm,
non-cancellable, commitments for the future purchases are
recognized unless recoverable. When making the assessment, the
Company also considers whether it is able to renegotiate with its
vendors. The recognized loss on purchase commitments is reduced as
inventory items are purchased. No new contracts were identified in
2017 or 2016 that required a new loss on purchase commitment
accrual.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Fair Value of Financial Instruments</i> — The carrying
amounts reported in the accompanying condensed consolidated
financial statements for cash, accounts receivable, accounts
payable and accrued expenses and other current liabilities
approximate their fair value due to their relatively short
maturities. The fair value of the cash equivalents, note
payable to principal stockholder, senior convertible notes,
the facility financing obligation, the milestone rights liability
and the warrant liability are disclosed in Note 8 — Fair
Value of Financial Instruments.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Stock-Based Compensation</i> — Share-based payments to
employees, including grants of stock options, restricted stock
units, performance-based awards and the compensatory elements of
employee stock purchase plans, are recognized in the condensed
consolidated statements of operations based upon the fair value of
the awards at the grant date, subject to an estimated forfeiture
rate. The Company uses the Black-Scholes option valuation model to
estimate the grant date fair value of employee stock options and
the compensatory elements of employee stock purchase plans.
Restricted stock units are valued based on the market price on the
grant date. 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.</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">
<i>Warrants</i> — The Company has issued warrants to purchase
shares of its common stock. The Company accounts for its warrants
as either equity or liabilities based upon the characteristics and
provisions of each instrument and evaluation of sufficient
authorized shares available to satisfy the obligations. Warrants
classified as derivative liabilities are recorded on the
Company’s condensed consolidated balance sheets at their fair
value on the date of issuance and are revalued at each subsequent
balance sheet date, with fair value changes recognized in the
condensed consolidated statements of operations. The Company
estimates the fair value of its derivative liabilities using a
third party valuation analysis that utilizes a Monte Carlo pricing
valuation model and assumptions that are based on the individual
characteristics of the warrants or instruments on the valuation
date, as well as expected volatility, expected life, yield, and
risk-free interest rate. Warrants classified as equity are recorded
within additional paid-in capital at the issuance date and are not
re-measured in subsequent periods, unless the underlying
assumptions change to trigger liability accounting.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Net Loss Per Share of Common Stock</i> — 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. Diluted net loss per
share reflects the potential dilution under the treasury method
that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock. For periods
where the Company has presented a net loss, potentially dilutive
securities are excluded from the computation of diluted net loss
per share as they would be anti-dilutive.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The computation of basic and diluted net loss per share for the
three months ended March 31, 2017 and 2016 excludes the common
stock equivalents of the following potentially dilutive securities
because their inclusion would be anti-dilutive:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
</p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="75%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center">
<b>Three Months Ended March 31,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<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>2017</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>2016</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Restricted stock units</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">709,004</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">789,201</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Senior convertible notes</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">814,561</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">814,561</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Warrants</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">9,740,597</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">31,861</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Stock options</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,941,408</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,820,494</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top"></td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">17,205,570</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6,456,117</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Recently Issued Accounting Standards –</i> 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. Unless otherwise discussed, the Company believes
that the impact of recently issued standards that are not yet
effective will not have a material impact on the Company’s
condensed consolidated financial position or results of operations
upon adoption.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In May 2014, the FASB issued Accounting Standards Update (ASU)
No. 2014-09, <i>Revenue from Contracts with Customers (Topic
606),</i> which requires an entity to recognize the amount of
revenue when promised goods or services to customers. The standard
requires a company to recognize revenue to depict the transfer of
goods or services to customers in an amount that reflects the
consideration it expects to be entitled to receive in exchange for
those goods or services. In August 2015, the FASB issued ASU
2015-14, <i>Revenue from Contracts with Customers (Topic 606):
Deferral of the Effective Date</i>, which delayed the effective
date of the new standard from January 1, 2017 to
January 1, 2018. The FASB also agreed to allow entities to
choose to adopt the standard as of the original effective date. In
March 2016, the FASB issued additional ASU’s which clarified
certain aspects of the new guidance.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company will adopt the new guidance for the year beginning
January 1, 2018. The Company has the option to either apply
the new guidance retrospectively for all prior reporting periods
presented (full retrospective) or retrospectively with the
cumulative effect of initially applying the guidance recognized at
the date of initial application (modified retrospective). The
Company currently anticipates it will apply the new guidance using
the modified retrospective approach with the cumulative effect of
initial application recognized as of January 1, 2018. The
Company plans to continue analyzing the potential impacts of the
application throughout 2017 and, depending on factors that may
impact the results, could elect to apply the new guidance on a full
retrospective basis.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Currently, for commercial sales of Afrezza, the Company has limited
sales and returns history, and as such is unable to reliably
estimate expected returns of the product at the time of shipment
into the distribution channel. Accordingly, the Company defers
recognition of revenue on Afrezza product shipments until the right
of return no longer exists, which occurs at the earliest of the
time Afrezza is dispensed form pharmacies to patients or expiration
of the right of return. The Company recognizes revenue based on
Afrezza patient prescriptions dispensed, a sell-through model, as
estimated by syndicated data provided by a third party. The Company
also analyzes additional data points to ensure that such
third-party data is reasonable, including data related to inventory
movements within the channel and ongoing prescription demand.</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">
Upon adoption of the new guidance, the Company expects that it will
move from its current sell-through model to a sell-to model for
revenue related to commercial sales of Afrezza and will record
revenue at the time title and risk of loss passes to its
distributors (generally at shipment or delivery to the
distributors) along with an estimate of potential returns as
variable consideration. The Company also anticipates that its
ability to estimate potential returns will improve with an
additional 9 months of sales history that it will have obtained by
January 1, 2018.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Additionally, the Company has historically entered into
collaborative agreements with third-parties under which periodic
payments have been received. Revenue recognition for certain
payments received have been deferred until the price is fixed and
determinable. Further, revenue for certain payments to be received
in the future has been prohibited from recognition until received.
The Company expects that some of these amounts will be considered
variable consideration and may be able to be recognized earlier
under the new guidance.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company has begun its evaluation of the impact of adoption and
plans to continue its evaluation throughout 2017. The financial
impact upon the adoption will be dependent upon a number of factors
including; the amount of revenue that has been deferred under the
sell-through model for Afrezza, the amount of the revenue deferred
under collaborative arrangements and the Company’s estimate
of variable consideration at the date of adoption. At this time,
the Company has not completed its evaluation of the inputs,
assumptions and methodologies that will be used recognize revenue
related to variable consideration under the new guidance.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In January 2016, the FASB issued ASU No. 2016-01, <i>Financial
Instruments</i> — <i>Overall (Subtopic 825-10)</i>:
<i>Recognition and Measurement of Financial Assets and Financial
Liabilities</i>. The update is intended to improve the recognition
and measurement of financial instruments. The update is effective
for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. The Company is
evaluating the impact the adoption of ASU No. 2016-01 will
have on its condensed consolidated financial statements.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In February 2016, the FASB issued ASU No. 2016-02, <i>Leases
(Topic 84</i>2). The new standard requires that all lessees
recognize the assets and liabilities that arise from operating
leases on the balance sheet and disclose qualitative and
quantitative information about its leasing arrangements. A lessee
should recognize in the statement of financial position a liability
to make lease payments (the lease liability) and a right-of-use
asset representing its right to use the underlying asset for the
lease term. For leases with a term of 12 months or less, a lessee
is permitted to make an accounting policy election by class of
underlying asset not to recognize lease assets and lease
liabilities. In transition, lessees and lessors are required to
recognize and measure leases at the beginning of the earliest
period presented using a modified retrospective approach. The new
standard will be effective on January 1, 2019. The Company is
evaluating the impact the adoption of ASU No. 2016-02 will
have on its condensed consolidated financial statements.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In August 2016, the FASB issued ASU No. 2016-15, <i>Statement
of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments</i>. The new standard seeks to reduce diversity
in practice related to the classification of certain transactions
in the statement of cash flows. For public business entities, the
amendments in this standard are effective for annual periods
beginning after December 15, 2017, and interim periods within
those annual periods. The Company is evaluating the impact the
adoption will have on its condensed consolidated financial
statements.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In November 2016, the FASB issued ASU No. 2016-18,
<i>Statement of Cash Flows (Topic 230): Restricted Cash.</i> This
ASU requires that the reconciliation of the beginning-of-period and
end-of-period amounts shown in the statement of cash flows include
cash and restricted cash equivalents. ASU 2016-08 is effective for
fiscal years beginning after December 15, 2018, including
interim periods within those periods, using a retrospective
transition method to each period presented. The Company has
evaluated the effect that this guidance will have on its condensed
consolidated financial statements and related disclosures and has
determined it will not result in a material impact.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<i>Reclassifications</i> — Certain amounts from previous
periods have been reclassified to conform to the 2017 presentation.
Specifically, on the condensed consolidated statements of
operations, product manufacturing has been renamed to costs of
goods sold. The Company also reclassified (gain) loss on foreign
currency translation from the previously reported classification of
product manufacturing to loss on foreign currency translation in
the accompanying condensed consolidated statements of operations.
