What changed in this filing

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Item 1. Financial Statements

2021-05-12 compared with 2020-11-04 · 369 added, 496 removed, 506 unchanged (63% of the section changed)

FINANCIAL STATEMENTS

MANNKIND CORPORATION AND SUBSIDIARY

MANNKIND CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

September 30, 2020

(In thousands, except share and per share data)

March 31, 2021

December 31, 2020

7 unchanged sentences

Property and equipment, net

Long-term investments

LIABILITIES AND STOCKHOLDERS' DEFICIT

2 unchanged sentences

Accrued expenses and other current liabilities

Short-term notes payable

PPP loan — current

Deferred revenue — current

1 unchanged sentence

Total current liabilities

Promissory notes

Accrued interest — promissory notes

Long-term Midcap credit facility

Senior convertible notes

Paycheck Protection Program loan — long term

MidCap credit facility

Mann Group promissory notes

Accrued interest — Mann Group promissory notes

PPP loan — long term

2024 convertible notes

Recognized loss on purchase commitments — long term

6 unchanged sentences

Undesignated preferred stock, $ 0.01 par value — 10,000,000 shares authorized;

no shares issued or outstanding as of September 30, 2020 and December 31, 2019

Common stock, $ 0.01 par value - 400,000,000 and 280,000,000 shares

no shares issued or outstanding as of March 31, 2021 and December 31, 2020

Common stock, $ 0.01 par value - 400,000,000 shares

authorized, 249,072,677 and 242,117,089 shares issued and outstanding

at September 30, 2020 and December 31, 2019, respectively

at March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

2 unchanged sentences

See notes to condensed consolidated financial statements.

MANNKIND CORPORATION AND SUBSIDIARY

MANNKIND CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

1 unchanged sentence

Three Months Ended

September 30,

Nine Months Ended

September 30,

Net revenue — commercial product sales

6 unchanged sentences

Asset impairment

Loss (gain) on foreign currency translation

Gain on foreign currency translation

Total expenses

3 unchanged sentences

Interest expense on notes

Interest expense on promissory notes

Gain on extinguishment of debt

Other income (expense)

Interest expense on Mann Group promissory notes

Other expense

Total other expense

Loss before provision for income taxes

Benefit for income taxes

Provision for income taxes

Net loss per share - basic and diluted

1 unchanged sentence

See notes to condensed consolidated financial statements.

MANNKIND CORPORATION AND SUBSIDIARY

MANNKIND CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

1 unchanged sentence

Three Months Ended

September 30,

Nine Months Ended

September 30,

Other comprehensive loss:

2 unchanged sentences

See notes to condensed consolidated financial statements.

MANNKIND CORPORATION AND SUBSIDIARY

MANNKIND CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

2 unchanged sentences

BALANCE, JANUARY 1, 2020

Net issuance of common stock associated

with stock options and restricted stock

Issuance of common stock under Employee

1 unchanged sentence

Stock-based compensation expense

Issuance of common stock pursuant to

conversion of Senior Convertible Notes

Restricted stock unit award

BALANCE, MARCH 31, 2019

Net issuance of common stock associated

with stock options and restricted stock

Stock-based compensation expense

Issuance of common stock in at the market

Issuance costs associated with at the

market offering

BALANCE, JUNE 30, 2019

Net issuance of common stock associated

with stock options and restricted stock

Issuance of common stock under Employee

Stock Purchase Plan

Stock-based compensation expense

Issuance of common stock pursuant to

conversion of Senior Convertible Notes

Issuance of common stock pursuant to

conversion of Facility Financing

Issuance of common stock pursuant to

conversion of Promissory Notes

Issuance of common stock in at-the-market

Issuance of warrants pursuant to Credit

Cumulative translation loss

BALANCE, SEPTEMBER 30, 2019

Comprehensive

BALANCE, JANUARY 1, 2020

Issuance of common stock under Employee

Stock Purchase Plan

Stock-based compensation expense

Issuance of common stock associated

6 unchanged sentences

BALANCE, MARCH 31, 2020

Stock-based compensation expense

Issuance of common stock from the

exercise of warrants

Issuance of common stock pursuant to

conversion of the June 2020 note

Net issuance of common stock associated

with stock options and restricted stock

Issuance of common stock in at the market

Issuance cost associated with at the market

Issuance of common stock from market

price stock purchase

Adjustment of common stock in association

with restricted stock units

BALANCE, JUNE 30, 2020

Stock-based compensation expense

Issuance of common stock associated

with debt interest payment

Comprehensive

BALANCE, JANUARY 1, 2021

Net issuance of common stock associated

with stock options and restricted stock

Issuance of common stock in at the market

Issuance cost associated with at the market

Issuance of common stock under Employee

Stock Purchase Plan

BALANCE, SEPTEMBER 30, 2020

Stock-based compensation expense

Issuance of common stock pursuant to

conversion of the Mann Group

convertible note

Issuance of common stock pursuant to

conversion of the Mann Group

convertible note interest

Issuance of common stock pursuant to

conversion of the 2024 convertible notes

Issuance of common stock pursuant to

payoff of the 2024 convertible note

Issuance of at-the-market placement

Issuance costs associated with at-the-

market placement

BALANCE, MARCH 31, 2021

See notes to condensed consolidated financial statements.

MANNKIND CORPORATION AND SUBSIDIARY

MANNKIND CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net loss to net cash used in operating activities:

Interest expense on promissory notes

Interest expense on Mann Group promissory notes

Stock-based compensation expense

3 unchanged sentences

Write-off of inventory

Loss (gain) on foreign currency translation

Payment-in-kind interest on promissory notes

Gain on extinguishment of debt

Gain on foreign currency translation

Changes in operating assets and liabilities:

6 unchanged sentences

Recognized loss on purchase commitments

Accrued interest on promissory notes

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sale of treasury bills

Purchase of debt securities

Purchase of property and equipment

Purchase of treasury bills

Purchase of limited liability company ownership interest

Net cash provided by (used in) investing activities

Proceeds from sale of treasury bills

Net cash (used in) provided by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from the Senior convertible notes

Issuance costs associated with Senior convertible notes

Proceeds from at-the-market offering

Issuance costs associated with at-the-market offering

Issuance of common stock from the exercise of warrants

Proceeds from Paycheck Protection Program loan

Payment of employment taxes related to vested restricted stock units

and exercise of stock options

Proceeds from market price stock purchase plan

Proceeds from promissory notes

Proceeds from MidCap Credit Facility

Proceeds from senior convertible notes

Principal payments on promissory notes

Principal payments on senior convertible notes

Principal payments on facility financing obligation

Issuance cost associated with MidCap Credit Facility

Issuance cost associated with promissory notes

Net cash provided by (used in) financing activities

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

Net cash provided by financing activities

NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD

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NON-CASH INVESTING AND FINANCING ACTIVITIES:

Payment of principal on senior convertible notes through common stock issuance

Receivable from at the market offering

Payment on Mann Group convertible note through issuance of common stock

Payment of 2024 convertible notes through common stock issuance

Reclassification of the PPP Loan from current to long-term

Payment of Mann Group convertible note interest through issuance of common stock

Common stock issuance to settle employee stock purchase plan liability

Payment of interest on senior convertible notes through common stock issuance

Payment on promissory notes through issuance of common stock

Addition of right-of-use assets upon adoption of new lease guidance

Payment of facility obligation through common stock issuance

Payment of interest on 2024 convertible notes through common stock issuance

Non-cash construction in progress and property and equipment

See notes to condensed consolidated financial statements.

MANNKIND CORPORATION AND SUBSIDIAR Y

MANNKIND CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Description of Business and Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of MannKind Corporation and its subsidiary (“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”).

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.

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In the opinion of management, all adjustments, consisting only of normal, recurring adjustments, considered necessary for a fair presentation of the results of these interim periods have been included.

The results of operations for the three and nine months ended September 30, 2020 may not be indicative of the results that may be expected for the full year.

The results of operations for the three months ended March 31, 2021 may not be indicative of the results that may be expected for the full year.

Financial Statement Estimates — 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.

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The more significant estimates include revenue recognition and gross-to-net adjustments, assessing long-lived assets for impairment, clinical trial expenses, inventory costing and recoverability, recognized loss on purchase commitment, milestone rights liability, stock-based compensation and the determination of the provision for income taxes and corresponding deferred tax assets and liabilities, and the valuation allowance recorded against net deferred tax assets.

Business — The Company is a biopharmaceutical company focused on the development and commercialization of inhaled therapeutic products for diabetes and orphan lung diseases, such as pulmonary arterial hypertension.

The Company’s only approved product, Afrezza (insulin human) Inhalation Powder, is an ultra rapid-acting inhaled insulin that was approved by the U.S.

Food and Drug Administration (the “FDA”) in June 2014 to improve glycemic control in adults with diabetes.

Afrezza became available by prescription in United States retail pharmacies in February 2015.

Currently, the Company promotes Afrezza to endocrinologists and certain high-prescribing primary care physicians in the United States through its specialty sales force.

The Company’s partner in Brazil, Biomm S.A.

(“Biomm”), commenced commercialization of Afrezza in January 2020.

The Company’s partners in India and Australia are preparing for regulatory submissions and have not yet commenced commercialization in their respective territories.

Basis of Presentation — The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

Business — MannKind is a biopharmaceutical company focused on the development and commercialization of inhaled therapeutic products for patients with endocrine and orphan lung diseases.

The Company’s lead product is Afrezza (insulin human) Inhalation Powder, an ultra rapid-acting inhaled insulin indicated to improve glycemic control in adults with diabetes, which was approved by the U.S.

Food and Drug Administration (“FDA”) in June 2014.

Since September 2018, the Company has been collaborating with United Therapeutics to develop an inhaled formulation of treprostinil, known as Tyvaso DPI.

In April 2021, United Therapeutics submitted a new drug application (“NDA”) to the FDA seeking approval of Tyvaso DPI.

Basis of Presentation — The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP.

The Company is not currently profitable and has rarely generated positive net cash flow from operations.

In addition, the Company expects to continue to incur significant expenditures for the foreseeable future in support of its manufacturing operations, sales and marketing costs for Afrezza, and development costs for product candidates in the Company’s pipeline.

As of September 30, 2020, the Company had an accumulated deficit of $ 3.0 billion and $ 122.6 million of total principal amount of outstanding borrowings, with limited capital resources of $ 52.4 million in cash and cash equivalents.

These financial conditions raise substantial doubt about the Company’s ability to continue as a going concern.

In August 2019, the Company and its wholly owned subsidiary, MannKind LLC, entered into a credit and security agreement with MidCap Financial Trust (as amended, the “MidCap Credit Facility”) to restructure its existing debts and to provide additional operating capital (the “recapitalization”) (Refer to Note 6 – Borrowings for further details).

The MidCap Credit Facility provides a secured term loan facility with an aggregate principal amount of up to $ 65.0 million, of which $ 40.0 million was outstanding as of September 30, 2020 and December 31, 2019.

The availability of the remaining $ 25.0 million will be available to the Company until June 30, 2021, subject to the satisfaction of certain milestone conditions associated with Afrezza net revenue and certain milestone conditions related to the Company’s collaboration with United Therapeutics (see Note 7 – Collaboration and Licensing Arrangements for more information on the collaboration agreement with United Therapeutics).

Principal payments on the MidCap Credit Facility begin in September 2021.

In addition, the MidCap Credit Facility contains certain covenants, one of which includes a requirement to maintain a minimum of $ 15.0 million of unrestricted cash and cash equivalents at all times.

This amount will increase to $ 20.0 million if the Company draws additional funding under the MidCap Credit Facility.

In August 2020, the Company entered into an amendment to the MidCap Credit Facility, pursuant to which the parties agreed that no breach of the minimum Afrezza net revenue covenant for any trailing twelve-month reporting period between July 31, 2020 and November 30, 2020 will be deemed to occur if the Company delivers satisfactory evidence that it had unrestricted cash of at least $ 40.0 million.

Without this amendment, the Company would have been in violation of the minimum Afrezza net revenue covenant as of September 30, 2020.

After the November 30, 2020 reporting period, the amendment will expire and a breach of the minimum Afrezza net revenue covenant is probable.

The Company intends to amend the MidCap Credit Facility to address this probable covenant violation;

however, such amendment, if completed, would occur after the date of this report.

Accordingly, the $ 40.0 million outstanding principal under the MidCap Credit Facility was classified as current debt in the September 30, 2020 balance sheet, even though the 36 equal monthly principal payments remain payable over the period of September 1, 2021 through August 1, 2024 .

This debt will continue to be classified as current unless the MidCap Credit Facility is further amended or the debt is repaid.

The Company’s capital resources may not be sufficient to continue to meet its current and anticipated obligations over the next twelve months if the Company cannot increase its operating cash inflows by growing revenue or obtaining access to the remaining $25.0 million in borrowings that may become available under its MidCap Credit Facility.

In the event these capital resources are not sufficient, the Company may need to raise additional capital by selling equity or debt securities, entering into strategic business collaboration agreements with other companies, seeking other funding facilities, or licensing arrangements, selling assets or by other means.

However, the Company cannot provide assurances that additional capital will be available on acceptable terms or at all.

If the Company is unable to meet its current and anticipated obligations over the next twelve months through its existing capital resources, or obtain new sources of capital when needed, the Company may have to reduce the scope of its commercial operations, reduce or eliminate one or more of its development programs, or make significant changes to its operating plan.

These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Principles of Consolidation — The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.

Intercompany balances and transactions have been eliminated.

As of March 31, 2021, the Company had capital resources of $ 247.8 million in cash and cash equivalents, $ 29.0 million in short-term investments, $ 1.5 million in long-term investments, an accumulated deficit of $ 3.1 billion and total principal amount of outstanding borrowings of $ 338.4 million.

In August 2019, the Company and its wholly owned subsidiary, MannKind LLC, entered into a credit and security agreement with MidCap Financial Trust (as amended, the “MidCap credit facility”).

The MidCap Credit Facility currently provides a secured term loan facility with a potential aggregate principal amount of up to $ 110.0 million, of which $ 50.0 million was outstanding as of March 31, 2021 and December 31, 2020.

Subsequent to March 31, 2021, $ 10.0 million of the outstanding principal amount was repaid.

See Note 6 – Borrowings .

In March 2021, the Company issued $ 230.0 million of 2.50 % convertible senior notes due 2026 (the “Senior convertible notes”) to provide additional operating capital and pay down higher cost debt.

The cash received from this debt issuance has resolved the Company’s significant risks and uncertainties regarding sources of liquidity, which previously raised substantial doubt about the Company’s ability to continue as a going concern.

The Company believes its resources will be sufficient to fund its operations for the next twelve months from the date of issuance of these condensed consolidated financial statements.

Certain prior year amounts have been reclassified for consistency with the current year presentation.

These reclassifications had no effect on the reported condensed consolidated balance sheets or statements of operations.

Changes were made to the condensed consolidated statements of stockholder’s deficit as of September 30, 2019, June 30, 2019 and March 31, 2019 to combine the exercise of stock options and the issuance of common stock from the release of restricted stock units (“RSUs”).

Changes were also made to Note 10 — Stock-Based Compensation Expense to separately disclose the stock-based compensation expense related to the employee stock purchase plan from the expense for RSUs and options for the three and nine months ended September 30, 2019.

An adjustment has been made to the condensed consolidated statements of cash flows for the three months ended March 31, 2020 to combine payment of employment taxes related to vested restricted stock units and exercise of stock options in the cash flows from financing activities.

These changes in classification do not affect previously reported cash flows from operating or investing activities.

Principles of Consolidation — The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

Intercompany balances and transactions have been eliminated.

Segment Information — Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance.

To date, the Company has viewed its operations and manages its business as one segment operating in the United States of America.

Revenue Recognition — The Company adopted Accounting Standards Codification (“ASC”) Topic 606 - Revenue from Contracts with Customers (“the new revenue guidance”), on January 1, 2018.

Under Topic 606, the Company recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company expects to be entitled in exchange for those goods or services.

To determine revenue recognition for arrangements that are within the scope of Topic 606, the Company performs the following five steps:

Revenue Recognition — The Company recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company expects to be entitled in exchange for those goods or services.

To determine revenue recognition for arrangements that are within the scope of Accounting Standards Codification (“ ASC”) Topic 606, Revenue from Contracts with Customers , the Company performs the following five steps:

(i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

7 unchanged sentences

Specialty pharmacies sell directly to patients.

In addition to distribution agreements with Customers, the Company enters into arrangements with payors that provide for government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products.

In addition to distribution agreements with Customers, the Company enters into arrangements with payers that provide for government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products.

The Company recognizes revenue on product sales when the Customer obtains control of the Company's product, which occurs at delivery for wholesale distributors and generally at delivery for specialty pharmacies.

Product revenues are recorded net of applicable reserves for variable consideration, including discounts and allowances.

Product revenues are recorded net of applicable reserves, including discounts, allowances, rebates, returns and other incentives.

See Reserves for Variable Consideration below.

Free Goods Program – From time to time, the Company offers programs to potential new patients that allow them to obtain free goods (prescription fills) from a pharmacy.

2 unchanged sentences

Reserves for Variable Consideration — Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established.

Components of variable consideration include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, payor rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts between the Company and its Customers, payors, and other indirect customers relating to the Company’s sale of its products.

Components of variable consideration include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, payer rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts between the Company and its Customers, payers, and other indirect customers relating to the Company’s sale of its products.

These reserves, as further detailed below, are based on the amounts earned, or to be claimed on the related sales, and result in a reduction of accounts receivable or establishment of a current liability.

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The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period.

The Company’s analysis also contemplates application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates detailed below as of September 30, 2020 and, therefore, the transaction price was not reduced further during the three and nine months ended September 30, 2020.

The Company’s analysis also contemplates application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates detailed below as of March 31, 2021 and, therefore, the transaction price was not reduced further during the three months ended March 31, 2021.

Actual amounts of consideration ultimately received may differ from the Company’s estimates.

If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net revenue — commercial product sales and earnings in the period such variances become known.

Significant judgment is required in estimating gross-to-net adjustments considering legal interpretations of applicable laws and regulations, historical experience, payer channel mix, current contract prices under applicable programs, unbilled claims, processing time lags and inventory levels in the distribution channel.

Trade Discounts and Allowances — The Company generally provides Customers with discounts which include incentives, such as prompt pay discounts, that are explicitly stated in the Company’s contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized.

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Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider by Customers, and the Company generally issues credits for such amounts within a few weeks of the Customer’s notification to the Company of the resale.

Reserves for chargebacks consist of credits that the Company expects to issue

for units that remain in the distribution channel inventories at each reporting period-end that the Company expects will be sold to qualified healthcare providers, and chargebacks that Customers have claimed, but for which the Company has not yet issued a credit.

Reserves for chargebacks consist of credits that the Company expects to issue for units that remain in the distribution channel inventories at each reporting period-end that the Company expects will be sold to qualified healthcare providers, and chargebacks that Customers have claimed, but for which the Company has not yet issued a credit.

Government Rebates — The Company is subject to discount obligations under Medicare and state Medicaid programs.

These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability that is included in accrued expenses and other current liabilities.

Estimates around Medicaid have historically required significant judgement due to timing lags in receiving invoices for claims from states.

Estimates around Medicaid have historically required significant judgment due to timing lags in receiving invoices for claims from states.

For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap for whom the Company will owe an additional liability under the Medicare Part D program.

The Company’s liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel inventories at the end of each reporting period.

Payor Rebates — The Company contracts with certain private payor organizations, primarily insurance companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of its products.

The Company’s estimates include consideration of historical claims experience, payer channel mix, current contract prices, unbilled claims, claim submission time lags and inventory in the distribution channel.

Payer Rebates — The Company contracts with certain private payer organizations, primarily insurance companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of its products.

The Company estimates these rebates, including estimates for product that has been recognized as revenue, but which remains in the distribution channel, and records such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses and other current liabilities.

Other Incentives — Other incentives which the Company offers include voluntary patient support programs, such as the Company's co-pay assistance program, which are intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payors.

The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with the product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period.

The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability that is included in accrued expenses and other current liabilities.

Revenue Recognition — Revenue — Collaborations and Services — The Company enters into licensing or research agreements under which the Company licenses certain rights to its product candidates to third parties or conducting research services to third parties.

Revenue Recognition — Revenue — Collaborations and Services — The Company enters into licensing, research or other agreements under which the Company licenses certain rights to its product candidates to third parties, conducts research or provides other services to third parties.

The terms of these arrangements may include , but are not limited to payment to the Company of one or more of the following:

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Amounts that the Company expects will not be recognized within the next 12 months are classified as long-term deferred revenue.

For further information see Note 7 – Collaboration and Licensing Arrangements .

For further information see Note 7 – Collaboration, Licensing and Other Arrangements .

The Company recognizes upfront license payments as revenue upon delivery of the license only if the license is determined to be a separate unit of accounting from the other undelivered performance obligations.

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If these milestones are not considered probable at the inception of the collaboration, the milestones will typically be recognized in one of two ways depending on the timing of when the milestone is achieved.

If the milestone is improbable at inception and subsequently deemed probable of achievement, such will be added to the transaction price, resulting in a

cumulative adjustment to revenue.

If the milestone is improbable at inception and subsequently deemed probable of achievement, such will be added to the transaction price, resulting in a cumulative adjustment to revenue.

If the milestone is achieved after the performance period has completed and all performance obligations have been delivered, the Company will recognize the milestone payment as revenue in its entirety in the period the milestone was achieved.

The Company’s collaborative agreements, for accounting purposes, represent contracts with customers and therefore are not subject to accounting literature on collaborative agreements.

The Company grants licenses to its intellectual property, supplies raw materials or finished goods and provides research and development services, all of which are outputs of the Company’s ongoing activities, in exchange for consideration.

The Company grants licenses to its intellectual property, supplies raw materials or finished goods, provides research and development services and offers sales support for the co-promotion of products, all of which are outputs of the Company’s ongoing activities, in exchange for consideration.

The Company does not develop assets jointly with collaboration partners, and does not share in significant risks of their development or commercialization activities.

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Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration, other revenue, and earnings in the period of adjustment.

Paycheck Protection Program Loan — On April 10, 2020, the Company received the proceeds from a loan in the amount of approximately $ 4.9 million (the “PPP Loan”) from JPMorgan Chase Bank, N.A., as lender, pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The Company accounted for the PPP Loan as a financial liability in accordance with Accounting Standards Codification (“ASC”) Topic 470 Debt .

Accordingly, the PPP Loan was recognized as current and long-term debt in the Company’s consolidated balance sheets and is included as short-term notes payable and PPP Loan — long term.

PPP loan — On April 10, 2020, the Company received the proceeds from a loan in the amount of approximately $ 4.9 million (the “PPP loan”) from JPMorgan Chase Bank, N.A., as lender, pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The Company accounted for the PPP loan as a financial liability in accordance with ASC Topic 470, Debt .

Accordingly, the PPP loan was recognized as current and long-term debt in the Company’s consolidated balance sheets and is included as PPP loan — current and PPP loan — long term.

In addition, a di minimis amount of accrued interest is included in accrued expenses and other current liabilities.

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Cost of goods sold also includes a significant component of current period manufacturing costs in excess of costs capitalized into inventory (excess capacity costs).

These costs, in addition to the impact of the annual revaluation of inventory to standard costs, and write-offs of inventory are recorded as expenses in the period in which they are incurred, rather than as a portion of inventory costs.

The cost of goods sold excludes the cost of insulin purchased under our Insulin Supply Agreement (see Note 11 – Commitments and Contingencies ).

These costs, in addition to the impact of the revaluation of inventory to standard costs, and write-offs of inventory are recorded as expenses in the period in which they are incurred, rather than as a portion of inventory costs.

The cost of goods sold excludes the cost of insulin purchased under our Insulin Supply Agreement (the “Insulin Supply Agreement”) with Amphastar Pharmaceuticals, Inc.

(“Amphastar”).

All insulin inventory on hand was written off and the full purchase commitment contract to purchase future insulin was accrued as a recognized loss on purchase commitments as of the end of 2015.

Cash and Cash Equivalents and Restricted Cash —The Company considers all highly liquid investments with original or remaining maturities of 90 days or less at the time of purchase, that are readily convertible into cash to be cash equivalents.

As of September 30, 2020 and December 31, 2019, cash equivalents were comprised of money market accounts with maturities less than 90 days from the date of purchase.

As of March 31, 2021 and December 31, 2020, cash equivalents were comprised of money market accounts with maturities less than 90 days from the date of purchase.

The Company records restricted cash when cash and cash equivalents are restricted as to withdrawal or usage.

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Restricted cash amounts that will not be available for use in the Company’s operations within 12 months of the reporting date are presented as restricted cash in long-term assets.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the consolidated balance sheets that sum to amounts reported on the consolidated statement of cash flows (in thousands):

September 30, 2020

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the condensed consolidated balance sheets that sum to amounts reported on the condensed consolidated statement of cash flows (in thousands):

March 31, 2021

December 31, 2020

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Total cash, cash equivalents, and restricted cash

Short-term Investments —The Company’s short-term investments consist of U.S.

Treasury securities stated at amortized cost that the Company intends to hold until maturity.

Those with maturities less than 12 months are included in short-term investments and any investments with maturities in excess of twelve months are included in long-term investments in our condensed consolidated balance sheets.

As of September 30, 2020, the Company did no t hold any short-term or long-term investments nor did it record any material gains or losses on investment securities during the three and nine months ended September 30, 2020.

Concentration of Credit Risk — Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and short-term investments.

Investments —The Company’s investments generally consist of commercial paper, corporate notes or bonds and U.S.

Treasury securities.