In addition, on the statements of cash flows, the Company
reclassified interest expense on note payable to principal
stockholder from other liabilities to conform to the 2017
presentation.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The computation of basic and diluted net loss per share for the
three months ended March 31, 2017 and 2016 excludes the common
stock equivalents of the following potentially dilutive securities
because their inclusion would be anti-dilutive:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="75%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center">
<b>Three Months Ended March 31,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2017</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2016</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Restricted stock units</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">709,004</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">789,201</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Senior convertible notes</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">814,561</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">814,561</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Warrants</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">9,740,597</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">31,861</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Stock options</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,941,408</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,820,494</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top"></td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">17,205,570</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6,456,117</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The following tables set forth the fair value of the
Company’s financial instruments (in millions):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="100%" align="center" border="0">
<tr>
<td width="69%"></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 style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="18" align="center"><b>As of March 31, 2017</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Carrying Value</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Level 1</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Level 2</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Level 3</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Total</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Financial liabilities:</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>
<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 style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Senior convertible notes</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27.6</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">23.1</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">23.1</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Facility financing obligation</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">71.8</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">74.8</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">74.8</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Milestone rights</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">8.9</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">18.9</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">18.9</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Warrant liability (at recurring fair value)</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.8</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.8</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.8</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 5em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Total financial liabilities</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">109.1</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">117.6</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">117.6</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 1pt">
<td height="16"></td>
<td height="16" colspan="20"></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="18" align="center"><b>As of December 31, 2016</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Carrying Value</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Level 2</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Level 2</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Level 3</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Total</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Financial liabilities:</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>
<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 style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Senior convertible notes</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27.6</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">22.9</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">22.9</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Facility financing obligation</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">71.3</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">74.5</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">74.5</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Milestone rights</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">8.9</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">18.4</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">18.4</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Warrant liability (at recurring fair value)</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">7.4</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">7.4</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">7.4</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 5em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Total financial liabilities</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">115.2</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">123.2</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">123.2</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
</div>
The Company’s board of directors approved a reverse stock split ratio of 1-for-5. On March 1, 2017, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment of the Company’s Amended and Restated Certificate of Incorporation to effect the 1-for-5 reverse stock split of the Company’s outstanding common stock and to reduce the authorized number of shares of the Company’s common stock from 700,000,000 to 140,000,000 shares. The Company’s common stock began trading on the NASDAQ Global Market on a split-adjusted basis when the market opened on March 3, 2017. As a result, all common stock share amounts included in these condensed consolidated financial statements have been retroactively reduced by a factor of five, and all common stock per share amounts have been increased by a factor of five, with the exception of the Company’s common stock par value.
MNKD
false
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The following table provides a roll forward of the fair value of
the warrant liability which is the only Level 3 financial
instrument that is carried at fair value (in millions):</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0">
<tr>
<td width="88%"></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Warrants</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Fair value, January 1, 2017</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7.4</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Additions</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Changes in fair value</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(6.6</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Payments</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Fair value, March 31, 2017</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">0.8</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>11. Income Taxes</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Management of the Company has evaluated the positive and negative
evidence bearing upon the realizability of its deferred tax assets
and concluded, in accordance with the applicable accounting
standards, that net deferred tax assets should be fully
reserved.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company has assessed their position with regards to uncertainty
in tax positions and 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 2012 remain subject to examination by the major tax
jurisdictions in which the Company is subject to tax.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company adopted ASU 2016-09, <i>Compensation—Stock
Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting</i> in the current quarter. The adoption had no
net impact on its income tax expense for the quarter and net
deferred tax assets as of the date of adoption (See Note 9 –
Stock-Based Compensation Expense).</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The annual purchase requirements under the contract are as
follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0">
<tr>
<td width="83%"></td>
<td valign="bottom" width="4%"></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">2017</td>
<td valign="bottom">  </td>
<td valign="top" nowrap="nowrap">€ 2.7 million</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">2018</td>
<td valign="bottom">  </td>
<td valign="top" nowrap="nowrap">€ 8.9 million</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">2019</td>
<td valign="bottom">  </td>
<td valign="top" nowrap="nowrap">
€ 11.6 million</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">2020</td>
<td valign="bottom">  </td>
<td valign="top" nowrap="nowrap">
€ 15.5 million</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">2021</td>
<td valign="bottom">  </td>
<td valign="top" nowrap="nowrap">
€ 15.5 million</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">2022</td>
<td valign="bottom">  </td>
<td valign="top" nowrap="nowrap">
€ 19.4 million</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">2023</td>
<td valign="bottom">  </td>
<td valign="top" nowrap="nowrap">
€ 19.4 million</td>
</tr>
</table>
</div>
<div>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Property and equipment 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="84%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="56%"></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="page-break-inside:avoid ; 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 Useful</b><br />
<b>Life (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, 2017</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, 2016</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="page-break-inside:avoid ; font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style=" margin-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
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">875</td>
<td nowrap="nowrap" valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">875</td>
<td nowrap="nowrap" valign="bottom"> </td>
</tr>
<tr style="page-break-inside:avoid ; font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style=" margin-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
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">17,389</td>
<td nowrap="nowrap" valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">17,389</td>
<td nowrap="nowrap" valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="page-break-inside:avoid ; font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style=" margin-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
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">34,957</td>
<td nowrap="nowrap" valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">34,957</td>
<td nowrap="nowrap" valign="bottom"> </td>
</tr>
<tr style="page-break-inside:avoid ; font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style=" margin-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
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">62,992</td>
<td nowrap="nowrap" valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">62,992</td>
<td nowrap="nowrap" valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="page-break-inside:avoid ; font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style=" margin-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
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">3,556</td>
<td nowrap="nowrap" valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,556</td>
<td nowrap="nowrap" valign="bottom"> </td>
</tr>
<tr style="page-break-inside:avoid ; font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style=" margin-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
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">8,531</td>
<td nowrap="nowrap" valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">8,531</td>
<td nowrap="nowrap" valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="page-break-inside:avoid ; font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style=" margin-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Construction in progress</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">202</td>
<td nowrap="nowrap" valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">202</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=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">
 </p>
</td>
<td valign="bottom">
<p style=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">
 </p>
</td>
<td valign="bottom">
<p style=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">
 </p>
</td>
<td> </td>
</tr>
<tr style="page-break-inside:avoid ; 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">128,502</td>
<td nowrap="nowrap" valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">128,502</td>
<td nowrap="nowrap" valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="page-break-inside:avoid ; font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style=" margin-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Less accumulated depreciation</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">(100,020</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(99,575</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=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">
 </p>
</td>
<td valign="bottom">
<p style=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">
 </p>
</td>
<td valign="bottom">
<p style=" margin-top:0pt ; margin-bottom:0pt; border-top:1.00px solid #000000">
 </p>
</td>
<td> </td>
</tr>
<tr style="page-break-inside:avoid ; font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style=" margin-top:0pt ; margin-bottom:0pt; margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Total 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">28,482</td>
<td nowrap="nowrap" valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">28,927</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=" margin-top:0pt ; margin-bottom:0pt; border-top:3.00px double #000000">
 </p>
</td>
<td valign="bottom">
<p style=" margin-top:0pt ; margin-bottom:0pt; border-top:3.00px double #000000">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style=" margin-top:0pt ; margin-bottom:0pt; border-top:3.00px double #000000">
 </p>
</td>
<td valign="bottom">
<p style=" margin-top:0pt ; margin-bottom:0pt; border-top:3.00px double #000000">
 </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Revenue Recognition</i> — Revenue is recognized when the
four basic criteria of revenue recognition are met:
(1) persuasive evidence that an arrangement exists; (2)
delivery has occurred or services have been rendered; (3) the fee
is fixed or determinable; and (4) collectability is reasonably
assured. When the accounting requirements for revenue recognition
are not met, the Company defers the recognition of revenue by
recording deferred revenue on the condensed consolidated balance
sheets until such time that all criteria are met. To date, the
Company has had revenue from collaborations, commercial sales of
Afrezza, and from sales of bulk insulin, which are described more
fully below.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Borrowings consist of the following (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="66%"></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31, 2017</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31, 2016</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
<b>Facility Financing Obligation (2019 Notes)</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Principal amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">75,000</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">75,000</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Unamortized debt discount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(3,205</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(3,661</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Net carrying amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">71,795</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">71,339</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
<b>Senior Convertible Notes (2018 Notes)</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Principal amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27,690</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27,690</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Unamortized premium</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">367</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">426</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Unaccreted debt issuance costs</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(415</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(481</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Net carrying amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27,642</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27,635</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
<b>Note payable to principal stockholder - net carrying
amount</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">49,521</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">49,521</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company has revised the historical consolidated financial
information presented herein to reflect the correction of this
error for the prior period presented.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="84%" align="center" border="0">
<tr>
<td width="64%"></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; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center">2016 as</td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2"> </td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2"> </td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center">Previously</td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2"> </td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center">2016 as</td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom" nowrap="nowrap">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; WIDTH: 45.9pt; BORDER-BOTTOM: #000000 1pt solid; MARGIN-TOP: 0pt">
(In thousands)</p>
</td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center">Presented</td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center">Adjustments</td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center">Adjusted</td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Common stock</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4,784</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(3,827</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">957</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Additional paid-in capital</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,549,212</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,827</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,553,039</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Inventories consist of the following (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="66%"></td>
<td valign="bottom" width="12%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="12%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31, 2017</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31, 2016</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Work-in-process</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,296</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,120</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Finished goods</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">402</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">211</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Total inventory</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,698</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,331</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
</div>
1.86
77680
95744000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Cost of Goods Sold</i> — Cost of goods sold includes the
costs related to Afrezza product dispensed by retail pharmacies to
patients as the following costs which are recorded as expenses in
the period in which they are incurred rather than as a portion of
the inventory cost: under-absorbed labor and overhead, the impact
of annual revaluations of inventory and deferred cost of commercial
sales to standard cost, and write-offs of inventory and deferred
costs of commercial sales.</p>
</div>
--12-31
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<b>6. Borrowings</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Borrowings consist of the following (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="66%"></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31, 2017</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31, 2016</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
<b>Facility Financing Obligation (2019 Notes)</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Principal amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">75,000</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">75,000</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Unamortized debt discount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(3,205</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(3,661</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Net carrying amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">71,795</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">71,339</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
<b>Senior Convertible Notes (2018 Notes)</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Principal amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27,690</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27,690</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Unamortized premium</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">367</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">426</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Unaccreted debt issuance costs</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(415</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(481</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Net carrying amount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27,642</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27,635</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
<b>Note payable to principal stockholder - net carrying
amount</b></p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">49,521</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">49,521</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Facility Financing Obligation (2019 Notes)</i> – As of
March 31, 2017, there was $55.0 million principal amount of
2019 notes and $20.0 million principal amount of Tranche B
notes outstanding. The 2019 notes accrue interest at an annual rate
of 9.75% and the Tranche B notes accrue interest at an annual rate
of 8.75%. Interest is paid quarterly in arrears on the last day of
each March, June, September and December. The Facility Financing
Obligation principal repayment schedule is comprised of annual
payments beginning on July 1, 2016 and ending December 9,
2019. As of March 31, 2017, future payments for the years
ended December 31, 2017, 2018, and 2019 are $20.0 million,
$20.0 million and $35.0 million, respectively. On April 18,
2017, the Company entered into an Exchange Agreement resulting in
the cash repayment of $4.0 million principal under the Tranche B
notes and the conversion of $1.0 million and $5.0 million of
principal under the Tranche B notes and the 2019 notes,
respectively, to common shares (see Note 13, Subsequent Events for
disclosure of the Exchange Agreement).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
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. As of March 31, 2017 and
December 31, 2016, the remaining milestone rights liability
balance was $8.9 million. The Company currently estimates that it
will make the next milestone payment in the first quarter of 2018.