For the three months ended March 31, 2021, the Company held short-term and long-term investments of debt securities, including commercial paper and bonds.

The Company intends to hold its investments until maturity and are therefore stated at amortized cost.

Those investments with maturities less than 12 months are included in short-term investments and investments with maturities in excess of twelve months are included in long-term investments in our condensed consolidated balance sheets.

The accretion or amortization of the Company’s investments is recognized as interest income or expense in the condensed consolidated statements of operations and was de minimis for the three months ended March 31, 2021.

There was no such accretion or amortization for the three months ended March 31, 2020.

No allowance for credit losses on held-to-maturity securities was required as of March 31, 2021.

Concentration of Credit Risk — Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and investments.

Cash and cash equivalents are held in high credit quality institutions.

Cash equivalents consist of interest-bearing money market accounts and U.S.

Treasury securities, which are regularly monitored by management.

Cash equivalents consist of interest-bearing money market accounts.

Investments generally consist of commercial paper, corporate notes or bonds and U.S.

Treasury securities.

The cash equivalents and investments are regularly monitored by management.

Accounts Receivable and Allowance for Doubtful Accounts — Accounts receivable are recorded at the invoiced amount and are not interest bearing.

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Accounts receivable are also presented net of an allowance for product returns and trade discounts and allowances because the Company’s customers have the right of setoff for these amounts against the related accounts receivable.

Pre-Launch Inventory — An improvement to the manufacturing process for the Company’s primary excipient FDKP was demonstrated to be viable and management expects to realize an economic benefit in the future as a result of such process improvement.

Pre-Launch Inventory — An improvement to the manufacturing process for the Company’s primary excipient, fumaryl diketopiperazine (“FDKP”) was demonstrated to be viable and management expects to realize an economic benefit in the future as a result of such process improvement.

Accordingly, the Company is required to assess whether to capitalize inventory costs related to such excipient prior to regulatory approval of the new supplier and the improved manufacturing process.

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Any write-downs are treated as permanent reductions in the carrying amount of the asset and recognized as an operating loss.

In August 2019, the Company recorded a $ 1.5 million commitment asset and a $ 0.4 million other asset for deferred debt issuance costs related to the future funding commitments of the MidCap Credit Facility.

In August 2019, the Company recorded a $ 1.5 million commitment asset related to the future funding commitments of the MidCap credit facility.

A quarterly assessment was performed to determine if the Company was on target to achieve certain required milestone conditions in order for the Company to access further borrowings under the MidCap credit facility.

The Company determined that such milestone conditions related to Afrezza trailing net revenue were unlikely to be achieved.

As a result, an asset impairment of $ 1.9 million was recognized during the second quarter of 2020 and is reflected in the Company’s condensed consolidated statement of operations .

See Note 6 – Borrowings for further information on the MidCap Credit Facility.

As a result, an asset impairment of $ 1.5

million was recognized during the three months ended March 31, 2020 and is reflected in the Company’s condensed consolidated statement of operations .

S ee Note 6 – Borrowings for further information on the MidCap credit facility .

Recognized Loss on Purchase Commitments — The Company assesses whether losses on long-term purchase commitments should be accrued.

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If, subsequent to an accrual, a purchase commitment is successfully renegotiated, the gain is recognized in the Company’s condensed consolidated statement of operations.

The liability balance of the recognized loss on insulin purchase commitments was $ 94.8 million and $ 92.0 million as of September 30, 2020 and December 31, 2019, respectively.

No new contracts were identified in the first nine months of 2020 that required a new loss on purchase commitment accrual.

The liability balance of the recognized loss on insulin purchase commitments was $ 89.1 million and $ 95.3 million as of March 31, 2021 and December 31, 2020, respectively.

No new contracts were identified in 2020 or in the first quarter of 2021 that required a new loss on purchase commitment accrual.

Milestone Rights Liability — On July 1, 2013, in conjunction with the execution of a financing facility with Deerfield Private Design Fund II L.P.

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, the Company issued to Deerfield Private Design Fund II, L.P.

and Horizon Santé FLML SÁRL (the “Milestone Purchasers”) certain rights to receive payments of up to $ 90.0 million, of which $ 70.0 million remains payable as of September 30, 2020 upon the occurrence of specified strategic and sales milestones, including the achievement of specified net sales figures (the “Milestone Rights”).

and Horizon Santé FLML SÁRL (the “Milestone Purchasers”) certain rights to receive payments of up to $ 90.0 million, of which $ 70.0 million remains payable as of March 31, 2021 upon the occurrence of specified strategic and sales milestones, including the achievement of specified net sales figures (the “Milestone Rights”).

The Company analyzed the Milestone Rights and determined that they did not meet the definition of a freestanding derivative.

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As a result, each milestone payment would be effectively allocated between a reduction of the recorded Milestone Rights liability and an expense representing a return on a portion of the Milestone Rights liability paid to the investor for the achievement of the related milestone event (see Note 6 – Borrowings ).

As of September 30, 2020 and December 31, 2019, the remaining liability balance was $ 7.3 million.

Fair Value of Financial Instruments — 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.

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A valuation allowance is recorded to reduce net deferred income tax assets to amounts that are more likely than not to be realized.

Income tax positions are considered for uncertainty.

The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position.

Therefore, no liabilities for uncertain income tax positions have been recorded.

If a tax position does not meet the minimum statutory threshold to avoid payment of penalties, the Company recognizes an expense for the amount of the penalty in the period the tax position is claimed in the tax return of the Company.

The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense, if any.

For uncertain tax positions, the Company determines whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements.

For those tax positions where it is “not more likely than not” that a tax benefit will be sustained, no tax benefit is recognized.

Penalties, if probable and reasonably estimable, are recognized as a component of income tax expense.

The Company has reduced its deferred tax assets for uncertain tax positions but has not recorded liabilities for income tax expense, penalties, or interest.

Contingencies — The Company records a loss contingency for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

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As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation and may revise its estimates.

Stock-Based Compensation — Share-based payments to employees, including grants of stock options, RSUs, performance-based non-qualified stock option awards (“PNQ”), restricted stock units with market conditions (“Market RSUs”) 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.

Stock-Based Compensation — Share-based payments to employees, including grants of stock options, RSUs, performance-based non-qualified stock options awards (“PNQs”), restricted stock units with market conditions (“Market RSUs”) 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.

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.

RSUs 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.

Clinical Trial Expenses — Clinical trial expenses, which are primarily reflected in research and development expenses in the accompanying condensed consolidated statements of operations, result from obligations under contracts with vendors, consultants and clinical site agreements in connection with conducting clinical trials.

Net Income (Loss) Per Share of Common Stock — Basic net income or loss per share excludes dilution for potentially dilutive securities and is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period.

Diluted net income or 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.

The computation of basic and diluted net loss per share for the three and nine months ended September 30, 2020 and 2019 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive while the Company is in a net loss position:

Nine Months Ended September 30,

RSUs and Market RSUs (1)

Employee stock purchase plan

Common stock options and PNQs

2024 convertible notes

Mann Group convertible note

Common stock warrants

Warrants associated with Midcap Credit Facility

Warrants associated with public offering

Market RSUs are included at the maximum share delivery percentage (see Note 10 — Stock-Based Compensation Expense).

Recently Adopted Accounting Standards — In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses (Topic 326), The Company adopted this standard as of January 1, 2020 .

This update introduces the current expected credit loss (CECL) model, which requires an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables.

Under this update, on initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument.

Market RSUs are valued using a Monte Carlo valuation model and RSUs with performance conditions are evaluated for 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.

Recently Adopted Accounting Standards — In August 2020, the FASB issued ASU 2020-06, Issuer’s Accounting for Convertible Instruments and Contracts on an Entity’s Own Equity , which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

The Company early adopted this standard as of January 1, 2021 .

The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

In November 2018, the FASB issued ASU No.

2018-18, Collaborative Arrangements (Topic 808) to clarify when transactions between participants in a collaborative arrangement under ASC 808 are within the scope of the new revenue guidance when the collaborative arrangement participant is a customer.

ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2021.

The Company adopted this pronouncement in 2020 with no impact on the consolidated financial statements.

Recently Issued Accounting Standards — 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.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740) to simplify and reduce the cost of accounting for income taxes.

The pronouncement calls for removing exceptions to the incremental approach for intraperiod tax allocations, exceptions to the requirement to recognize a deferred tax liability for equity method investment when a foreign subsidiary becomes an equity method investment, exception to the ability to not recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary and exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption is permitted.

We are currently assessing the effect the adoption of this standard will have on the Company’s consolidated financial statements.

Accounts Receivable

Accounts receivable, net consists of the following (in thousands):

September 30, 2020

March 31, 2021

December 31, 2020

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Accounts receivable, net

As of September 30, 2020 and December 31, 2019, the allowance for doubtful accounts was de minimis .

The Company had three wholesale distributors representing approximately 87 % of accounts receivable as of September 30, 2020 and approximately 83 % and 87 % of gross sales for the three and nine months ended September 30, 2020, respectively.

As of March 31, 2021 and December 31, 2020, the allowance for doubtful accounts was de minimis .

The Company had three wholesale distributors representing approximately 89 % of accounts receivable as of March 31, 2021 and approximately 82 % of gross sales for the three months ended March 31, 2021.

Inventories consist of the following (in thousands):

September 30, 2020

March 31, 2021

December 31, 2020

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Total inventory

Work-in-process and finished goods as of September 30, 2020 and December 31, 2019 include conversion costs and exclude the cost of insulin.

All insulin inventory on hand was written off and the projected loss on the purchase commitment contract to purchase future insulin was accrued as of the end of 2015.

Raw materials inventory included $ 0.8 million of pre-launch inventory as of September 30, 2020 and December 31, 2019, which consisted of FDKP received in November 2019 that will be used to manufacture Afrezza under an enhanced manufacturing process for FDKP.

The Company expects to receive FDA approval of the new source of FDKP in 2022, after which the pre-launch raw materials inventory will be reclassified as raw materials inventory for use in the manufacturing of Afrezza.

Work-in-process and finished goods as of March 31, 2021 and December 31, 2020 include conversion costs and exclude the cost of insulin.

All insulin inventory on hand was written off and the projected loss on the purchase commitment contract to purchase future

insulin was accrued as of the end of 2015.

Raw materials inventory included $ 0.8 million of pre-launch inventory as of March 31, 2021 and December 31, 2020 , which consisted of FDKP received in November 2019 that will be used to manufacture Afrezza under an enhanced manufacturing process for FDKP.

The Company expects to receive FDA approval of the new source of FDKP in 202 3 , after which the pre-launch raw materials inventory will be reclassified as raw materials inventory for use in the manufacturing of Afrezza and Tyvaso DPI .

The Company analyzed its inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value.

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Inventory that was forecasted to become obsolete due to expiration is recorded in costs of goods sold in the accompanying condensed consolidated statements of operations.

For the nine months ended September 30, 2020 there was an inventory write-off of $ 0.5 million as a result of this assessment.

There were no inventory write-offs for the three months ended September 30, 2020 or the three and nine months ended September 30, 2019.

For the three months ended March 31, 2020, there was an inventory write-off of $ 0.5 million as a result of this assessment.

There was no inventory write-off for the three months ended March 31, 2021.

Property and Equipment

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Estimated Useful

September 30, 2020

March 31, 2021

December 31, 2020

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Total property and equipment, net

Depreciation expense related to property and equipment for the three and nine months ended September 30, 2020 and 2019 was as follows (in thousands):

Depreciation expense related to property and equipment for the three months ended March 31, 2021 and 2020 was as follows (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Depreciation Expense

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Accrued expenses and other current liabilities were comprised of the following (in thousands):

September 30, 2020

March 31, 2021

December 31, 2020

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Deferred lease liability

Milestone Rights liability — current

Professional fees

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Accrued interest

Milestone rights liability — current

Total accrued expenses and other current liabilities

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The Company is permitted to defer the employer share of social security taxes otherwise owed on dates beginning March 27, 2020 and ending December 31, 2020.

Half of the total deferred payments are payable on December 31, 2021 and the remaining half are payable on December 31, 2022.

Half of the total deferred payments are payable on December 31, 2021 and the remaining half are payable

on December 31, 2022 .

The amount of the deferral is based on wages paid from April through December 2020.

This deferral option is no longer available if the Company receives forgiveness for its PPP Loan as discussed in Note 6 — Borrowings.

This deferral option is no longer available if the Company receives forgiveness for its PPP loan as d iscussed in Note 6 – Borrowings .

Carrying amount of principal borrowings consist of the following (in thousands):

September 30, 2020

March 31, 2021

December 31, 2020

Mann Group promissory notes

Senior convertible notes

MidCap credit facility

Senior notes (December 2020 note and 2024 convertible notes)

Mann Group promissory notes

2024 convertible notes

Total debt — net carrying amount

Less current portion of long-term debt

Long-term debt

The following table provides a summary of the Company’s debt and key terms:

September 30, 2020

The following table provides a summary of the Company’s debt and key terms as of March 31, 2021:

March 31, 2021

December 31, 2020

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Conversion Price

Mann Group convertible

Senior convertible notes

$ 230.0 million

MidCap credit facility (1)

$ 50.0 million

LIBOR ( 2 % floor)

Mann Group convertible note

$ 18.4 million (plus $ 0.5 million accrued interest paid-in-kind)

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November 2024

Mann Group non-

convertible note

Mann Group non-convertible note (2)

$ 35.1 million (plus $ 4.3 million accrued interest paid-in-kind)

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November 2024

MidCap Credit

$ 4.9 million

LIBOR ( 2 % floor)

2024 convertible notes (3)

$ 5.0 million

November 2024

June 2020 note

$ 2.6 million

December 2020 note

$ 2.6 million

December 2020

$ 4.9 million

The maturities of our borrowings as of September 30, 2020 are as follows (in thousands):

____________________

Subsequent to March 31 , 2021, $ 10.0 million of the outstanding principal amount was repaid.

Subsequent to March 31, 2021, $ 35.1 million of the outstanding principal amount was repaid, together with all accrued and unpaid interest.

In February 2021, the $ 5.0 million principal balance was converted into 1,666,667 shares of the Company’s common stock.

The maturities of our borrowings as of March 31, 2021 are as follows (in thousands):

Total principal payments

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Total debt — net carrying amount

Current Portion of Long-Term Debt — As of September 30, 2020, the current portion of long-term debt was $ 45.4 million and consisted of $ 40.0 million of the MidCap Credit Facility, $ 3.5 million of the PPP Loan and $ 2.6 million of the December 2020 note.

MidCap Credit Facility — In August 2019, the Company closed the MidCap Credit Facility, which provides a secured term loan facility with an aggregate principal amount of up to $ 75.0 million.

The Company borrowed the first advance of $ 40.0 million (“Tranche 1”) on August 6, 2019.

Under the terms of the MidCap Credit Facility, the second advance of $ 10.0 million (“Tranche 2”) was available to the Company until April 15, 2020, provided that the Company had achieved Afrezza net revenue of at least $ 30.0 million on a trailing twelve month basis by that date (which was not achieved).

The third advance of $ 25.0 million (“Tranche 3”) will be available to the Company until June 30, 2021, subject to the satisfaction of certain milestone conditions associated with Afrezza trailing net revenue and certain milestone conditions related to the Company’s collaboration with United Therapeutics (see Note 7 – Collaboration and Licensing Arrangements ).

In August 2019, the Company recognized a $ 1.5 million commitment asset and a $ 0.4 million other asset for deferred debt issuance costs related to the future funding commitments of the MidCap Credit Facility.

The Company determined that such milestone conditions related to Afrezza trailing net revenue were unlikely to be achieved.

As a result, the Company recognized an asset impairment of $ 1.9 million during the second quarter of 2020.

In December 2019, the Company entered into an amendment to the MidCap Credit Facility, pursuant to which the parties agreed to (i) amend the financial covenant relating to trailing twelve month minimum Afrezza Net Revenue (as defined in the MidCap Credit Facility) requirements, (ii) add a condition to the third advance of $ 25.0 million that requires the Company achieve certain amounts of Afrezza Net Revenue, and (iii) increase the exit fee from 6.00 % to 7.00 % of the principal amount of all term loans advanced to the Company under the MidCap Credit Facility.

Senior convertible notes – On March 4, 2021, the Company issued $ 200.0 million aggregate principal amount of Senior convertible notes in a private offering.

Pursuant to an option to purchase additional Senior convertible notes in the purchase agreement between the Company and the initial purchasers of the Senior convertible notes, the Company issued an additional $ 30.0 million aggregate

principal amount of Senior convertible notes on March 15, 2021 .

The Senior convertible notes were issued pursuant to an indenture, dated March 4, 2021 (the “Indenture”), between the Company and U.S.

Bank National Association, as trustee.

The Senior convertible notes are general unsecured obligations of the Company and will mature on March 1, 2026 , unless earlier converted, redeemed or repurchased.

The Senior convertible notes will bear cash interest from March 4, 2021 at an annual rate of 2.50 % payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2021.

The Senior convertible notes are convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding December 1, 2025, only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock, par value $ 0.01 per share, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price for the Senior convertible notes on each applicable trading day;

(2) during the five business day period after any ten consecutive trading day period in which the trading price (as defined in the Indenture) per $ 1,000 principal amount of the Senior convertible notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Common Stock and the conversion rate on each such trading day;

(3) if the Company calls such Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Senior convertible notes called (or deemed called) for redemption;

or (4) upon the occurrence of specified corporate events as set forth in the Indenture.

On or after December 1, 2025 until the close of business on the business day immediately preceding the maturity date, holders may convert all or any portion of their Notes at any time, regardless of the foregoing circumstances.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Common Stock or a combination of cash and shares of Common Stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the Indenture.

The initial conversion rate is 191.8281 shares of Common Stock per $ 1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $ 5.21 per share of Common Stock).

The initial conversion price of the Senior convertible notes represents a premium of approximately 30 % to the last reported sale price of the Common Stock on the Nasdaq Global Market on March 1, 2021.

The conversion rate for the Senior convertible notes is subject to adjustment under certain circumstances in accordance with the terms of the Indenture, but will not be adjusted for any accrued and unpaid interest.

In addition, following certain corporate events that occur prior to the maturity date of the Senior convertible notes or if the Company delivers a notice of redemption in respect of the Senior convertible notes, the Company will, in certain circumstances, increase the conversion rate of the Senior convertible notes for a holder who elects to convert its Notes in connection with such a corporate event or convert its Notes called for redemption during the related redemption period (as defined in the Indenture), as the case may be.

The Company may not redeem the Senior convertible notes prior to March 6, 2024 .

The Company may redeem for cash all or any portion of the Senior convertible notes, at its option, on or after March 6, 2024 and prior to the 36th scheduled trading day immediately preceding the maturity date, if the last reported sale price of Common Stock has been at least 130 % of the conversion price for the Senior convertible notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount of the Senior convertible notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If the Company elects to redeem less than all of the outstanding Notes, at least $ 75.0 million aggregate principal amount of Notes must be outstanding and not subject to redemption as of the relevant redemption notice date.

No sinking fund is provided for the Senior convertible notes.

If the Company undergoes a fundamental change (as defined in the Indenture), then, subject to certain conditions and except as described in the Indenture, holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the Senior convertible notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Indenture includes customary covenants and sets forth certain events of default after which the Senior convertible notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the Senior convertible notes become automatically due and payable.

If certain bankruptcy and insolvency-related events of default involving the Company (and not just any of its significant subsidiaries) occur, 100 % of the principal of and accrued and unpaid interest on the Senior convertible notes will automatically become due and payable.

If an event of default with respect to the Senior convertible notes, other than certain bankruptcy and insolvency-related events of default involving the Company (and not just any of its significant subsidiaries), occurs and is continuing, the trustee, by notice to the Company, or the holders of at least 25% in principal amount of the outstanding Notes by notice to the Company and the trustee, may, and the trustee at the request of such holders shall, declare 100 % of the principal of and accrued and unpaid interest, if any, on all the Senior convertible notes to be due and payable.

Notwithstanding the foregoing, the Indenture provides that, to the extent the Company so elects, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture will, for the first 365 days after the occurrence of such an event of default consist exclusively of the right to receive additional interest on the Senior convertible notes as set forth in the Indenture .

The Indenture provides that the Company shall not consolidate with or merge with or into, or sell, convey, transfer or lease all or substantially all of the consolidated properties and assets of the Company and its subsidiaries, taken as a whole, to, another person

(other than any such sale, conveyance, transfer or lease to one or more of the Company’s direct or indirect wholly owned subsidiaries), unless:

(i) the resulting, surviving or transferee person (if not the Company) is a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia, and such corporation (if not the Company) expressly assumes by supplemental indenture all of the Company’s obligations under the Senior convertible notes and the Indenture;

and (ii) immediately after giving effect to such transaction, no default or event of default has occurred and is continuing under the Indenture.

The Company’s net proceeds from the Offering were approximately $ 222.7 million, after deducting the initial purchasers’ discounts and commissions and the estimated Offering expenses payable by the Company.

MidCap credit facility — I n August 2019, the Company entered into the MidCap credit facility and borrowed the first advance of $ 40.0 million (“Tranche 1”) in August 2019 and the second advance of $ 10.0 million (“Tranche 2”) in December 2020.

Under the terms of the MidCap credit facility, a third advance of $ 60.0 million (“Tranche 3”) will be available to the Company between January 1, 2022 and June 30, 2022, subject to the satisfaction of certain milestone conditions associated with Tyvaso DPI through the Company’s collaboration with United Therapeutics (see Note 7 – Collaboration, Licensing and Other Arrangements).

In December 2019, the Company entered into the first amendment to the MidCap credit facility, pursuant to which the parties agreed to (i) amend the financial covenant relating to trailing twelve month minimum Afrezza Net Revenue (as defined in the MidCap credit facility) requirements, (ii) add a condition to the third advance that requires the Company achieve certain amounts of Afrezza Net Revenue, and (iii) increase the exit fee from 6.00 % to 7.00 % of the principal amount of all term loans advanced to the Company under the MidCap credit facility.

In August 2020, the Company entered into the second amendment to the MidCap credit facility, pursuant to which the parties agreed that no breach of the minimum Afrezza net revenue covenant for any trailing twelve-month reporting period between July 31, 2020 and November 30, 2020 will be deemed to occur if the Company delivers satisfactory evidence that it had unrestricted cash of at least $ 40.0 million.

Without this amendment, the Company would have been in violation of the minimum Afrezza net revenue covenant as of September 30, 2020.

After the November 30, 2020 reporting period, the amendment will expire and a breach of the minimum Afrezza net revenue covenant is probable.

The Company intends to amend the MidCap Credit Facility to address this probable covenant violation;

however, such amendment, if completed, would occur after the date of this report.

This debt will continue to be classified as current unless the MidCap Credit Facility is further amended or the debt is repaid.

Tranche 1 and, if borrowed, Tranche 3, each accrue interest at an annual rate equal to one-month LIBOR plus 6.75 %, subject to a one-month LIBOR floor of 2.00 %.

In November 2020, the Company entered into the third amendment to the MidCap credit facility, pursuant to which the parties agreed to (i) amend the conditions to draw Tranche 2, which had become unavailable, such that the advance became available and was, in fact, funded to the Company on December 1, 2020, (ii) amend the conditions to Tranche 3 such that the third advance was available upon the satisfaction of certain conditions, including certain milestone conditions associated with Tyvaso DPI, (iii) add a covenant that requires the marketing of Tyvaso DPI if the third advance is funded, (iv) amend the financial covenant relating to trailing twelve month minimum Afrezza Net Revenue (as defined in the MidCap credit facility) requirements, (v) increase the minimum cash covenant to $ 30.0 million at all times, (vi) extend the interest only period until September 1, 2022, at which time principal on each term loan advance is payable in 24 equal monthly installments, and (vii) amend the prepayment fees.

In connection with the extension of the interest only period for the $ 40.0 million drawn under Tranche 1, a $ 0.2 million loss on extinguishment was recognized in the consolidated statement of operations for the year ended December 31, 2020.

The funding of $ 10.0 million under Tranche 2 resulted in the recognition of approximately $ 0.3 million of debt discount and a de minimis amount of debt issuance costs.

In December 2020, the Company entered into the fourth and fifth amendments to the MidCap credit facility.

Pursuant to the fourth amendment, MidCap consented to the acquisition by the Company of QrumPharma, Inc.

Pursuant to the omnibus joinder and fifth amendment, QrumPharma was joined as a borrower to the MidCap credit facility and to certain related financing documents.

In March 2021 the Company entered into the sixth amendment to the MidCap credit facility to accommodate the issuance of the Senior convertible notes.

On April 22, 2021, the Company entered into the seventh amendment of the MidCap credit facility, pursuant to which the parties agreed to, among other things, (i) increase the amount available under the third advance from $ 25.0 million to $ 60.0 million and extend the date through which the third advance is available to June 30, 2022 , (ii) amend the conditions to the third advance of $60.0 million being available to draw, including certain milestone conditions associated with Tyvaso DPI, (iii) remove the Company’s obligation to issue a warrant to purchase shares of the Company’s common stock upon drawing down the third advance, (iv) extend the interest-only period until September 1, 2023 and extend the maturity date until August 1, 2025 , (v) amend the financial covenant relating to trailing 12 month minimum Afrezza net revenue, (vi) decrease the minimum cash covenant, (vii) decrease the interest rate on any amounts outstanding, now or in the future, under the MidCap credit facility, (viii) permit the Company to make certain acquisitions, subject to requirements, and (ix) permit the Company to make investments of up to an additional $ 9.0 million so long as the Company has $ 90.0 million or more of unrestricted cash following such investment.