Accordingly, $1.6 million in value related to the next milestone
payment was recorded in accrued expenses and other current
liabilities as of March 31, 2017, resulting in $7.3 million
and $8.9 million being recorded in milestone rights liability and
other liabilities, which is non-current, in the accompanying
condensed consolidated balance sheets as of March 31, 2017 and
December 31, 2016, respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Accretion of debt issuance cost and debt discount in connection
with the Facility Agreement during the three months ended
March 31, 2017 and 2016 are as follows (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="74%"></td>
<td valign="bottom" width="10%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="10%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center">
<b>Three Months Ended March 31,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2017</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2016</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accretion expense - debt issuance cost</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accretion expense - debt discount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">447</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">419</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Facility Agreement includes customary representations,
warranties and covenants, including a restriction on the incurrence
of additional indebtedness, and a financial covenant which requires
the Company’s cash and cash equivalents, which include
available borrowings on the note payable to a principal
stockholder, on the last day of each fiscal quarter to not be less
than $25.0 million. As discussed in Note 1 – Description of
Business and Summary of Significant Accounting Policies, the
Company will need to raise additional capital to support its
current operating plans. Due to the uncertainties related to
maintaining sufficient resources to comply with the aforementioned
covenant, the 2019 notes and Tranche B notes have been classified
as current liabilities in the accompanying condensed consolidated
balance sheets as of March 31, 2017 and December 31,
2016. In the event of non-compliance, Deerfield may declare all or
any portion of the 2019 notes and/or Tranche B notes to be
immediately due and payable.</p>
<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">
<i>Milestone Rights</i> — The Milestone Agreement includes
customary representations and warranties and covenants by the
Company, including restrictions on transfers of intellectual
property related to Afrezza. The Milestone Rights are subject to
acceleration in the event the Company transfers its intellectual
property related to Afrezza in violation of the terms of the
Milestone Agreement. The Company has initially recorded the
Milestone Rights at their estimated fair value.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Security Agreement</i> — In connection with the Facility
Agreement, the Company and its subsidiary, MannKind LLC, entered
into a Guaranty and Security Agreement (the “Security
Agreement”) with Deerfield and Horizon Santé FLML
SÁRL (collectively, the “Purchasers”), pursuant to
which the Company and MannKind LLC each granted the Purchasers a
security interest in substantially all of their respective assets,
including respective intellectual property, accounts, receivables,
equipment, general intangibles, inventory and investment property,
and all of the proceeds and products of the foregoing. The Security
Agreement includes customary covenants by the Company and MannKind
LLC, remedies of the Purchasers and representations and warranties
by the Company and MannKind LLC. The security interests granted by
the Company and MannKind LLC will terminate upon repayment of the
2019 notes and Tranche B notes, if applicable, in full. The
Company’s obligations under the Facility Agreement and the
Milestone Agreement are also secured by the Company’s
facilities in Danbury, Connecticut, which has a carrying value of
$28.5 million.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Embedded Derivatives</i> — The Company identified and
evaluated a number of embedded features in the notes issued under
the Facility Agreement to determine if they represented embedded
derivatives that are required to be separated from the notes and
accounted for as freestanding instruments. In 2014, the Company
analyzed the Tranche B notes and identified embedded
derivatives which required separate accounting. However, all of the
embedded derivatives were determined to have a <i>de minimis</i>
value as of March 31, 2017 and December 31, 2016.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Conversion Option —</i> During 2014, Deerfield elected to
convert a total of $93.5 million of principal, which consisted
of $20.0 million, $33.5 million, and $40.0 million
of Tranche 1 notes, Tranche 2 notes, and Tranche 3 notes,
respectively, into an aggregate 3,464,616 shares of common stock.
Further, upon Deerfield converting $40.0 million of Tranche 3
notes and $20.0 million of Tranche 1 notes, Deerfield has
reached the conversion limits (i.e., “Applicable
Limits”) with respect to the Facility Agreement and
therefore, no additional amount of the 2019 notes is
convertible.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Issuance of new 5.75% Convertible Senior Subordinated Exchange
Notes Due 2018 in Exchange for 2015 Notes</i> — The 2018
notes are the Company’s general, unsecured, senior
obligations, except that the 2018 notes were subordinated to the
Sanofi Loan facility prior to the extinguishment of the facility on
November 9, 2016. The 2018 notes rank equally in right of
payment with the Company’s other unsecured senior debt. The
2018 notes bear interest at the rate of 5.75% per year on the
principal amount, payable semiannually in arrears in cash on
February 15 and August 15 of each year, beginning
February 15, 2016, with interest accruing from August 15,
2015. The 2018 notes mature on August 15, 2018. Accrued
interest related to these notes is recorded in accrued expenses and
other current liabilities on the accompanying condensed
consolidated balance sheets.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The 2018 notes are convertible, at the option of the holder, at any
time on or prior to the close of business on the business day
immediately preceding the stated maturity date, into shares of the
Company’s common stock at an initial conversion rate of 29
shares per $1,000 principal amount of 2018 notes, which is equal to
a conversion price of approximately $34.00 per share, the same
conversion price as that of the 2015 notes on the date of exchange.
The conversion rate is subject to adjustment under certain
circumstances described in an indenture governing the 2018 notes
dated August 10, 2015 with US Bank (as successor trustee to
Wells Fargo, National Association), including in connection with a
make-whole fundamental change. If certain fundamental changes
occur, the Company will be obligated to pay a make-whole premium on
any 2018 notes converted in connection with such fundamental change
by increasing the conversion rate on such 2018 notes. If the
Company undergoes certain fundamental changes, except in certain
circumstances, each holder of 2018 notes will have the option to
require the Company to repurchase all or any portion of that
holder’s 2018 notes. The fundamental change repurchase price
will be 100% of the principal amount of the 2018 notes to be
repurchased plus accrued and unpaid interest, if any.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On or after the date that is one year following the original issue
date of the 2018 notes, the Company will have the right to redeem
for cash all or part of the 2018 notes if the last reported sale
price of its common stock exceeds 130% of the conversion price then
in effect for 20 or more trading days during the 30 consecutive
trading day period ending on the trading day immediately prior to
the date of the redemption notice. The redemption price will equal
the sum of 100% of the principal amount of the 2018 notes to be
redeemed, plus accrued and unpaid interest. Under the terms of the
indenture, the conversion option can be net-share settled and the
maximum number of shares that could be required to be delivered
under the indenture, including the make-whole shares, is fixed and
less than the number of authorized and unissued shares less the
maximum number of shares that could be required to be delivered
during the term of the 2018 notes under existing commitments.