Concurrent with entering into this amendment, the Company made a $ 10.0 million principal prepayment against outstanding term loans under the MidCap credit facility and paid a related $ 1.0 million exit fee in lieu of the unaccrued portion of the original exit fee and prepayment penalties that would otherwise have been due with respect to the partial prepayment.

Tranche 1, Tranche 2 and, if borrowed, Tranche 3, each accrue interest at an annual rate equal to the lesser of (i) 8.25 % and (ii) the one-month LIBOR (subject to a one-month LIBOR floor of 1.00 %) plus 6.25 %.

Interest on each term loan advance is due and payable monthly in arrears.

Principal on the term loan advance under Tranche 1 is payable in 36 equal monthly installments beginning September 1, 2021, until paid in full on August 1, 2024, and principal on any term loan advance under Tranche 3 is payable beginning on the later of (i) September 1, 2021, and (ii) the first day of the first full calendar month immediately following such term loan advance, in an amount equal to the outstanding term loan advance in respect of Tranche 3 divided by the number of full calendar months remaining before August 1, 2024.

The Company has the option to prepay the term loans, in whole or in part, subject to early termination fees in an amount equal to 3.00 % of principal prepaid if prepayment occurs on or prior to the first anniversary of the closing date, 2.00 % of principal prepaid if prepayment occurs after the first anniversary of the closing date but on or prior to the second anniversary of the closing date, and 1.00 % of principal prepaid if prepayment occurs after the second anniversary of the closing date and prior to or on the third anniversary of the closing date.

In connection with execution of the MidCap Credit Facility, the Company paid MidCap a $ 0.4 million origination fee.

Principal on each term loan advance under Tranche 1, Tranche 2 and, if applicable, Tranche 3 is payable in 24 equal monthly installments beginning September 1, 2023 , until paid in full on August 1, 2025 .

The Company has the option to prepay its existing term loans, in whole or in part, subject to early termination fees in an amount equal to 3.00 % of principal prepaid if prepayment occurs on or prior to April 22, 2022;

2.00 % of principal prepaid if prepayment occurs on or after April 23, 2022 through and including April 22, 2023;

and 1.00 % of principal prepaid if prepayment occurs on or after April 23, 2023 through the maturity date.

Tranche 3 will be subject to a similar scheme of early termination fees measured from the anniversary of the funding date for such tranche, if ever.

The Company’s obligations under the MidCap credit facility are secured by a security interest on substantially all of its assets, including intellectual property.

The MidCap Credit Facility contains customary affirmative covenants and customary negative covenants limiting the Company’s ability and the ability of the Company’s subsidiary to, among other things, dispose of assets, undergo a change in control, merge or consolidate, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock and make investments, in each case subject to certain exceptions.

The Company must also comply with a financial covenant relating to trailing twelve month minimum Afrezza net revenue, tested on a monthly basis, and a minimum cash covenant of $ 15.0 million at all times, and $ 20.0 million at all times following the funding of Tranche 3.

For any trailing twelve-month reporting period between July 31, 2020 and November 30, 2020, the minimum Afrezza net revenue test will be deemed to occur if the Company delivers satisfactory evidence that it had unrestricted cash of at least $ 40.0 million.

As of September 30, 2020, the Company was in compliance with the financial and minimum cash covenants.

The MidCap credit facility, as amended, contains customary affirmative covenants and customary negative covenants limiting the Company’s ability and the ability of the Company’s subsidiaries to, among other things, dispose of assets, undergo a change in control, merge or consolidate, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock and make investments, in each case subject to certain exceptions.

The Company must also comply with a financial covenant relating to trailing twelve month minimum Afrezza net revenue, tested on a monthly basis, unless the Company has $ 90.0 million or more of unrestricted cash.

The Company is also subject to a minimum cash covenant of $ 10.0 million at all times;

however, this covenant will be eliminated in the event that Tyvaso DPI is approved by the FDA.

As of March 31, 2021, the Company was in compliance with the financial and minimum cash covenants.

The MidCap credit facility also contains customary events of default relating to, among other things, payment defaults, breaches of covenants, a material adverse change, listing of the Company’s common stock, bankruptcy and insolvency, cross defaults with certain material indebtedness and certain material contracts, judgments, and inaccuracies of representations and warranties.

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During the existence of an event of default, interest on the term loans could be increased by 2.00 %.

The Company also agreed to issue warrants to purchase shares of the Company’s common stock (the “MidCap warrants”) upon the drawdown of each term loan advance under the MidCap Credit Facility in an aggregate amount equal to 3.25 % of the amount drawn, divided by the exercise price per share for that tranche.

The Company also agreed to issue warrants to purchase shares of the Company’s common stock (the “MidCap warrants”) upon the drawdown of Tranches 1 and 2 in an aggregate amount equal to 3.25 % of the amount drawn, divided by the exercise price per share for that tranche.

The exercise price per share is equal to the volume-weighted average closing price of the Company’s common stock for the ten business days immediately preceding the second business day before the issue date.

As a result of Tranche 1, the Company issued warrants to purchase an aggregate of 1,171,614 shares of the Company’s common stock, at an exercise price equal to $ 1.11 per share.

As a result of Tranche 2, the Company issued warrants to purchase an aggregate of 111,853 shares of the Company’s common stock, at an exercise price equal to $ 2.91 per share.

The MidCap warrants are immediately exercisable and expire on the earlier to occur of the seventh anniversary of the respective issue date or, in certain circumstances, the closing of a merger, sale or other consolidation transactions in which the consideration is cash, stock of a publicly traded acquirer, or a combination thereof.

The Company determined that these warrants met the criteria for equity classification and accounted for such warrants in additional paid-in capital.

Senior Notes — As of September 30, 2020 and December 31, 2019, there was $ 7.6 million and $ 10.2 million, respectively, of principal amount of senior notes outstanding.

In August 2019, the Company entered into a privately-negotiated exchange agreement with the holder of the 5.75 % Convertible Senior Subordinated Exchange Notes due 2021 (the “2021 notes”), pursuant to which , among other things, the Company (i) repaid $ 1.5 million in cash to such holder, (ii) issued 4,017,857 shares of the Company’s common stock to such holder (at a conversion price of $ 1.12 per share), (iii) issued 5.75 % Convertible Senior Subordinated Exchange Notes due November 2024 (the “2024 convertible notes”) to such holder in the principal amount of $ 5.0 million and (iv) issued a $ 2.6 million note due June 2020 (the “June 2020 note”), a $ 2.6 million note due December 2020 (the “December 2020 note”, and together with the June 2020 note, the “2020 notes”) , all in exchange for the cancellation of the $ 18.7 million in principal amount of the 2021 notes.

The 2020 notes may be prepaid at any time on or prior to their respective maturity dates of June 30, 2020 and December 31, 2020 at the option of the Company.

On June 24, 2020, the Company prepaid the June 2020 note with the issuance of 1,235,094 shares of the Company’s common stock, pursuant to the Company’s election and in accordance with the terms of the June 2020 note.

On October 9, 2020, the Company prepaid the December 2020 note with the issuance of 1,377,356 shares of the Company’s common stock, pursuant to the Company’s election and in accordance with the terms of the December 2020 note .

The number of shares issued for the prepayments on June 24, 2020 and October 9, 2020 were determined based on the Company’s closing stock price on the settlement date.

As a result of the prepayment of the December 2020 note on October 9, 2020, the Company recognized a de minimis amount of loss on extinguishment related to unamortized debt discount.

The 2024 convertible notes were issued pursuant to an indenture, dated as of August 6, 2019, between the Company and U.S.

Bank National Association, as trustee (the “Indenture”).

The 2024 convertible notes are the Company’s general, unsecured obligations, and are subordinated in right of payment to the indebtedness incurred pursuant to the MidCap Credit Facility.

The 2024 convertible notes rank equally in right of payment with the Company’s other unsecured senior debt.

The 2024 convertible notes accrue interest at the rate of 5.75 % per year on the principal amount, payable semiannually in arrears on February 15 and August 15 of each year, beginning February 15, 2020, with interest accruing from August 6, 2019.

Interest on the 2024 convertible notes will be payable in cash or, at the option of the Company if certain conditions are met, in shares of the Company’s common stock at a price per share equal to the last reported sale price on the trading day immediately prior to the interest payment date.

The 2024 convertible notes will mature on the earlier of (i) November 4, 2024 or (ii) the 91 st day after the payment in full of, and termination and discharge of all obligations (other than contingent indemnity obligations) under the MidCap Credit Facility.

The 2024 convertible 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 a conversion rate of 333.3333 shares per $ 1,000 principal amount of 2024 convertible notes, which is equal to a conversion price of approximately $ 3.00 per share.

If certain bankruptcy and insolvency-related events of default occur, the principal of, and accrued and unpaid interest on, all of the then outstanding 2024 convertible notes shall automatically become due and payable.

If an event of default other than certain bankruptcy and insolvency-related events of defaults occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the then-outstanding 2024 convertible notes, by written notice to the Trustee, may declare the 2024 convertible notes due and payable at their principal amount plus any accrued and unpaid interest, and thereupon the Trustee may, at its discretion, proceed to protect and enforce the rights of the holders by the appropriate judicial proceedings.

Notwithstanding the foregoing, the Indenture provides that, to the extent the Company elects, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture will, for the first 180 days after such event of default, consist exclusively of the right to receive additional interest on the 2024 convertible notes.

The 2024 convertible notes also contain certain cross default provisions related to other debt obligations.

If the Company undergoes certain fundamental changes, except in certain circumstances, each holder of 2024 convertible notes will have the option to require the Company to repurchase all or any portion of that holder’s 2024 convertible notes.

The fundamental change repurchase price will be 100 % of the principal amount of the 2024 convertible notes to be repurchased plus accrued and unpaid interest, if any.

The Company may elect at its option to cause all or any portion of the 2024 convertible notes to be mandatorily converted in whole or in part at any time prior to the close of business on the business day immediately preceding the maturity date, if the last reported sale price of its common stock equals or exceeds 120 % of the conversion price then in effect for at least 10 trading days in any 20 trading day period, ending within five business days prior to the date of the mandatory conversion notice.

Mann Group promissory notes — In August 2019, the Company entered into a privately-negotiated exchange agreement with The Mann Group LLC (the “Mann Group”), pursuant to which, among other things, the Company (i) repaid $ 3.0 million in cash to the Mann Group, (ii) issued 7,142,857 shares of the Company’s common stock to the Mann Group (at a conversion price of $ 1.12 per share), (iii) issued a $ 35.0 million note that is convertible into shares of the Company’s common stock at $ 2.50 per share (the “Mann Group convertible note”) and (iv) issued a non-convertible note to the Mann Group in an aggregate principal amount of $ 35.1 million (the “Mann Group non-convertible note” and , together with the Mann Group convertible note, the “Mann Group promissory notes”) , all in exchange for the cancellation of the $ 71.5 million in principal and approximately $ 9.5 million in accrued interest paid-in-kind under the existing Mann Group loan arrangement.

The Mann Group promissory notes each accrue interest at the rate of 7.00 % per year on the principal amount, payable quarterly in arrears on the first day of each calendar quarter beginning October 1, 2019 .

The Mann Group convertible note will mature on November 3, 2024 .

The principal and any accrued and unpaid interest under the Mann Group convertible note may be converted, at the option of the Mann Group, 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 a conversion rate of 400 shares per $ 1,000 of principal and/or accrued and unpaid interest, which is equal to a conversion price of $ 2.50 per share.

Mann Group promissory notes — In August 2019, the Company issued a $ 35.0 million note that is convertible into shares of the Company’s common stock at $ 2.50 per share (the “Mann Group convertible note”) and issued a non-convertible note to Mann Group in an aggregate principal amount of $ 35.1 million (the “Mann Group non-convertible note” and , together with the Mann Group convertible note, the “Mann Group promissory notes”) as part of a restructuring of its then existing indebtedness to Mann Group.

The Mann Group promissory notes each accrued interest at the rate of 7.00 % per year on the principal amount, payable quarterly in arrears on the first day of each calendar quarter beginning October 1, 2019 .

On April 22, 2021, the Company and Mann Group entered into an amendment of the Mann Group convertible note, pursuant to which the parties agreed to (i) reduce the interest rate from 7.0% to 2.5 % effective on April 22, 2021, and (ii) extend the maturity date from November 3, 2024 to December 31, 2025 .

The principal and any accrued and unpaid interest under the Mann Group convertible note may be converted, at the option of Mann Group, 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 a conversion rate of 400 shares per $ 1,000 of principal and/or accrued and unpaid interest, which is equal to a conversion price of $ 2.50 per share.

The conversion rate will be subject to adjustment under certain circumstances described in the Mann Group convertible note.

Interest on the Mann Group convertible note will be payable in kind by adding the amount thereof to the principal amount;

Interest on the convertible note will be payable in kind by adding the amount thereof to the principal amount;

provided that with respect to interest accruing from and after January 1, 2021, the Company may, at its option, elect to pay any such interest on any interest payment date, if certain conditions are met, in shares of the Company’s common stock at a price per shall equal to the last reported sale price on the trading day immediately prior to the payment date.

The Mann Group non-convertible note will mature on the earlier of (i) November 3, 2024 or (ii) the 90th day after the repayment in full, and termination and discharge of all obligations (other than contingent indemnity obligations) under the MidCap Credit Facility.

Interest on the Mann Group non-convertible note will be payable in kind by adding the amount thereof to the principal amount;

provided that MannKind may, at its option, elect to pay any such interest on any interest payment date, if certain conditions are met, in shares of MannKind’s common stock at a price per shall equal to the last reported sale price on the trading day immediately prior to the interest payment date.

Pursuant to the terms of the Mann Group convertible note, Mann Group converted $ 3.0 million of accrued interest and $ 7.0 million of principal into 1.2 million shares and 2.8 million shares, respectively, of the Company’s common stock in the fourth quarter of 2020.

During the three months ended March 31, 2021 , Mann Group converted $ 0.4 million of interest and $ 9.6 million of principal into 4,000,000 shares of common stock.

On April 22, 2021, the Company repaid the entire principal amount of $ 35.1 million outstanding under the Mann Group non-convertible note, together with all accrued and unpaid interest thereon.

PPP loan – On April 10, 2020, the Company received the proceeds from the PPP loan from JPMorgan Chase Bank, N.A., as lender, in the amount of approximately $ 4.9 million pursuant to the PPP of the CARES Act.

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In the event the SBA does not authorize loan forgiveness, the deferred principal and interest will be payable to the lender and the Company will then make equal monthly payments as required to fully amortize the remaining principal amount by April 9, 2022.

The Company submitted its application for forgiveness in April 2021 .

Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered interest and covered utilities during the 24-week period (or eight-week period at the Company’s option) beginning on the date of loan approval.

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The Company used all proceeds from the PPP loan to retain employees, maintain payroll and make lease, interest and utility payments.

Amortization of the premium and accretion of debt issuance costs related to all borrowings for the three and nine months ended September 30, 2020 and 2019 are as follows (in thousands):

2024 convertible notes — In August 2019, the Company issued 5.75 % convertible senior subordinated exchange notes due November 2024 (the “ 2024 convertible notes”) pursuant to an indenture, dated as of August 6, 2019, between the Company and U.S.

Bank National Association, as trustee (the “2019 Indenture”).

The 2024 convertible notes were the Company’s general, unsecured obligations, and were subordinated in right of payment to the indebtedness incurred pursuant to the MidCap credit facility.

The 2024 convertible notes ranked equally in right of payment with the Company’s other unsecured senior debt.

The 2024 convertible notes accrued interest at the rate of 5.75 % per year on the principal amount, payable semiannually in arrears on February 15 and August 15 of each year, beginning February 15, 2020, with interest accruing from August 6, 2019.

Interest on the 2024 convertible notes was payable in cash or, at the option of the Company if certain conditions are met, in shares of the Company’s common stock at a price per share equal to the last reported sale price on the trading day immediately prior to the interest payment date.

The 2024 convertible notes were 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 a conversion rate of 333.3333 shares per $ 1,000 principal amount of 2024 convertible notes, which is equal to a conversion price of approximately $ 3.00 per share.

In February 2021, pursuant to this option, the Company converted the $ 5.0 million 2024 convertible notes with the issuance of 1,666,667 shares of the Company’s common stock.

Accretion of debt discount and amortization of debt issuance costs related to all borrowings for the three months ended March 31, 2021 and 2020 are as follows (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Accretion of debt discount

Amortization of debt issuance cost

Amortization of debt premium

Milestone Rights — As of September 30, 2020 and December 31, 2019, the remaining Milestone Rights liability balance was $ 7.3 million, which was based on initial fair value estimates calculated using the income approach and reduced by milestone achievement payments made.

Milestone Rights — As of March 31, 2020 and December 31, 2020, the remaining Milestone Rights liability balance was $ 7.3 million, which was based on initial fair value estimates calculated using the income approach and reduced by milestone achievement payments made.

During the third quarter of 2019, the Company achieved the first Afrezza net sales milestone specified by the Milestone Rights.

The Company currently estimates that it will reach the next milestone in the first quarter of 2021, at which point the Company will be required to make a $ 5.0 million payment in the following quarter.

The Company achieved the second milestone during the three months ended March 31, 2021.

As a result, the Company is required to deliver a milestone event notice to the Milestone Purchasers no later than the date of this quarterly report and make a payment of $ 5.0 million within three business days thereafter.

The carrying value of the Milestone Rights liability related to this $5.0 million payment is approximately $ 1.3 million, which represents the fair value related to this payment that was determined in 2013 (the most recent measurement date).

Accordingly, approximately $1.3 million in value related to the next milestone payment was recorded in accrued expenses and other current liabilities and the remaining long-term portion of $ 5.9 million is included as Milestone Rights liability in the accompanying condensed consolidated balance sheets as of September 30, 2020.

The agreement with the Milestone Purchasers that provides for the Milestone Rights 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 such agreement.

The Company has initially recorded the Milestone Rights at their estimated fair value.

Collaboration and Licensing Arrangements

Revenue from collaborations and services for the three and nine months ended September 30, 2020 and 2019 are as follows (in thousands):

Collaboration, Licensing and Other Arrangements

Revenue from collaborations and services for the three months ended March 31, 2021 and 2020 are as follows (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

UT License Agreement

UT Research Agreement

Vertice Pharma Co-promotion Agreement

Cipla License and Distribution Agreement

Biomm Distribution Agreement

UT Research Agreement

Total revenue from collaborations and services

United Therapeutics License Agreement — In September 2018, the Company and United Therapeutics Corporation (“United Therapeutics” or “UT”) entered into an exclusive global license and collaboration agreement (the “UT License Agreement”) for the rights to the Company’s dry powder formulation of treprostinil (“TreT”) and associated inhalation delivery devices.

Under the UT License Agreement, UT is responsible for global development, regulatory and commercial activities with respect to TreT.

The Company is responsible for manufacturing clinical supplies and commercial supplies of TreT.

Under the terms of the UT License Agreement, the Company received an upfront payment of $ 45.0 million in October 2018 and three $ 12.5 million milestone payments through the third quarter of 2020.

The Company expects to receive an additional milestone payment of $ 12.5 million upon the achievement of specified development targets.

The Company will also be entitled to receive low double-digit royalties on net sales of TreT.

United Therapeutics License Agreement — In September 2018, the Company and United Therapeutics Corporation (“United Therapeutics” or “UT”) entered into an exclusive global license and collaboration agreement (the “UT License Agreement”) for the rights to the Company’s dry powder formulation of treprostinil (“Tyvaso DPI”) and associated inhalation delivery devices.

Under the UT License Agreement, UT is responsible for global development, regulatory and commercial activities with respect to Tyvaso DPI.

The Company is responsible for manufacturing clinical supplies and commercial supplies of Tyvaso DPI.

Under the terms of the UT License Agreement, the Company received an upfront payment of $ 45.0 million in October 2018 and four $ 12.5 million milestone payments between April 2019 and November 2020.

The Company will also be entitled to receive low double-digit royalties on net sales of Tyvaso DPI as well as a manufacturing margin on commercial supplies of the product.

UT, at its option, may expand the scope of the products covered by the UT License Agreement to include products with certain other active ingredients for the treatment of pulmonary arterial hypertension.

Each such optioned product would be subject to UT’s payment to the Company of up to $ 40.0 million in additional option exercise and development milestone payments, as well as a low double-digit royalty on net sales of any such product.

During the third quarter of 2020, the Company sold $ 0.4 million of clinical supplies to UT for use in their clinical study, which was recognized as deferred revenue in the accompanying condensed consolidated balance sheet.

The Company recognizes revenue on a ratable basis from October 2018 through December 2021;

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The consideration for the option will be accounted for upon exercise of the option.

The Company expects to complete the activities specified in the development plan and to achieve the remaining milestone event for total consideration of approximately $ 102.6 million, which includes an upfront payment, four milestone payments, various pass-through costs and payments for clinical supplies.

The Company expects to complete the activities specified in the development plan and to achieve the remaining milestone events (including a $ 2.7 million increase in total consideration pursuant to an agreement executed in December 2020) for total consideration of approximately $ 105.8 million, which includes an upfront payment, four milestone payments, various pass-through costs and payments for clinical supplies.

Future commercial supply remains at UT’s option and is valued at a stand-alone selling price and, therefore, is not accounted for under the current arrangement.

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Deferred revenue related to the UT License Agreement is being recognized in net revenue — collaborations over a 13-quarter period ending December 31, 2021, which represents the estimated period to satisfy the performance obligation.

As of September 30, 2020, the deferred revenue for the UT License Agreement consisted of $ 28.7 million, which was classified as current.

Deferred revenue is classified as part of current or long-term liability in the accompanying condensed consolidated balance sheets based on the Company’s estimate of the portion of the performance obligation that will be completed within the next 12 months, and includes payments received as well as payments receivable.

The total consideration for the UT License Agreement, includes $ 1.2 million related to the manufacturing of clinical supplies, which was included in the current portion of deferred revenue on our condensed consolidated balance sheet as of September 30, 2020.

Also associated with the clinical supplies was a contract asset of $ 0.8 million and an account receivable of $ 0.4 million which are included in prepaid expenses and other current assets and accounts receivable, net, respectively, on our condensed consolidated balance sheet as of September 30, 2020.

United Therapeutics Research Agreement — In September 2018, the Company and UT also entered into a research agreement (“UT Research Agreement”) for the conduct of research and consulting services in connection with multiple potential products, including evaluating the feasibility of preparing a dry powder formulation of a compound for the treatment of pulmonary hypertension outside

the scope of the UT License Agreement.

In addition, UT, at its option, may obtain a license to develop, manufacture and commercialize products based on specified compounds within the drug classes covered by the UT Research Agreement.

Each specified compound advanced into development and commercialization under such a license would be subject to the payment to the Company of additional milestone payments of up to $ 30.0 million and a low double-digit royalty on net sales of such products.

In connection with the UT Research Agreement, t he Company received an upfront payment of $ 10.0 million in September 2018.

At the inception of the UT Research Agreement, the Company identified two distinct performance obligations.

The Company determined that the key deliverables of each performance obligation include (i) the development of a product prototype (including a technical feasibility report) and;

(ii) engineering consulting services.

Due to the separately identifiable nature of these obligations, the Company has determined that these deliverables represent two distinct performance obligations.

The Company also determined that UT’s option to expand the scope to include specific drug classes covered by the agreement is not a material right, and thus, not a performance obligation at the onset of the agreement.

The consideration for the option will be accounted for upon exercise of the option.

The Company allocated the total $ 10.0 million transaction price to its two distinct performance obligations based on available observable market inputs.

A transaction price of $ 9.0 million was allocated to the product prototype and a transaction price of $ 1.0 million was allocated to engineering consulting services.

The revenue for the product prototype was recognized using an output method (based on project milestones achieved and surveys of performance completed to date).

The Company believed that this method best reflected the measure of progress toward complete satisfaction of the performance obligation.

The revenue for the engineering consulting services was recognized using a ratable method until the obligation was satisfied.

The Company believed that this method best reflected the measure of progress toward complete satisfaction of the performance obligation.

The performance obligations for engineering consulting services and the product prototype were completed in April 2020 and June 2019, respectively.

Receptor Collaboration and License Agreement — In 2016, the Company entered into a collaboration and license agreement (the “CLA”) with Receptor Life Sciences, Inc.

(“Receptor”) pursuant to which Receptor subsequently acquired an exclusive license to develop, manufacture and commercialize products that use the Company’s technology to deliver certain compounds via oral inhalation in exchange for upfront license fees, milestone payments upon the completion of certain technology transfer activities and the achievement of specified sales targets as well as royalties upon Receptor’s and its sublicensees’ sale of products.

A $ 1.0 million license fee received in 2016 was recorded in deferred revenue from collaborations as of December 31, 2016 and is being recognized in net revenue — collaborations over four years , the estimated period over which the Company is required to satisfy the remaining performance obligations.

The remaining performance obligations are to provide certain technology transfer activities.

As of September 30, 2020, the deferred revenue balance was $ 0.1 million, which was classified as a current liability in the accompanying condensed consolidated balance sheets.

The additional payments referred to above represent variable consideration for which the Company has not recognized any revenue because it is uncertain that Receptor will be able to successfully develop, manufacture or sell product related to this license.

There was no change to the accounting for this contract as a result of the initial application of the new revenue guidance since (i) the receipt of such payments is highly susceptible to factors outside of the Company’s influence, (ii) the uncertainty regarding the receipt of these payments is not expected to be resolved for years, and (iii) the Company has limited experience with similar contracts.

See Note 1 – Description of Business and Significant Accounting Policies for additional information on the Company’s revenue recognition accounting policy.