Applying the Company’s sequencing policy, the Company
performed an analysis at the time of the offering of the 2018 notes
and each reporting date since and has concluded that the number of
available authorized shares at the time of the offering and each
subsequent reporting date was sufficient to deliver the number of
shares that could be required to be delivered during the term of
the 2018 notes under existing commitments.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
The 2018 notes provide that upon an acceleration of certain
indebtedness, including the 2019 notes and the Tranche B notes
issued to Deerfield pursuant to the Facility Agreement, the holders
may elect to accelerate the Company’s repayment obligations
under the notes if such acceleration is not cured, waived,
rescinded or annulled. There can be no assurance that the holders
would not choose to exercise these rights in the event such events
were to occur.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company incurred approximately $0.8 million in issuance costs,
which are recorded as an offset to the 2018 notes, in the
accompanying condensed consolidated balance sheets. These costs are
being accreted to interest expense using the effective interest
method over the term of the 2018 notes.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Amortization of the premium related to the 2018 notes was $59,000
and $57,000 during the three months ended March 31, 2017 and
2016, respectively. Accretion of debt issuance costs related
to the 2018 notes was $66,000 and $62,000 during the three months
ended March 31, 2017 and 2016, respectively.</p>
</div>
2017-03-31
Accelerated Filer
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<b>3. Property and Equipment</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Property and equipment consist of the following (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
</p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="84%" align="center" border="0">
<tr>
<td width="56%"></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<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 Useful</b><br />
<b>Life (Years)</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31, 2017</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31, 2016</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Land</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">875</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">875</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Buildings</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">39-40</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">17,389</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">17,389</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Building improvements</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5-40</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">34,957</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">34,957</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Machinery and equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3-15</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">62,992</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">62,992</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Furniture, fixtures and office equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5-10</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,556</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,556</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Computer equipment and software</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">8,531</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">8,531</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Construction in progress</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">202</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">202</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<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">128,502</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">128,502</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Less accumulated depreciation</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">(100,020</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(99,575</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Total 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">28,482</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">28,927</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: rgb(0,0,0) 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Depreciation and amortization expense related to property and
equipment for the three months ended March 31, 2017 and 2016
was $0.4 million and $0.6 million, respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On January 6, 2017, the Company and Rexford Industrial Realty,
L.P. (“Rexford”) entered into an Agreement of Purchase
and Sale and Joint Escrow Instructions (the “Purchase
Agreement”), pursuant to which the Company agreed to sell and
Rexford agreed to purchase certain parcels of real estate owned by
the Company in Valencia, California and certain related
improvements, personal property, equipment, supplies and fixtures
(collectively, the “Property”) for $17.3 million.
The sale and purchase of the aforementioned Property for
$17.3 million pursuant to the terms of the Purchase Agreement,
as amended, was completed on February 17, 2017. Net proceeds
were $16.7 million after deducting broker’s commission
and other fees of approximately $0.6 million paid by the Company.
Net proceeds received approximated the carrying value of the asset
held for sale.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>12. Restructuring Charges</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
As of March 31, 2017 and December 31, 2016, the Company
had a remaining restructuring accrual balance of $0.8 million and
$1.4 million, respectively which is recorded in accrued expenses
and other current liabilities in the condensed consolidated balance
sheets. The Company expects to substantially pay out the remainder
of this obligation by the third quarter of 2017.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
A reconciliation of beginning and ending liability balances for the
restructuring charges is as follows (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="84%" align="center" border="0">
<tr>
<td width="66%"></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>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom" nowrap="nowrap">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; WIDTH: 37.25pt; BORDER-BOTTOM: #000000 1pt solid; MARGIN-TOP: 0pt">
Description</p>
</td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2016<br />
Restructuring</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2015<br />
Restructuring</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Total</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accrual - January 1, 2017</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">209</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,167</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,376</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Costs paid or settled</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(185</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(419</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(604</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accrual - March 31, 2017</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">24</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">748</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">772</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
<i>Deferred Costs from Commercial Product Sales</i> —
Deferred costs from commercial product sales represents the cost of
product (including labor, overhead and shipping costs to the third
party logistics provider) shipped to wholesale distributors, but
not dispensed by retail pharmacies to patients. If the Company
estimates that inventory that has been shipped to wholesale
distributors will be returned for credit because there is a risk of
product expiry, deferred costs of commercial product sales is
reduced and cost of goods sold is increased for the cost of such
inventory.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 8%; MARGIN-TOP: 6pt">
<i>Prompt Pay Discounts –</i> The Company offers cash
discounts to its customers, generally 2% of the sales price, as an
incentive for prompt payment. The Company accounts for cash
discounts by reducing accounts receivable and deferred revenue by
the prompt pay discount amount (at the time of shipment to the
wholesale distributor). The Company recognizes the discount as a
reduction of revenue in the same period the related revenue is
recognized.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 8%; MARGIN-TOP: 6pt">
<i>Rebates and Chargebacks –</i> The Company participates in
federal and state government-managed Medicare and Medicaid programs
and, as such, is required to provide rebates under these programs.
The Company continues to pursue participation in certain other
qualifying federal and state government programs whereby discounts
and rebates are provided to participating entities. Rebates
provided through these other qualifying programs are included in
the Medicaid and Medicare rebate accrual. Chargebacks are discounts
that occur when contracted customers purchase directly from an
intermediary wholesale purchaser. Contracted customers, which
currently consist primarily of Federal government entities
purchasing off the Federal Supply Schedule, generally purchase the
product at its contracted price, plus a mark-up from the
wholesaler. The wholesaler, in-turn, charges back to the Company
the difference between the price initially paid by the wholesaler
and the contracted price paid to the wholesaler by the
customer.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 8%; MARGIN-TOP: 6pt">
The Company accounts for these rebates and chargebacks by
establishing an accrual based on contractual discount rates,
expected utilization under each contract and an estimate of the
amount of inventory in the distribution channel that will become
subject to such rebates and chargebacks based on historical payor
data provided by a third-party vendor along with additional data
including a forecasted participation rates. From that data, as well
as input received from the commercial team, an estimated
participation rate for each program is determined and applied at
the rate for those sales. Any new information regarding changes in
the programs’ regulations and guidelines or any changes in
the Company’s government price reporting calculations that
would impact the amount of the rebates will also be taken into
account in determining or modifying the appropriate reserve. The
time period between the date the product is sold into the channel
and the date such rebates may be paid can be up to approximately
six to nine months. As such, continuous monitoring of these
estimates will be performed on a periodic basis, and if necessary,
adjusted to reflect new facts and circumstances. Rebates and
chargebacks are recognized as a reduction of gross revenue in the
period the related revenue is recognized.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 8%; MARGIN-TOP: 6pt">
<i>Other Rebates and Discounts –</i> The Company has entered
into agreements with certain third-party payors and with pharmacy
benefit managers that act as an intermediary with certain
third-party payors in the fulfillment of prescriptions. Under these
agreements, the Company has agreed to provide certain contracted
discounts to ease access to reimbursement for Afrezza patients
including, but not limited to, the removal of prior authorization
or step edit requirements or modifying the reimbursement tier under
the payor’s formulary. The Company accounts for these charges
by establishing an accrual based on the contracted discount rates
and, with input received from management, estimated participation
rates.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
<i>Revenue Recognition – Net Revenue – Collaborations
–</i> The Company enters into collaborations under which the
Company must perform certain obligations and receives periodic
payments. The Company evaluates the collaborations under the
multiple element revenue recognition accounting guidance. Revenue
arrangements with multiple elements are divided into separate units
of accounting if certain criteria are met, including whether the
delivered elements have 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. 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. The terms of and
the accounting for the Company’s collaborations are described
more fully in Note 7 — Collaboration Arrangements.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Accretion of debt issuance cost and debt discount in connection
with the Facility Agreement during the three months ended
March 31, 2017 and 2016 are as follows (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="74%"></td>
<td valign="bottom" width="10%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="10%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center">
<b>Three Months Ended March 31,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2017</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2016</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accretion expense - debt issuance cost</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accretion expense - debt discount</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">447</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">419</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
A reconciliation of beginning and ending liability balances for the
restructuring charges is as follows (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="84%" align="center" border="0">
<tr>
<td width="66%"></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>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom" nowrap="nowrap">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; WIDTH: 37.25pt; BORDER-BOTTOM: #000000 1pt solid; MARGIN-TOP: 0pt">
Description</p>
</td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2016<br />
Restructuring</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2015<br />
Restructuring</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Total</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accrual - January 1, 2017</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">209</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,167</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,376</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Costs paid or settled</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(185</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(419</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(604</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accrual - March 31, 2017</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">24</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">748</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">772</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Stock-Based Compensation</i> — Share-based payments to
employees, including grants of stock options, restricted stock
units, performance-based awards and the compensatory elements of
employee stock purchase plans, are recognized in the condensed
consolidated statements of operations based upon the fair value of
the awards at the grant date, subject to an estimated forfeiture
rate. The Company uses the Black-Scholes option valuation model to
estimate the grant date fair value of employee stock options and
the compensatory elements of employee stock purchase plans.
Restricted stock units are valued based on the market price on the
grant date. 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.</p>
</div>
-0.17
MANNKIND CORP
P2Y9M18D
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<b>8. Fair Value of Financial Instruments</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company applies various valuation approaches in determining the
fair value of its financial assets and liabilities within a
hierarchy that maximizes the use of observable inputs and minimizes
the use of unobservable inputs by requiring that observable inputs
be used when available. Observable inputs are inputs that market
participants would use in pricing the asset or liability based on
market data obtained from sources independent of the Company.
Unobservable inputs are inputs that reflect the Company’s
assumptions about the inputs that market participants would use in
pricing the asset or liability and are developed based on the best
information available in the circumstances. The fair value
hierarchy is broken down into three levels based on the source of
inputs as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
Level 1— Quoted prices for identical instruments in active
markets.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
Level 2— Quoted prices for similar instruments in active
markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations whose
inputs are observable or whose significant value drivers are
observable.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
Level 3— Significant inputs to the valuation model are
unobservable.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The availability of observable inputs can vary among the various
types of financial assets and liabilities. To the extent that the
valuation is based on models or inputs that are less observable or
unobservable in the market, the determination of fair value
requires more judgment. In certain cases, the inputs used to
measure fair value may fall into different levels of the fair value
hierarchy. In such cases, for financial statement disclosure
purposes, the level in the fair value hierarchy within which the
fair value measurement is categorized is based on the lowest level
input that is significant to the overall fair value
measurement.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Cash Equivalents</i> — 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, 2017 and December 31, 2016, the
Company held cash equivalents of $47.4 million and $20.5 million,
respectively, comprised of money market funds. The fair value of
these money market funds was determined by using quoted prices for
identical investments in an active market (Level 1 in the fair
value hierarchy).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Note Payable to Principal Stockholder</i> — The fair value
of the note payable to principal stockholder cannot be reasonably
estimated as the Company would not be able to obtain a similar
credit arrangement in the current economic environment. Therefore
the fair value is based upon carrying value.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Financial Liabilities</i> — The following tables set forth
the fair value of the Company’s financial instruments (in
millions):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="100%" align="center" border="0">
<tr>
<td width="69%"></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 style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="18" align="center"><b>As of March 31, 2017</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Carrying Value</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Level 1</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Level 2</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Level 3</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Total</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Financial liabilities:</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>
<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 style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Senior convertible notes</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27.6</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">23.1</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">23.1</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Facility financing obligation</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">71.8</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">74.8</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">74.8</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Milestone rights</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">8.9</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">18.9</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">18.9</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Warrant liability (at recurring fair value)</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.8</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.8</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.8</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 5em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Total financial liabilities</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">109.1</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">117.6</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">117.6</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 1pt">
<td height="16"></td>
<td height="16" colspan="20"></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="18" align="center"><b>As of December 31, 2016</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Carrying Value</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Level 2</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Level 2</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Level 3</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Total</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Financial liabilities:</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>
<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 style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Senior convertible notes</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">27.6</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">22.9</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">22.9</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Facility financing obligation</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">71.3</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">74.5</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">74.5</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Milestone rights</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">8.9</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">18.4</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">18.4</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Warrant liability (at recurring fair value)</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">7.4</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">7.4</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">7.4</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 5em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Total financial liabilities</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">115.2</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap">$</td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">123.2</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">123.2</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
As of March 31, 2017 and December 31, 2016, the fair
value of the warrant liability was $0.8 million and $7.4 million,
respectively. The fair value of the warrants liability as of
March 31, 2017 was estimated using a Monte Carlo valuation
pricing model with the following underlying assumptions: (a) a
risk-free interest rate of 1.24%; (b) an assumed dividend
yield of zero percent; (c) an expected term of 1.1 years; and
(d) an expected volatility of 100%. The following table
provides a roll forward of the fair value of the warrant liability
which is the only Level 3 financial instrument that is carried at
fair value (in millions):</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0">
<tr>
<td width="88%"></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Warrants</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Fair value, January 1, 2017</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7.4</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Additions</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Changes in fair value</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(6.6</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Payments</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Fair value, March 31, 2017</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">0.8</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Senior Convertible Notes</i> — The estimated fair value of
the 2018 notes was calculated based on model-derived valuations
whose inputs were observable, such as the Company’s stock
price and yields on U.S. Treasury notes and actively traded bonds,
and non-observable, such as the Company’s longer-term
historical volatility, and estimated yields implied from any
available market trades of the Company’s issued debt
instruments. As there is no current active and observable market
for the 2018 notes, the Company determined the estimated fair value
using a convertible bond valuation model within a lattice
framework. The convertible bond valuation model combined expected
cash flows based on terms of the notes with market-based
assumptions regarding risk-free rate, risk-adjusted yields (20%),
stock price volatility (115%) and recent price quotes and
trading information regarding Company issued debt instruments and
shares of common stock into which the notes are convertible (Level
3 in the fair value hierarchy).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Facility Agreement</i> — As discussed in Note 6
— Borrowings, the Company issued 2019 notes and subsequently
issued Tranche B notes (the “Facility Financing
Obligation”) in connection with the Facility Agreement. As
there is no current observable market for the 2019 notes or Tranche
B notes, the Company determined the estimated fair value using a
bond valuation model based on a discounted cash flow methodology.
The bond valuation model combined expected cash flows associated
with principal repayment and interest based on the contractual
terms of the debt agreement discounted to present value using a
selected market discount rate. On March 31, 2017, the market
discount rate was recalculated at 12% for the principal for the
facility financing obligation. Under the terms of the Facility
Agreement, the Company is restricted from distributing any of its
assets or declaring and distributing a dividend to its
stockholders.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Milestone Rights Liability</i> — In addition to the
Facility Financing Obligation, the Company also issued certain
rights to receive payments of up to $90.0 million upon occurrence
of specified strategic and sales milestones (the “Milestone
Rights”). These rights are not reflected in the Facility
Financing Obligation. The estimated fair value of the Milestone
Rights was calculated using the income approach in which the cash
flows associated with the specified contractual payments were
adjusted for both the expected timing and the probability of
achieving the milestones, discounted to present value using a
selected market discount rate (Level 3 in the fair value
hierarchy). The expected timing and probability of achieving the
milestones, starting in 2014, was developed with consideration
given to both internal data, such as progress made to date and
assessment of criteria required for achievement, and external data,
such as market research studies. The discount rate (14.5%) was
selected based on an estimation of required rate of returns for
similar investment opportunities using available market data. As of
March 31, 2017, the carrying value of the milestone rights
liability was $8.9 million and the fair value was estimated at
$18.9 million. The fair value measurement of the liability is
sensitive to the discount rate and the timing and probability of
making milestone payments. If the achievement of each of the
milestones which require payments were to be six months earlier or
later than in the current forecast, the fair value of the liability
would increase by 8% or decrease by 7%, respectively. If the
probabilities of meeting the milestones were to decrease by 5% or
10%, the fair value of the liability would decrease by 17% and 30%,
respectively. Over the long term, these inputs are interrelated
because if the Company’s performance improves, the timing of
meeting the milestones would likely be earlier, the probability of
making payments on the milestones would likely be higher and the
discount rate would likely decrease, all of which would increase
the fair value of the liability. The inverse is also true.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Warrant Liability —</i> Warrant liabilities are measured
at fair value using a Monte Carlo pricing valuation model. The
assumptions used in the valuation model for the common stock
warrant liabilities were: (a) a risk-free interest rate based
on the rates for U.S. Treasury zero-coupon bonds with maturities
similar to those of the remaining contractual term of the warrants;
(b) an assumed dividend yield of zero percent based on the
Company’s expectation that it will pay no dividends in the
foreseeable future; (c) an expected term based on the
remaining contractual term of the warrants; and (d) an
expected volatility based upon the Company’s historical
volatility over the remaining contractual term of the warrants and
(e) probability of a dilutive financing that may trigger a
price protection clause. The significant unobservable input used in
measuring the fair value of the common stock warrant liabilities is
the expected volatility. Significant increases in volatility would
result in a higher fair value measurement (Level 3 in the fair
value hierarchy).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Embedded Derivatives</i> — The Company identified and
evaluated a number of embedded features in the notes issued under
the Facility Agreement to determine if they represented embedded
derivatives that are required to be separated from the notes and
accounted for as freestanding instruments. The Company analyzed the
Tranche B notes and identified embedded derivatives, which required
separate accounting. However, all of the embedded derivatives were
determined to have a <i>de minimis</i> value at March 31, 2017
and December 31, 2016.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Accounts Receivable and Allowances</i> — Accounts
receivable are recorded at the invoiced amount and are not interest
bearing. The Company maintains an allowance for doubtful accounts
for estimated losses resulting from the inability of its customers
to make required payments. The Company makes ongoing assumptions
relating to the collectability of its accounts receivable in its
calculation of the allowance for doubtful accounts. If the Company
estimates that inventory that has been shipped to wholesale
distributors will be returned for credit because there is risk of
product expiration, the Company reduces deferred revenue and
increases the allowance for returns for such inventory. As of
December 31, 2016, there was no allowance for returns. As of
March 31, 2017, there was $0.3 million in allowance for
returns. As of March 31, 2017 and December 31, 2016,
there was no allowance for doubtful accounts. As of March 31,
2017 and December 31, 2016, the Company has three wholesale
distributors representing approximately 92% and 95% of gross
accounts receivable, respectively.</p>
</div>
<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 The Mann Group Loan
Arrangement, which has been amended from time to time. On
October 31, 2013, the promissory note underlying The Mann
Group Loan Arrangement was amended to, among other things, extend
the maturity date of the loan to January 5, 2020, extend the
date through which the Company can borrow under The Mann Group Loan
Arrangement to December 31, 2019, increase the aggregate
borrowing amount under The Mann Group Loan Arrangement from
$350.0 million to $370.0 million and provide that
repayments or cancellations of principal under The Mann Group Loan
Arrangement will not be available for reborrowing.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
As of March 31, 2017, the total principal amount outstanding
under The Mann Group Loan Arrangement was $49.5 million, and the
amount available for future borrowings was $30.1 million. Interest,
at a fixed rate of 5.84%, is due and payable quarterly in arrears
on the first day of each calendar quarter for the preceding
quarter, or at such other time as the Company and The Mann Group
mutually agree. All or any portion of accrued and unpaid interest
that becomes due and payable may be paid-in-kind and capitalized as
additional borrowings at any time and would be classified as
non-current. The Mann Group can require the Company to prepay up to
$200.0 million in advances that have been outstanding for at least
12 months, less approximately $105.0 million aggregate principal
amount that has been cancelled in connection with two common stock
purchase agreements. If The Mann Group exercises this right, the
Company will have 90 days after The Mann Group provides written
notice, or the number of days to maturity of the note if less than
90 days, to prepay such advances. However, pursuant to a
letter agreement entered into in August 2010, The Mann Group has
agreed to not require the Company to prepay amounts outstanding
under the amended and restated promissory note if the prepayment
would require the Company to use its working capital resources. In
addition, The Mann Group entered into a subordination agreement
with Deerfield pursuant to which The Mann Group agreed with
Deerfield not to demand or accept any payment under The Mann Group
Loan Arrangement until the Company’s payment obligations to
Deerfield under the Facility Agreement have been satisfied in full.
Subject to the foregoing, in the event of a default under The Mann
Group Loan Arrangement, all unpaid principal and interest either
becomes immediately due and payable or may be accelerated at The
Mann Group’s option, and the interest rate will increase to
the one-year LIBOR calculated on the date of the initial advance or
in effect on the date of default, whichever is greater, plus
5% per annum. All borrowings under The Mann Group Loan
Arrangement are unsecured. The Mann Group Loan Arrangement contains
no financial covenants.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
As of March 31, 2017 and December 31, 2016, the Company
had accrued and unpaid interest related to the above note of $10.0
million and $9.3 million, respectively, and had $30.1 million of
available borrowings. Interest expense on the Company’s note
payable to the Company’s principal stockholder for the three
months ended March 31, 2017 and 2016 were $0.7 million and
$0.7 million, respectively.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
In May 2015, the Company entered into a sublease agreement with the
Alfred Mann Foundation for Scientific Research (the “Mann
Foundation”), a California not-for-profit corporation. The
lease is for approximately 12,500 square feet of office space in
Valencia, California which expired in April 2017 and was renewed on
a month-to-month basis at a rate of $21,000 per month. The office
space contains the Company’s principal executive offices.
Lease payments to the Mann Foundation for the three months ended
March 31, 2017 and 2016 were $62,000 and $65,000,
respectively.</p>
<p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
The Company has entered into indemnification agreements with each
of its directors and executive officers, in addition to the
indemnification provided for in its amended and restated
certificate of incorporation and amended and restated bylaws (see
Note 10 — Commitments and Contingencies).</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Accrued expenses and other current liabilities consist of the
following (in thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="67%"></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31, 2017</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31, 2016</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Salary and related expenses</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,900</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,814</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Current portion of milestone rights liability</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,643</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Professional fees</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,505</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">875</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Discounts and allowances for commercial product sales</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">996</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">754</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Sales and marketing services</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">821</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">144</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Restructuring</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">772</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,376</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accrued interest</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">221</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">619</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Other</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">799</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">355</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 1px solid; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Accrued expenses and other current liabilities</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">10,657</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7,937</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td valign="bottom">
<p style="MARGIN-BOTTOM: 0pt; BORDER-TOP: #000000 3px double; MARGIN-TOP: 0pt">
 </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
<i>Revenue Recognition – Net Revenue – Commercial
Product Sales –</i> Between July 1, 2016 and
December 15, 2016, the Company sold Afrezza to Integrated
Commercialization Solutions Direct (ICS) and title and risk of loss
transferred to ICS upon shipment. After December 15, 2016, ICS
became a third party logistics provider and stopped taking title
and risk of loss upon shipment of Afrezza to ICS. The Company sells
Afrezza in the United States to wholesale pharmaceutical
distributors through ICS, and ultimately to retail pharmacies,
which are collectively referred to as “customers”. The
Company provides the right of return to its wholesale distributors
and, through them, to its retail pharmacy customers for unopened
product for a period beginning six months prior to and ending
twelve months after its expiration date. Once the product has been
prescribed and dispensed to the patient, any right of return ceases
to exist.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
Given the Company’s limited sales history for Afrezza, the
Company cannot reliably estimate expected returns of the product at
the time of shipment into the distribution channel. Accordingly,
the Company defers recognition of revenue on Afrezza product
shipments until the right of return no longer exists, which occurs
at the earlier of the time Afrezza is dispensed from pharmacies to
patients or expiration of the right of return. Deferred revenue is
presented net of deferred product sales discounts which are further
described in <i>Gross-to-Net Adjustments</i> below. The Company
recognizes revenue based on Afrezza patient prescriptions dispensed
as estimated by syndicated data provided by a third party. The
Company also analyzes additional data points to ensure that such
third-party data is reasonable, including data related to inventory
movements within the channel and ongoing prescription demand.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 6px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
For the three months ended March 31, 2017, net revenue from
commercial product sales consisted of $1.2 million of net sales of
Afrezza dispensed to patients. As of March 31, 2017 and
December 31, 2016, the ending balances for deferred revenue
were $1.8 million and $3.4 million, on its condensed
consolidated balance sheets, of which $1.8 million and
$1.6 million (net of estimated gross-to-net adjustments),
respectively, represents product shipped to the Company’s
third-party logistics provider and wholesale distributors, but not
yet dispensed to patients. The difference, as of December 31,
2016, represented deferred revenue from bulk insulin sales, which
is described more fully under the heading <i>Revenue Recognition
– Revenue – Bulk Insulin Sales</i> below. For the three
months ended March 31, 2017, shipments to three wholesale
distributors represented 93% of total shipments.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>13. Subsequent Events</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<i>Amendment to Facility Arrangement</i> — On April 18,
2017, the Company entered into an Exchange Agreement with Deerfield
pursuant to which the Company agreed to, among other things,
(i) repay $4.0 million principal amount under the Tranche
B notes, (ii) exchange $1.0 million principal amount
under the Tranche B notes for 869,565 shares of the Company’s
common stock (the “Tranche B Exchange Shares”) and
(iii) exchange $5 million principal amount under the 2019
notes for 4,347,826 shares of the Company’s common stock
(together with the “Tranche B Exchange Shares”, the
“Exchange Shares”). The exchange price for the Exchange
Shares is $1.15 per share. The principal amount being repaid and
exchanged under the Tranche B notes and the principal amount being
exchanged under the 2019 notes represents the principal amount that
would have otherwise become due and payable in May 2017 and July
2017 under the Tranche B Notes and 2019 notes, respectively. The
financial statements do not include the impacts of the Exchange
Agreement as it occurred subsequent to March 31, 2017 and will
be accounted for in April 2017.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Office Lease</i> — On May 5, 2017, the Company
executed an office lease with Russell Ranch Road II LLC to lease
office space for the Company’s corporate headquarters in
Valencia, California. The office lease commences on the earlier of
(i) the date the Company commences business from the leased
space or (ii) the later of the date of substantial completion
of the build out by the landlord or August 1, 2017. The lease
requires monthly payments of $40,951, increased by 3% annually,
plus the estimated cost of maintaining the property by the
landlord. The lease expires sixty-five months from the commencement
date and contains a five year renewal option.</p>
</div>
3009000
1196000
-19602000
-16324000
93000000
2550000
-39000
1367000
136000
-16324000
75000
55000
-30557000
14000
3278000
-856000
-16324000
-1545000
1300000
400000
0
-63000
1077000
-1665000
16651000
16651000
714000
1267000
908000
-1575000
3129000
15389000
22611000
2706000
-75000
25083000
2548000
604000
P2Y
3
4
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Business</i> — MannKind is a biopharmaceutical company
focused on the discovery, development and commercialization of
therapeutic products for diseases such as diabetes. The
Company’s only approved product, Afrezza (insulin human [rDNA
origin]) inhalation powder, is a rapid-acting inhaled insulin that
was approved by the U.S. Food and Drug Administration (the
“FDA”) on June 27, 2014 to improve glycemic
control in adult patients with diabetes.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On August 11, 2014, the Company executed a license and
collaboration agreement (the “Sanofi License
Agreement”) with Sanofi-Aventis Deutschland GmbH, which
subsequently assigned its rights and obligations under the
agreement to Sanofi-Aventis U.S. LLC (“Sanofi”),
pursuant to which Sanofi was responsible for global commercial,
regulatory and development activities for Afrezza.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On January 4, 2016, the Company received written notification
from Sanofi of its election to terminate in its entirety the Sanofi
License Agreement. The effective date of termination was
April 4, 2016, which was when the Company assumed
responsibility for worldwide development and commercialization of
Afrezza. Under the terms of the transition agreement, Sanofi
continued to fulfill orders for Afrezza in the United States until
the Company began distributing MannKind-branded Afrezza product to
major wholesalers in late July 2016. The Company began recognizing
commercial product sales revenue when MannKind-branded Afrezza was
dispensed from pharmacies to patients in August 2016.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On November 9, 2016, the Company entered into a settlement
agreement with Sanofi (the “Settlement Agreement”).
Under the terms of the Settlement Agreement, the promissory note
(the “Sanofi Loan Facility”) between the Company and
Aventisub LLC (“Aventisub”), a Sanofi affiliate, was
terminated with Aventisub agreeing to fully forgive the outstanding
loan balance of $72.0 million. Sanofi also purchased $10.2 million
of insulin from the Company in December 2016 under an existing
insulin put option and made a cash payment of $30.6 million to the
Company in early January 2017 as acceleration and in replacement of
all other payments that Sanofi would otherwise have been required
to make in the future pursuant to the insulin put option, without
the Company being required to deliver any insulin for such payment.
The Company was also relieved of its obligation to pay Sanofi $0.5
million in previously uncharged costs pursuant to the Sanofi
License Agreement. The Company and Sanofi also agreed to a general
release of potential claims against each other.</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">
During their initial transition of the commercial responsibilities
from Sanofi, the Company utilized a contract sales organization to
promote Afrezza while the Company focused its internal resources on
establishing a channel strategy, entering into distribution
agreements and developing co-pay assistance programs, a voucher
program, data agreements and payor relationships. In early 2017,
the Company recruited its own sales force and intends to continue
the commercialization of Afrezza in the United States through its
own commercial organization. The Company’s current strategy
for future commercialization of Afrezza outside of the United
States, subject to receipt of the necessary foreign regulatory
approvals, is to seek and establish partnerships in foreign
jurisdictions where there are appropriate commercial
opportunities.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
As of and for the three months ended March 31, 2017, the
Company has reported an accumulated deficit of $2.8 billion and has
reported negative cash flow from operations for each year since
inception, except for the current quarter, when the Company
received the $30.6 million settlement payment from Sanofi and in
2014, when the Company received the $150.0 million upfront payment
from Sanofi.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
At March 31, 2017, the Company’s capital resources
consisted of cash and cash equivalents of $48.0 million. The
Company expects to continue to incur significant expenditures to
support commercial manufacturing and sales and marketing of Afrezza
and the development of their product candidates. The facility
agreement (the “Facility Agreement”) with Deerfield
Private Design Fund II, L.P. (“Deerfield Private Design
Fund”) and Deerfield Private Design International II, L.P.
(collectively, “Deerfield”) that resulted in the
issuance of 9.75% Senior Convertible Notes due 2019 (“2019
notes”) and the First Amendment to Facility Agreement and
Registration Rights Agreement (the “First Amendment”)
that resulted in the issuance of an additional tranche of 8.75%
Senior Convertible Notes due 2019 (“Tranche B notes”)
(see Note 6 — Borrowings) requires the Company to
maintain at least $25.0 million in cash and cash equivalents or
available borrowings under the loan arrangement, dated as of
October 2, 2007, between the Company and The Mann Group LLC
(as amended, restated, or otherwise modified as of the date hereof,
“The Mann Group Loan Arrangement”), as of the last day
of each fiscal quarter.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Additional funding sources that are, or in certain circumstances
may be, available to the Company include $30.1 million principal
amount of available borrowings under The Mann Group Loan
Arrangement. A portion of these available borrowings may be used to
capitalize accrued interest into principal, upon mutual agreement
of the parties, as it becomes due and payable under The Mann Group
Loan Arrangement (see Note 5 — Related-Party
Arrangements). The Company is seeking and will need to raise
additional capital, whether through a sale of equity or debt
securities, a strategic business collaboration with another
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. The Company
cannot provide assurances that such additional capital will be
available on acceptable terms or at all. These factors raise
substantial doubt about the Company’s ability to continue as
a going concern. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On September 14, 2016, the Company received notice from the
Listing Qualifications Department of the NASDAQ Stock Market
indicating that in the previous 30 consecutive business days, the
bid price for the common stock closed below the minimum of $1.00
per share required for continued inclusion on the NASDAQ Global
Market. The notification letter stated that the Company would be
afforded 180 calendar days, or until March 13, 2017, to regain
compliance with the minimum bid price requirement. On
March 16, 2017, the Company received a letter from the Listing
Qualifications Department of the NASDAQ Global Market indicating
that the Company had regained compliance with the $1.00 minimum
closing bid requirement following completion of the reverse stock
split described below.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On March 1, 2017, following stockholder approval, the
Company’s board of directors approved a reverse stock split
ratio of 1-for-5. On March 1, 2017, the Company filed with the
Secretary of State of the State of Delaware a Certificate of
Amendment of the Company’s Amended and Restated Certificate
of Incorporation to effect the 1-for-5 reverse stock split of the
Company’s outstanding common stock and to reduce the
authorized number of shares of the Company’s common stock
from 700,000,000 to 140,000,000 shares. The Company’s common
stock began trading on the NASDAQ Global Market on a split-adjusted
basis when the market opened on March 3, 2017. As a result,
all common stock share amounts included in these condensed
consolidated financial statements have been retroactively reduced
by a factor of five, and all common stock per share amounts have
been increased by a factor of five, with the exception of the
Company’s common stock par value.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
On April 18, 2017, the Company entered into an Exchange
Agreement with Deerfield resulting in the cash repayment of $4.0
million under the Tranche B notes and the conversion of $1.0
million and $5.0 million of the Tranche B notes and the 2019 notes,
respectively to common shares (see Note 13, Subsequent Events for
disclosure of the Exchange Agreement).</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Correction of an Immaterial Error</i> — Subsequent to the
issuance of the Company’s financial statements for the year
ended December 31, 2016 on Form 10-K, the Company determined
that the common stock par value as of December 31, 2016 and
2015 should not have been adjusted for the impact of the reverse
stock split on March 3, 2017 as described above. Management
evaluated the materiality of the errors from a quantitative and
qualitative perspective and concluded that this adjustment was not
material to the Company’s financial position as of
March 31, 2017 or December 31, 2016 and 2015 and that
there was no impact to the results of operations for any periods
presented. However, the Company has elected to correct the error in
the current filing to conform to the current year presentation.
Since the revisions were not material, no amendments to previously
filed reports were required. The Company has revised the historical
consolidated financial information presented herein to reflect the
correction of this error for the prior period presented.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="84%" align="center" border="0">
<tr>
<td width="64%"></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; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center">2016 as</td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2"> </td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2"> </td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center">Previously</td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2"> </td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center">2016 as</td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="bottom" nowrap="nowrap">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; WIDTH: 45.9pt; BORDER-BOTTOM: #000000 1pt solid; MARGIN-TOP: 0pt">
(In thousands)</p>
</td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center">Presented</td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center">Adjustments</td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center">Adjusted</td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid" bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Common stock</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4,784</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(3,827</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">957</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; PAGE-BREAK-INSIDE: avoid">
<td valign="top">
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; MARGIN-TOP: 0pt; TEXT-INDENT: -1em">
Additional paid-in capital</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,549,212</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,827</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,553,039</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<i>Warrants</i> — The Company has issued warrants to purchase
shares of its common stock. The Company accounts for its warrants
as either equity or liabilities based upon the characteristics and
provisions of each instrument and evaluation of sufficient
authorized shares available to satisfy the obligations. Warrants
classified as derivative liabilities are recorded on the
Company’s condensed consolidated balance sheets at their fair
value on the date of issuance and are revalued at each subsequent
balance sheet date, with fair value changes recognized in the
condensed consolidated statements of operations. The Company
estimates the fair value of its derivative liabilities using a
third party valuation analysis that utilizes a Monte Carlo pricing
valuation model and assumptions that are based on the individual
characteristics of the warrants or instruments on the valuation
date, as well as expected volatility, expected life, yield, and
risk-free interest rate. Warrants classified as equity are recorded
within additional paid-in capital at the issuance date and are not
re-measured in subsequent periods, unless the underlying
assumptions change to trigger liability accounting.</p>
</div>
2023-12-31
6629000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Recently Issued Accounting Standards –</i> 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. Unless otherwise discussed, the Company believes
that the impact of recently issued standards that are not yet
effective will not have a material impact on the Company’s
condensed consolidated financial position or results of operations
upon adoption.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In May 2014, the FASB issued Accounting Standards Update (ASU)
No. 2014-09, <i>Revenue from Contracts with Customers (Topic
606),</i> which requires an entity to recognize the amount of
revenue when promised goods or services to customers. The standard
requires a company to recognize revenue to depict the transfer of
goods or services to customers in an amount that reflects the
consideration it expects to be entitled to receive in exchange for
those goods or services. In August 2015, the FASB issued ASU
2015-14, <i>Revenue from Contracts with Customers (Topic 606):
Deferral of the Effective Date</i>, which delayed the effective
date of the new standard from January 1, 2017 to
January 1, 2018. The FASB also agreed to allow entities to
choose to adopt the standard as of the original effective date. In
March 2016, the FASB issued additional ASU’s which clarified
certain aspects of the new guidance.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company will adopt the new guidance for the year beginning
January 1, 2018. The Company has the option to either apply
the new guidance retrospectively for all prior reporting periods
presented (full retrospective) or retrospectively with the
cumulative effect of initially applying the guidance recognized at
the date of initial application (modified retrospective). The
Company currently anticipates it will apply the new guidance using
the modified retrospective approach with the cumulative effect of
initial application recognized as of January 1, 2018. The
Company plans to continue analyzing the potential impacts of the
application throughout 2017 and, depending on factors that may
impact the results, could elect to apply the new guidance on a full
retrospective basis.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Currently, for commercial sales of Afrezza, the Company has limited
sales and returns history, and as such is unable to reliably
estimate expected returns of the product at the time of shipment
into the distribution channel. Accordingly, the Company defers
recognition of revenue on Afrezza product shipments until the right
of return no longer exists, which occurs at the earliest of the
time Afrezza is dispensed form pharmacies to patients or expiration
of the right of return. The Company recognizes revenue based on
Afrezza patient prescriptions dispensed, a sell-through model, as
estimated by syndicated data provided by a third party. The Company
also analyzes additional data points to ensure that such
third-party data is reasonable, including data related to inventory
movements within the channel and ongoing prescription demand.</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">
Upon adoption of the new guidance, the Company expects that it will
move from its current sell-through model to a sell-to model for
revenue related to commercial sales of Afrezza and will record
revenue at the time title and risk of loss passes to its
distributors (generally at shipment or delivery to the
distributors) along with an estimate of potential returns as
variable consideration. The Company also anticipates that its
ability to estimate potential returns will improve with an
additional 9 months of sales history that it will have obtained by
January 1, 2018.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Additionally, the Company has historically entered into
collaborative agreements with third-parties under which periodic
payments have been received. Revenue recognition for certain
payments received have been deferred until the price is fixed and
determinable. Further, revenue for certain payments to be received
in the future has been prohibited from recognition until received.
The Company expects that some of these amounts will be considered
variable consideration and may be able to be recognized earlier
under the new guidance.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company has begun its evaluation of the impact of adoption and
plans to continue its evaluation throughout 2017. The financial
impact upon the adoption will be dependent upon a number of factors
including; the amount of revenue that has been deferred under the
sell-through model for Afrezza, the amount of the revenue deferred
under collaborative arrangements and the Company’s estimate
of variable consideration at the date of adoption. At this time,
the Company has not completed its evaluation of the inputs,
assumptions and methodologies that will be used recognize revenue
related to variable consideration under the new guidance.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In January 2016, the FASB issued ASU No. 2016-01, <i>Financial
Instruments</i> — <i>Overall (Subtopic 825-10)</i>:
<i>Recognition and Measurement of Financial Assets and Financial
Liabilities</i>. The update is intended to improve the recognition
and measurement of financial instruments. The update is effective
for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. The Company is
evaluating the impact the adoption of ASU No. 2016-01 will
have on its condensed consolidated financial statements.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In February 2016, the FASB issued ASU No. 2016-02, <i>Leases
(Topic 84</i>2). The new standard requires that all lessees
recognize the assets and liabilities that arise from operating
leases on the balance sheet and disclose qualitative and
quantitative information about its leasing arrangements. A lessee
should recognize in the statement of financial position a liability
to make lease payments (the lease liability) and a right-of-use
asset representing its right to use the underlying asset for the
lease term. For leases with a term of 12 months or less, a lessee
is permitted to make an accounting policy election by class of
underlying asset not to recognize lease assets and lease
liabilities. In transition, lessees and lessors are required to
recognize and measure leases at the beginning of the earliest
period presented using a modified retrospective approach. The new
standard will be effective on January 1, 2019. The Company is
evaluating the impact the adoption of ASU No. 2016-02 will
have on its condensed consolidated financial statements.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In August 2016, the FASB issued ASU No. 2016-15, <i>Statement
of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments</i>. The new standard seeks to reduce diversity
in practice related to the classification of certain transactions
in the statement of cash flows. For public business entities, the
amendments in this standard are effective for annual periods
beginning after December 15, 2017, and interim periods within
those annual periods. The Company is evaluating the impact the
adoption will have on its condensed consolidated financial
statements.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In November 2016, the FASB issued ASU No. 2016-18,
<i>Statement of Cash Flows (Topic 230): Restricted Cash.</i> This
ASU requires that the reconciliation of the beginning-of-period and
end-of-period amounts shown in the statement of cash flows include
cash and restricted cash equivalents. ASU 2016-08 is effective for
fiscal years beginning after December 15, 2018, including
interim periods within those periods, using a retrospective
transition method to each period presented. The Company has
evaluated the effect that this guidance will have on its condensed
consolidated financial statements and related disclosures and has
determined it will not result in a material impact.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<i>Recognized Loss on Purchase Commitments</i> — The Company
assesses whether losses on long term purchase commitments should be
accrued. Losses that are expected to arise from firm,
non-cancellable, commitments for the future purchases are
recognized unless recoverable. When making the assessment, the
Company also considers whether it is able to renegotiate with its
vendors. The recognized loss on purchase commitments is reduced as
inventory items are purchased. No new contracts were identified in
2017 or 2016 that required a new loss on purchase commitment
accrual.</p>
</div>
714000
1.00
63000
163000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 8%; MARGIN-TOP: 6pt">
<i>Wholesaler Distribution Fees –</i> The Company pays
distribution fees to certain wholesale distributors based on
contractually determined rates. The Company accrues the
distribution fees on shipment to the respective wholesale
distributors and recognizes the distribution fees as a reduction of
revenue in the same period the related revenue is recognized.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
<i>Gross-to-net Adjustments –</i> Estimated gross-to-net
adjustments for Afrezza include wholesaler distribution fees,
prompt pay discounts, estimated rebates and chargebacks and patient
discount and co-pay assistance programs, and are based on estimated
amounts owed or to be claimed on the related sales. These estimates
take into consideration the terms of the Company’s agreements
with its customers and the levels of inventory within the
distribution and retail channels that may result in future rebates
or discounts taken. In certain cases, such as patient support
programs, the Company recognizes the cost of patient discounts as a
reduction of revenue based on estimated utilization. If actual
future results vary, the Company may need to adjust these
estimates, which could have an effect on product revenue in the
period of adjustment. The Company records product sales deductions
in the condensed consolidated statements of operations at the time
product revenue is recognized. Gross-to-net adjustments were
approximately $0.4 million, which represents 27% of gross revenue
from product sales for the three months ended March 31, 2017.
There were no product sales and accordingly, no gross-to-net
adjustments during the three months ended March 31, 2016.
Gross-to-net items that are unpaid at the end of each period are
presented in accrued expense and other current liabilities.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 8%; MARGIN-TOP: 0pt">
<i>Patient Discount and Co-Pay Assistance Programs –</i> The
Company offers discount card programs to patients for Afrezza in
which patients receive discounts on their prescriptions or a
reduction in their co-pay amounts that are reimbursed by the
Company. The Company estimates the total amount that will be
redeemed based on levels of inventory in the distribution and
retail channels and recognizes the discount as a reduction of gross
revenue in the same period the related revenue is recognized.</p>
</div>
-534000
0
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<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 4%; MARGIN-TOP: 6pt">
<i>Revenue Recognition — Revenue — Bulk Insulin
Sales</i> — Revenue from bulk insulin sales are recognized
after delivery and customer acceptance of the bulk insulin. When
the accounting requirements for revenue recognition of bulk insulin
sales are not met, the Company defers recognition of revenue until
such time that all criteria are met. The ending balance in deferred
revenue related to bulk insulin sales was approximately $1.8
million as of December 31, 2016. There was no deferred revenue
related to bulk insulin sales as of March 31, 2017.</p>
</div>
0
On September 14, 2016, the Company received notice from the Listing Qualifications Department of the NASDAQ Stock Market indicating that in the previous 30 consecutive business days, the bid price for the common stock closed below the minimum of $1.00 per share required for continued inclusion on the NASDAQ Global Market.
0.08
0.07
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P6M
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25000000
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2020-01-05
62000
2017-04
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.
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2016-07-01
447000
9000
2019-12-09
On or after the date that is one year following the original issue date of the 2018 notes, the Company will have the right to redeem for cash all or part of the 2018 notes if the last reported sale price of its common stock exceeds 130% of the conversion price then in effect for 20 or more trading days during the 30 consecutive trading day period ending on the trading day immediately prior to the date of the redemption notice. The redemption price will equal the sum of 100% of the principal amount of the 2018 notes to be redeemed, plus accrued and unpaid interest.
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P39Y
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P10Y
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