In 2017, the Company entered into a manufacturing and supply agreement with Receptor pursuant to which the Company agreed to provide certain raw materials and certain additional research and formulation consulting services to Receptor.

For the three and nine months ended September 30, 2020 and 2019, the additional research and formulation services provided to Receptor were de minimis .

As of March 3 1 , 202 1 , the deferred revenue for the UT License Agreement consisted of $ 25.6 million, which was classified as current on the condensed consolidated balance sheet .

Vertice Pharma Co-promotion Agreement — In December 2020, the Company entered into a co-promotion agreement with Vertice Pharma where the Company’s sales force will promote Thyquidity to adult endocrinologists, pediatric endocrinologists and other healthcare providers who treat hypothyroidism.

Following the commercial launch of Thyquidity, in consideration of the sales and promotional activities provided by the Company’s sales force, Vertice is obligated to pay fixed quarterly payments to the Company, as well as variable consideration based on gross profits resulting from all sales of Thyquidity.

Vertice Pharma launched Thyquidity in collaboration with the Company in February 2021.

At inception of the agreement, the Company identified a single performance obligation that the Company will satisfy over time.

The Company estimates the total transaction price is approximately $ 6.3 million, consisting of fixed consideration and the unconstrained amount of estimated variable consideration, which is based on gross profit applied to defined revenue benchmarks.

The amount of variable consideration is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur and the payments will be received.

At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.

The total transaction price will be recognized over a two-year period.

the period over which the Company is required to satisfy its performance obligation, using the input method based on the costs incurred to date as a percentage of the total estimated costs to fulfill the contract.

Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer.

Biomm Supply and Distribution Agreement — In May 2017, the Company and Biomm entered into a supply and distribution agreement for the commercialization of Afrezza in Brazil.

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During the second quarter of 2020, the Company sold $ 0.2 million of product to Biomm.

There were no sales to Biomm in the third quarter of 2020.

No additional shipments were made to Biomm in 2020 or in the first quarter of 2021.

Cipla License and Distribution Agreement — In May 2018 , the Company and Cipla Ltd.

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The Company is responsible for supplying Afrezza to Cipla.

The Company has the

potential to receive an additional regulatory milestone payment, minimum purchase commitment revenue and royalties on Afrezza sales in India once cumulative gross sales have reached a specified threshold.

The Company has the potential to receive an additional regulatory milestone payment, minimum purchase commitment revenue and royalties on Afrezza sales in India once cumulative gross sales have reached a specified threshold.

The nonrefundable licensing fee was recorded in deferred revenue and is being recognized in net revenue – collaborations over 15 years, representing the estimated period to satisfy the performance obligation.

The additional milestone payments represent variable consideration for which the Company has not recognized any revenue because of the uncertainty of obtaining marketing approval.

As of September 30, 2020, the deferred revenue balance was $ 1.8 million, of which $ 0.1 million is classified as current and $ 1.7 million is classified as long term in the accompanying condensed consolidated balance sheets.

The Company also recognized $ 0.2 million as income tax expense for a payment made to the India tax authority in 2018.

The Company received a tax refund from the India tax authority in October 2020 and recognized an income tax benefit and receivable for $ 0.2 million in the accompanying condensed consolidated financial statements as of September 30, 2020.

As of March 31, 2021, the deferred revenue balance was $ 1.8 million, of which $ 0.2 million is classified as current and $ 1.6 million is classified as long term in the accompanying condensed consolidated balance sheets.

AMSL Distribution Agreement — In May 2019, the Company entered into an exclusive marketing and distribution agreement with the AMSL Diabetes division of Australasian Medical & Scientific Ltd.

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The Company uses the exit price method for estimating the fair value of loans for disclosure purposes.

The carrying amounts reported in the accompanying condensed consolidated financial statements for cash, accounts receivable, accounts payable, and accrued expenses and other current liabilities (excluding the Milestone Rights liability) approximate their fair value due to their relatively short maturities.

The fair value of the cash equivalents, MidCap Credit Facility, Mann Group promissory notes, 2024 convertible notes, June 2020 note, December 2020 note and Milestone Rights liabilities are disclosed below.

value due to their relatively short maturities.

The fair value of the cash equivalents, MidCap credit facility , Mann Group promissory notes , 2024 convertible notes, Senior convertible notes and Milestone Rights liabilities are disclosed below.

Cash Equivalents and Restricted Cash — Cash equivalents consist of highly liquid investments with original or remaining maturities of 90 days or less at the time of purchase that are readily convertible into cash.

As of September 30, 2020 and December 31, 2019, the Company held $ 52.4 million and $ 29.9 million, respectively, of cash and cash equivalents.

The Company held $ 0.3 million in restricted cash as of September 30, 2020 and December 31, 2019, which was comprised of money market funds.

As of March 31, 2021 and December 31, 2020, the Company held $ 247.8 million and $ 67.0 million, respectively, of cash and cash equivalents.

The Company held $ 0.2 million in restricted cash as of March 31, 2021 and December 31, 2020, which are comprised of money market funds.

Restricted cash is used to collateralize a letter of credit.

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).

Short-term investments — Short-term investments consist of highly liquid investments that are intended to facilitate liquidity and capital preservation.

The fair value of short-term investments approximate their carrying value.

Investments — Investments consist of highly liquid investments that are intended to facilitate liquidity and capital preservation.

The fair value of investments approximates their carrying value.

The measurement of which is based on a market approach using quoted market values (Level 1 in the fair value hierarchy).

As of September 30, 2020, the Company did no t hold any short-term investments.

The fair value measurement of debt instruments is based on a discounted cash flow model and is sensitive to the change in yield (Level 3 in the fair value hierarchy ):

Hypothetical Change in Yield

Hypothetical Change in Notes Payable

(in millions)

Mann Group promissory notes:

(with conversion feature)

Senior notes:

(with conversion feature)

MidCap Credit Facility

Financial Liabilities — The following tables set forth the fair value of the Company’s financial instruments (in millions):

September 30, 2020

As of March 31, 2021, the Company held $ 29.0 million of short-term investments and $ 1.5 million of long-term investments.

Financial Liabilities — The following tables set forth the fair value of the Company’s financial instruments (Level 3 in the fair value hierarchy) (in millions):

March 31, 2021

Carrying Value

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Financial liabilities:

Senior convertible notes (1)

MidCap credit facility (2)

2024 convertible notes

December 2020 note

Mann Group promissory notes

Mann Group convertible notes (3)

Mann Group non-convertible notes (4)

Milestone rights (6)

Total financial liabilities

____________________

Fair value determined by applying a discounted cash flow analysis to the straight note with a hypothetical yield of 14 % and a Monte Carlo simulation for the value of the conversion feature.

A change in yield of + or – 2 % would result in a fair value of $ 199.0 million and $ 221.6 million, respectively.

Fair value determined by applying a discounted cash flow analysis with a hypothetical yield of 10 %.

A change in yield of + or – 2 % would result in a fair value of $ 50.7 million and $ 54.8 million, respectively.

Fair value determined by applying a discounted cash flow analysis with a hypothetical yield of 14 % to the straight note and a binomial option pricing model for the value of the conversion feature.

A change in yield of + or – 2 % would result in a fair value of $ 41.3 million and $ 43.2 million, respectively.

Fair value determined by applying a discounted cash flow analysis with a hypothetical yield of 14 %.

A change in yield of + or – 2 % would result in a fair value of $ 29.6 million and $ 33.6 million, respectively.

Fair value determined by applying a discounted cash flow analysis with a hypothetical yield of 10 %.

A change in yield of + or – 2 % would result in a fair value of $ 4.8 million and $ 4.8 million, respectively.

Fair value determined by applying a Monte Carlo simulation.

December 31, 2020

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MidCap credit facility

2024 convertible notes

June 2020 note

December 2020 note

Mann Group promissory notes (2)

2024 convertible notes

Milestone rights

Total financial liabilities

____________________

Fair value measurements were based on a discounted cash flow model, except for the Milestone rights for which a Monte Carlo simulation was applied.

Mann Group promissory notes consisted of the following carrying values and fair values:

Mann Group convertible notes carrying value of $ 28.0 million and fair value of $ 52.2 million.

Mann Group non-convertible notes carrying value of $ 35.1 million and fair value of $ 26.7 million.

Milestone Rights Liability — The fair value measurement of the Milestone Rights liability is sensitive to the discount rate and the timing of achievement of milestones.

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Common and Preferred Stock

On May 21, 2020, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment of its Amended and Restated Certificate of Incorporation to increase the authorized number of shares of the Company’s common stock from 280,000,000 to 400,000,000 shares.

As of September 30, 2020 and December 31, 2019, 230,922,513 and 211,787,573 shares of common stock, respectively, were issued and outstanding and no shares of preferred stock were outstanding.

In February 2018 , the Company entered into a controlled equity offering sales agreement (the “CF Sales Agreement”) with Cantor Fitzgerald & Co.

(“Cantor Fitzgerald”), as sales agent, pursuant to which the Company may offer and sell, from time to time, through Cantor Fitzgerald, shares of the Company’s common stock having an aggregate offering price of up to $ 50.0 million or such other amount as may be permitted by the CF Sales Agreement.

Under the CF Sales Agreement, Cantor Fitzgerald may sell shares by any method deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended.

For the nine months ended September 30, 2020, the Company sold an aggregate of 9,401,827 shares of the Company’s common stock at a weighted average purchase price of $ 1.66 per share for an aggregate gross proceeds of approximately $ 15.6 million pursuant to the CF Sales Agreement.

In December 2018, the Company entered into an underwriting agreement with Leerink Partners LLC relating to the issuance and sale in a public offering of 26,666,667 shares of the Company’s common stock and warrants to purchase up to an aggregate of 26,666,667 shares of the Company’s common stock (the “December warrants”) at a combined purchase price of $ 1.50 per share and accompanying warrant.

The shares of common stock and the December warrants were immediately separable.

The December warrants were immediately exercisable at issuance at a price of $ 1.60 per share and had an expiry date of December 26, 2019 .

On December 26, 2019, 11,583,333 December warrants expired unexercised and 7,250,000 remained available for purchase at a price of $ 1.60 per share, which were subsequently exercised in June 2020 .

On June 24, 2020, the Company prepaid the June 2020 note with the issuance of 1,235,094 shares of the Company’s common stock, in accordance with the terms of the June 2020 note.

On October 9, 2020, the Company prepaid the December 2020 note with the issuance of 1,377,356 shares of the Company’s common stock, in accordance with the terms of the December 2020 note.

The number of shares issued for the prepayments on June 24, 2020 and October 9, 2020 were determined based on the Company’s closing stock price on the settlement date.

The Company is authorized to issue 400,000,000 shares of common stock, par value $ 0.01 per share, and 10,000,000 shares of undesignated preferred stock, par value $ 0.01 per share, issuable in one or more series as designated by the Company’s board of directors.

No other class of capital stock is authorized.

As of March 31, 2021 and December 31, 2020, 249,072,677 and 242,117,089 shares of common stock, respectively, were issued and outstanding and no shares of preferred stock were outstanding.

In February 2018 , the Company entered into a controlled equity offering sales agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co.

Under the Sales Agreement, Cantor Fitzgerald may sell shares by any method deemed to be an “at-the-market offering” as defined in Rule 415 under the Securities Act of 1933, as amended.

For the three months ended March 31, 2021, the Company sold an aggregate of 578,063 shares of the Company’s common stock at a weighted average purchase price of $ 3.26 per share for an aggregate gross proceeds of approximately $ 1.9 million pursuant to the Sales Agreement.

For the three months ended March 31, 2020, the Company sold an aggregate of 412,870 shares of the Company’s common stock at an average purchase price of $ 1.29 per share for an aggregate gross proceeds of approximately $ 0.5 million pursuant to the Sales Agreement.

In the first quarter of 2021, Mann Group converted $ 0.4 million of interest and $ 9.6 million of principal into 4,000,000 shares of common stock in accordance with the terms of the Mann Group convertible note.

See Note 6 – Borrowings.

In February 2021, the Company converted $ 5.0 million principal amount of 2024 convertible notes into 1,666,667 shares of the Company’s common stock in accordance with the terms of the 2024 convertible notes.

See Note 6 – Borrowings.

Earnings per Common Share (“EPS”)

Basic EPS excludes dilution for potentially dilutive securities and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.

Diluted EPS 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 EPS as they would be antidilutive.

The following tables summarize the components of the basic and diluted EPS computations (in thousands, except per share amounts):

Three Months Ended March 31,

EPS — basic and diluted:

Net loss (numerator)

Weighted average common shares (denominator)

Net loss per share

Common shares issuable represents incremental shares of common stock which consist of stock options, restricted stock units, warrants, and shares that could be issued upon conversion of the Senior convertible notes and the Mann Group convertible notes.

Potentially dilutive securities outstanding that are considered antidilutive are summarized as follows (in shares):

Three Months Ended March 31,

Common stock options and PNQs

RSUs and Market RSUs (1)

Employee stock purchase plan

Senior convertible notes

Mann Group convertible notes

2024 convertible notes

Warrants associated with MidCap credit facility

Warrants associated with public offering

Common stock warrants

____________________

Market RSUs are included at the maximum share delivery percentage.

Stock-Based Compensation Expense

On May 16, 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) as the successor to and continuation of the 2013 Equity Incentive Plan (the “2013 Plan”).

The 2018 Plan initially consisted of 12,000,000 new shares plus the number of unallocated shares remaining available for grant for new awards under the 2013 Plan.

In May 2020, the 2018 Plan was amended to increase the number of shares of common stock that may be issued under the 2018 Plan by 12,500,000 shares.

Effective upon the approval of the 2018 Plan by the Company’s stockholders in May 2018, no additional awards have been or may be granted under the 2013 Plan.

Any Prior Plans’ Returning Shares will increase the number of shares issuable under the 2018 Plan.

The “Prior Plans’ Returning Shares” are shares subject to outstanding stock awards granted under the 2013 Plan or the 2004 Equity Incentive Plan (collectively, “Prior Plans”) that, from and after the effective date of the 2018 Plan, (i) expire or terminate for any reason prior to exercise or settlement, (ii) are forfeited, cancelled or otherwise returned to the Company because of the failure to meet a contingency or condition required for the vesting of such shares, or (iii) other than with respect to outstanding stock options and stock appreciation rights granted under the Prior Plans with an exercise or strike price of at least 100 % of the fair market value of the underlying common stock on the date of grant, are reacquired or withheld (or not issued) by the Company to satisfy a tax withholding obligation in connection with a stock award.

The 2018 Plan provides for the granting of stock awards including stock options and restricted stock units to employees, directors and consultants.

The Company’s board of directors or its compensation committee determines eligibility, vesting schedules and criteria, and exercise prices for stock awards granted under the 2018 Plan.

Options and restricted stock unit awards under the 2018 Plan or the Prior Plans expire not more than ten years from the date of the grant and are exercisable upon vesting.

Stock options that vest over time generally vest over four years .

Current time-based vesting stock option grants vest and become exercisable at the rate of 25 % after one year and ratably on a monthly basis over a period of 36 months thereafter.

The Company also issues PNQ awards with performance conditions.

For PNQs, the Company evaluates the probability that the performance conditions will be met and estimates

the service period for recognition of the associated expense.

Restricted stock units with time-based vesting generally vest at a rate of 25 % per year over four years with consideration satisfied by service to the Company.

The Company also issues restricted stock units with market conditions.

The grant date fair value and the effect of the market conditions was estimated using a Monte Carlo valuation.

The resulting stock-based compensation expense will be recognized over the service period regardless of whether the market conditions are achieved, as long as the service condition is rendered .

Total stock-based compensation expense recognized in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019 was as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended

September 30,

During the three months ended March 31, 2021, the Company granted 370,137 restricted stock units to employees.

The restricted stock units had a weighted average grant date fair value of $ 5.53 per share, of which 202,237 shares had a vesting period of 1 year and 167,900 shares had a vesting period of four years .

As of March 31, 2021, there was $ 4.1 million of unrecognized stock-based compensation expense related to options and PNQs, which is expected to be recognized over a weighted average period of approximately 1.8 years, and $ 7.5 million and $ 4.9 million of unrecognized stock-based compensation expense related to RSUs and Market RSUs, respectively, which is expected to be recognized over a weighted average period of approximately 3.1 and 2.2 years, respectively.

Total stock-based compensation expense recognized in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 was as follows (in thousands):

Three Months Ended

RSUs and options

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Total stock compensation expense

During 2020, the Company granted the following awards:

September 30,

Employee awards:

Non-employee director awards:

Total awards:

RSUs had a weighted average grant date fair value of $ 1.25 per share and a primary vesting period of four years .

RSUs had a weighted average grant date fair value of $ 1.34 per share and a primary vesting period of four years .

Options had a weighted average exercise price of $ 1.25 per share and vest over a four year period.

The weighted average grant date fair value was $ 0.93 per share, as determined using a Black-Scholes option pricing model, with the following key assumptions:

risk-free interest rate of 0.79 %;

expected life of approximately 5.67 years ;

volatility of 93.83 %, and dividend yield of zero .

Options had a weighted average exercise price of $ 1.34 per share and vest over a four year period.

The weighted average grant date fair value was $ 0.99 per share, as determined using a Black-Scholes option pricing model, with the following key assumptions:

risk-free interest rate of 0.39 %;

expected life of approximately 5.67 years ;

volatility of 93.83 %, and dividend yield of zero .

RSUs had a weighted average grant date fair value of $ 1.17 per share and vested immediately upon grant, but the underlying shares of common stock will not be delivered until there is a separation of service, such as resignation, retirement or death.

RSUs had a weighted average grant date fair value of $ 1.34 per share and vested immediately upon grant, but the underlying shares of common stock will not be delivered until there is a separation of service, such as resignation, retirement or death.

Market RSUs had a grant date fair value of $ 3.77 per share and will vest on May 22, 2023 provided that the closing price of the Company’s common stock on such vesting date is not less than the closing price on August 27, 2020.

The number of shares delivered on the vesting date is determined by the percentile ranking of MannKind total shareholder return (TSR) over the period from August 27, 2020 until May 22, 2023 related to the TSR of the Russell 3000 Pharmaceutical & Biotechnology Index over the same period, as follows:

less than 25th percentile= 0 % of target, 25th percentile= 50 % of target, 50th percentile= 100 % of target, 75th percentile= 200 % percent of target, 90th percentile or higher= 300 % maximum.

Payout values will be interpolated between the percentile rankings above.

RSUs had a weighted average grant date fair value of $ 1.70 per share and a primary vesting period of four years .

As of September 30, 2020, there was $ 5.6 million of unrecognized stock-based compensation expense related to options and PNQs, which is expected to be recognized over a weighted average period of approximately 2.2 years, and $ 5.8 million and $ 5.7 million of unrecognized stock-based compensation expense related to RSUs and Market RSUs, respectively, which is expected to be recognized over a weighted average period of approximately 3.7 and 2.6 years, respectively.

Employee Stock Purchase Plan

The Company provides all employees, including executive officers, the ability to purchase our common stock at a discount under our 2004 employee stock purchase plan (the “ESPP”).

The ESPP is designed to comply with Section 423 of the Internal Revenue Code and provides all employees with the opportunity to purchase up to $ 25,000 worth of our common stock (based on the undiscounted fair market value at the commencement of the offering period) each year at a purchase price that is the lower of 85 % of the fair market value of the common stock on either the date of purchase or the commencement of the offering period.

An employee may not purchase more than 5,000 shares of common stock on any purchase date.

The executives’ rights under the ESPP are identical to those of all other employees.

The Company issued 292,981 and 333,727 shares of common stock pursuant to the ESPP for the three months ended March 31, 2021 and 2020, respectively.

There were approximately 1.3 million shares of common stock available for issuance under the ESPP as of March 31, 2021.

Commitments and Contingencies

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The term of the indemnification period is for the officer’s or director’s lifetime.

The maximum amount of potential future indemnification is unlimited;

The maximum amount of potential future indemnification is

however, the Company has a director and officer insurance policy that may enable it to recover a portion of any future amounts paid.

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Litigation — The Company is subject to legal proceedings and claims which arise in the ordinary course of its business.

As of September 30, 2020, 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.

As of March 31, 2021, 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.

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The fair value of the Milestone Rights is recorded in the condensed consolidated balance sheet, including $ 1.3 million in accrued expenses and other current liabilities and $ 5.9 million in milestone rights and other liabilities.

Commitments — In July 2014, the Company entered into an Insulin Supply Agreement (the “Insulin Supply Agreement”) with Amphastar Pharmaceuticals, Inc.

(“Amphastar”) pursuant to which Amphastar manufactures for and supplies to the Company certain quantities of recombinant human insulin for use in Afrezza.

Commitments — In July 2014, the Company entered into the Insulin Supply Agreement with 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.

In August 2019, the Company and Amphastar amended the Insulin Supply Agreement to extend the term to 2026 and to restructure the annual purchase commitments.

As of September 30, 2020, the annual purchase requirements under the amended contract are as follows:

As of March 31, 2021, the remaining purchase requirements are as follows:

Unless terminated earlier, the term of the Insulin Supply Agreement expires on December 31, 2026 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 a 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 .

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.

Warrants – In August 2019, in connection with the MidCap credit facility, the Company issued warrants to purchase an aggregate of 1,171,614 shares of the Company’s common stock, at an exercise price equal to $ 1.11 per share, to the lenders.

Additional MidCap warrants will be issued if the Company accesses additional tranches under the MidCap Credit Facility (see Note 6 – Borrowings ).

On November 30, 2020, in connection with the third amendment to the MidCap credit facility, the Company issued warrants to purchase an aggregate of 111,853 shares of the Company’s common stock, at an exercise price of $ 2.91 per share.

(see Note 6 – Borrowings ).

Vehicle Leases – During the second quarter of 2018, the Company entered into a lease agreement with Enterprise Fleet Management Inc.

for the lease of 119 vehicles.

The lease requires monthly payments of approximately $ 83,000 per month including the cost of maintaining the vehicles, taxes and insurance.

The lease commenced when the Company took possession of the majority of the vehicles in the second quarter of 2018 and expires 48 months after the delivery date.

During 2019, 29 vehicles were removed from the fleet, resulting in a fleet size of 90 vehicles.

An additional vehicle was removed from the fleet in 2020.

During the quarter ended March 31, 2021, a vehicle was removed from the fleet, resulting in a fleet size of 88 vehicles.

No gain or loss was recorded.

The revised monthly payment inclusive of maintenance fees, insurance and taxes is $ 69,000 .

The lease expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.

Upon adoption of ASC 842, the agreement was classified as an operating lease which resulted in recording right-of-use assets and lease liabilities of approximately $ 1.6 million and $ 1.9 million, respectively, as of January 1, 2019.

These amounts included approximately $ 1.6 million of non-current other assets and approximately $ 0.6 million and $ 1.3 million of other current liabilities and operating lease liabilities, respectively.

Office Lease — In May 2017, the Company executed an office lease with Russell Ranch Road II LLC for the Company’s corporate headquarters in Westlake Village, California.

Office Leases — In May 2017, the Company executed an office lease with Russell Ranch Road II LLC for the Company’s corporate headquarters in Westlake Village, California.

The office lease commenced in August 2017.

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The lease expires in January 2023 and provides the Company with a five-year renewal option.

Upon adoption of ASC 842, this lease was classified as an operating lease, which resulted in recording right-of-use assets and lease liabilities of approximately $ 3.2 million and $ 3.5 million, respectively, as of January 1, 2019.

These amounts included approximately $ 0.9 million and $ 2.6 million of other current liabilities and operating lease liabilities, respectively.

For the three and nine months ended September 30, 2020, operating lease costs under all operating leases, including office space and equipment, was approximately $ 0.4 million and $ 1.1 million, respectively.

Cash paid for all operating leases for the three and nine months ended September 30, 2020 was $ 0.5 million and $ 1.3 million, respectively.

Variable lease costs were approximately $ 0.1 million and $ 0.3 million for the three and nine months ended September 30, 2020, respectively.

For the three and nine months ended September 30, 2019, operating lease costs under all operating leases, including office space and equipment, was approximately $ 0.4 million and $ 1.1 million, respectively.

Cash paid for all operating leases for the three and nine months ended September 30, 2019 was $ 0.5 million and $ 1.3 million, respectively.

Variable lease costs were approximately $ 0.1 million and $ 0.3 million for the three and nine months ended September 30, 2019, respectively.

September 30, 2020

Lease information is as follows (in thousands):

Three Months Ended

Operating lease costs

Variable lease costs

March 31, 2021

December 31, 2020

1 unchanged sentence

Weighted average discount rate

Future minimum office and vehicle lease payments as of September 30, 2020 and December 31, 2019, are as follows (in thousands):

September 30, 2020

Future minimum office and vehicle lease payments as of March 31, 2021 and December 31, 2020, are as follows (in thousands):

March 31, 2021

December 31, 2020

2 unchanged sentences

Therefore, no reserves for uncertain income tax positions have been recorded pursuant to this guidance.

The Company’s tax years since 2016 and 2015 remain subject to examination by federal and state tax authorities, respectively.

The Company has recorded an income tax benefit of $ 0.2 million for the three and nine months ended September 30, 2020 for an effective tax rate of 1.90 % and 0.70 % respectively, compared to zero effective tax rate and tax benefit for the same periods in the prior year.

The income tax rates for the three and nine months ended September 30, 2020 diverge from the federal statutory rate due to the full valuation allowance offsetting the Company’s net deferred tax assets and a discrete benefit of $ 0.2 million related to refunded foreign withholding taxes paid in 2018.

The Company’s tax years since 2016 remain subject to examination by federal, state and foreign tax authorities.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements