MANNKIND CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS MANNKIND CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share and per share data) March 31, 2021 December 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 247,833 $ 67,005 Restricted cash 158 158 Short-term investments 28,962 — Accounts receivable, net 3,573 4,218 Inventory 5,050 4,973 Prepaid expenses and other current assets 2,766 3,122 Total current assets 288,342 79,476 Property and equipment, net 26,507 25,867 Long-term investments 1,480 — Other assets 3,053 3,265 Total assets $ 319,382 $ 108,608 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 6,706 $ 5,582 Accrued expenses and other current liabilities 27,586 19,707 PPP loan — current 4,670 4,061 Deferred revenue — current 25,880 33,275 Recognized loss on purchase commitments — current 8,274 11,080 Total current liabilities 73,116 73,705 Senior convertible notes 222,855 — MidCap credit facility 49,406 49,335 Mann Group promissory notes 53,453 63,027 Accrued interest — Mann Group promissory notes 4,753 4,150 PPP loan — long term 203 812 2024 convertible notes — 5,000 Recognized loss on purchase commitments — long term 80,797 84,208 Operating lease liability 869 1,202 Deferred revenue — long term 1,626 1,662 Milestone rights liability 5,926 5,926 Total liabilities 493,004 289,027 Commitments and contingencies (Note 12) Stockholders' deficit: Undesignated preferred stock, $ 0.01 par value — 10,000,000 shares authorized; 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 March 31, 2021 and December 31, 2020, respectively 2,491 2,421 Additional paid-in capital 2,885,946 2,866,303 Accumulated deficit ( 3,062,059 ) ( 3,049,143 ) Total stockholders' deficit ( 173,622 ) ( 180,419 ) Total liabilities and stockholders' deficit $ 319,382 $ 108,608 See notes to condensed consolidated financial statements. 2 MANNKIND CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) Three Months Ended March 31, 2021 2020 Revenues: Net revenue — commercial product sales $ 8,099 $ 8,000 Revenue — collaborations and services 9,337 8,235 Total revenues 17,436 16,235 Expenses: Cost of goods sold 4,315 4,164 Cost of revenue — collaborations and services 3,295 3,362 Research and development 2,442 1,755 Selling, general and administrative 17,413 14,350 Asset impairment — 1,521 Gain on foreign currency translation ( 3,838 ) ( 1,796 ) Total expenses 23,627 23,356 Loss from operations ( 6,191 ) ( 7,121 ) Other (expense) income: Interest income 3 133 Interest expense on notes ( 5,422 ) ( 1,071 ) Interest expense on Mann Group promissory notes ( 1,030 ) ( 1,259 ) Other expense ( 276 ) ( 4 ) Total other expense ( 6,725 ) ( 2,201 ) Loss before provision for income taxes ( 12,916 ) ( 9,322 ) Provision for income taxes — — Net loss $ ( 12,916 ) $ ( 9,322 ) Net loss per share - basic and diluted $ ( 0.05 ) $ ( 0.04 ) Shares used to compute basic and diluted net loss per share 246,631 212,467 See notes to condensed consolidated financial statements. 3 MANNKIND CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (In thousands) Three Months Ended March 31, 2021 2020 Net loss $ ( 12,916 ) $ ( 9,322 ) Other comprehensive loss: Cumulative translation loss — ( 19 ) Comprehensive loss $ ( 12,916 ) $ ( 9,341 ) See notes to condensed consolidated financial statements. 4 MANNKIND CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (Unaudited) (In thousands) Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Shares Amount Capital Loss Deficit Total BALANCE, JANUARY 1, 2020 211,788 $ 2,118 $ 2,799,278 $ ( 19 ) $ ( 2,991,903 ) $ ( 190,526 ) Issuance of common stock under Employee Stock Purchase Plan 334 3 315 — — 318 Stock-based compensation expense — — 1,128 — — 1,128 Issuance of common stock associated with debt interest payment 99 1 143 — — 144 Net issuance of common stock associated with stock options and restricted stock units 504 5 ( 322 ) — — ( 317 ) Issuance of common stock in at-the-market offering 413 4 518 — — 522 Issuance cost associated with at-the-market offering — — ( 16 ) — — ( 16 ) Write-off of cumulative translation loss — — — 19 — 19 Net loss — — — — ( 9,322 ) ( 9,322 ) BALANCE, MARCH 31, 2020 213,138 $ 2,131 $ 2,801,044 $ — $ ( 3,001,225 ) $ ( 198,050 ) Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Shares Amount Capital Loss Deficit Total BALANCE, JANUARY 1, 2021 242,118 $ 2,421 $ 2,866,303 $ — $ ( 3,049,143 ) $ ( 180,419 ) Net issuance of common stock associated with stock options and restricted stock units 390 4 393 — — 397 Issuance of common stock under Employee Stock Purchase Plan 293 3 387 — — 390 Stock-based compensation expense — — 1,935 — — 1,935 Issuance of common stock pursuant to conversion of the Mann Group convertible note 3,830 38 9,535 — — 9,573 Issuance of common stock pursuant to conversion of the Mann Group convertible note interest 170 2 425 — — 427 Issuance of common stock pursuant to conversion of the 2024 convertible notes 1,667 17 4,983 — — 5,000 Issuance of common stock pursuant to payoff of the 2024 convertible note interest 27 — 143 — — 143 Issuance of at-the-market placement 578 6 1,880 — — 1,886 Issuance costs associated with at-the- market placement — — ( 38 ) — — ( 38 ) Net loss — — — — ( 12,916 ) ( 12,916 ) BALANCE, MARCH 31, 2021 249,073 $ 2,491 $ 2,885,946 $ — $ ( 3,062,059 ) $ ( 173,622 ) See notes to condensed consolidated financial statements. 5 MANNKIND CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended March 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 12,916 ) $ ( 9,322 ) Adjustments to reconcile net loss to net cash used in operating activities: Interest expense on Mann Group promissory notes 1,028 1,257 Stock-based compensation expense 1,935 1,128 Asset impairment — 1,521 Depreciation, amortization and accretion 655 538 Amortization of right-of-use assets 309 282 Write-off of inventory — 496 Gain on foreign currency translation ( 3,838 ) ( 1,796 ) Other, net — 19 Changes in operating assets and liabilities: Accounts receivable, net 645 ( 1,661 ) Inventory ( 77 ) 428 Prepaid expenses and other current assets 356 988 Other assets ( 97 ) 40 Accounts payable 1,124 1,942 Accrued expenses and other current liabilities 8,288 1,880 Deferred revenue ( 7,431 ) ( 8,235 ) Operating lease liabilities ( 333 ) ( 724 ) Recognized loss on purchase commitments ( 2,379 ) — Net cash used in operating activities ( 12,731 ) ( 11,219 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of debt securities ( 30,442 ) — Purchase of property and equipment ( 976 ) ( 150 ) Proceeds from sale of treasury bills — 20,000 Net cash (used in) provided by investing activities ( 31,418 ) 19,850 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the Senior convertible notes 230,000 — Issuance costs associated with Senior convertible notes ( 7,268 ) — Proceeds from at-the-market offering 1,886 668 Issuance costs associated with at-the-market offering ( 38 ) ( 20 ) Payment of employment taxes related to vested restricted stock units and exercise of stock options 397 ( 317 ) Net cash provided by financing activities 224,977 331 NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH 180,828 8,962 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD 67,163 30,222 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD $ 247,991 $ 39,184 SUPPLEMENTAL CASH FLOWS DISCLOSURES: Interest paid in cash, net of amounts capitalized $ 1,094 $ 885 NON-CASH INVESTING AND FINANCING ACTIVITIES: Payment on Mann Group convertible note through issuance of common stock 9,573 — Payment of 2024 convertible notes through common stock issuance 5,000 — Reclassification of the PPP Loan from current to long-term 609 — Payment of Mann Group convertible note interest through issuance of common stock 427 — Common stock issuance to settle employee stock purchase plan liability 390 318 Payment of interest on 2024 convertible notes through common stock issuance 143 144 Non-cash construction in progress and property and equipment 124 32 See notes to condensed consolidated financial statements. 6 MANNKIND CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Description of Business and Significant Accounting Policies The accompanying unaudited condensed consolidated financial statements of MannKind Corporation and its subsidiaries (“MannKind,” the “Company,” “we” or “us”), have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on February 25, 2021 (the “Annual Report”). In the opinion of management, all adjustments, consisting only of normal, recurring adjustments, considered necessary for a fair presentation of the results of these interim periods have been included. The results of operations for the three 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. Actual results could differ from those estimates or assumptions. Management considers many factors in selecting appropriate financial accounting policies, and in developing the estimates and assumptions that are used in the preparation of the financial statements. Management must apply significant judgment in this process and the COVID-19 pandemic has increased the level of judgment used by management in developing these estimates and assumptions. The COVID-19 pandemic continues to rapidly evolve and the ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. These effects could have a material impact on the estimates and assumptions used in the preparation of the accompanying condensed consolidated financial statements. 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 — 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 the commercialization of Tyvaso DPI and other product candidates in the Company’s pipeline. 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. 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. 7 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 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. The Company only applies the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company has two types of contracts with customers: (i) contracts for commercial product sales with wholesale distributors and specialty pharmacies and (ii) collaboration arrangements. Revenue Recognition – Net Revenue – Commercial Product Sales – The Company sells Afrezza to a limited number of wholesale distributors and specialty pharmacies in the U.S. (collectively, its “Customers”). Wholesale distributors subsequently resell the Company’s products to retail pharmacies and certain medical centers or hospitals. Specialty pharmacies sell directly to patients. 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, 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. T he Company excludes such amounts related to these programs from both gross and net revenue. The cost of product associated with the free goods program is recognized as cost of goods sold in the condensed consolidated statements of operations. 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, 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. Significant judgments are required in making these estimates. Where appropriate, these estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method in Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reduce recognized revenue to the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. 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 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. 8 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. In addition, the Company compensates (through trade discounts and allowances) its Customers for sales order management, data, and distribution services. However, the Company has determined such services received to date are not distinct from the Company’s sale of products to the Customer and, therefore, these payments have been recorded as a reduction of revenue and as a reduction to accounts receivable, net. Product Returns — Consistent with industry practice, the Company generally offers Customers a right of return for unopened product that has been purchased from the Company for a period beginning six months prior to and ending 12 months after its expiration date , which lapses upon shipment to a patient. The Company estimates the amount of its product sales that may be returned by its Customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized, as well as reductions to accounts receivable, net. The Company currently estimates product returns using available industry data and its own sales information, including its visibility into the inventory remaining in the distribution channel. The Company’s current return reserve percentage is estimated to be in the single-digits. Adjustments to the returns reserve have been made in the past and may be necessary in the future based on revised estimates to our assumptions. Provider Chargebacks and Discounts — Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability that is recorded in accrued expenses and other current liabilities. 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. 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 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. 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. 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. 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 payers. 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. 9 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: up-front license fees; development, regulatory, and commercial milestone payments; payments for manufacturing commercial and clinical supply services the Company provides; and royalties on net sales of licensed products and sublicenses of the rights. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment such as determining the performance obligation in the contract and determining the stand-alone selling price for each performance obligation identified in the contract. If an arrangement has multiple performance obligations, the allocation of the transaction price is determined from observable market inputs, and the Company uses key assumptions to determine the stand-alone selling price, which may include development timelines, reimbursement rates for personnel costs, discount rates, and probabilities of technical and regulatory success. Revenue is recognized based on the measurement of progress as the performance obligation is satisfied and consideration received that does not meet the requirements to satisfy the revenue recognition criteria is recorded as deferred revenue. Current deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months. 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, 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. The undelivered performance obligations typically include manufacturing or development services or research and/or steering committee services. If the license is not considered as a distinct performance obligation, then the license and other undelivered performance obligations would be evaluated to determine if such should be accounted for as a single unit of accounting. If concluded to be a single performance obligation, the transaction price for the single performance obligation is recognized as revenue over the estimated period of when the performance obligation is satisfied. Whenever the Company determines that an arrangement should be accounted for over time, the Company determines the period over which the performance obligations will be performed, and revenue will be recognized over the period the Company is expected to complete its performance obligations. Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company is expected to complete its performance obligations under an arrangement. The Company’s collaboration agreements typically entitle the Company to additional payments upon the achievement of development, regulatory and sales milestones. If the achievement of a milestone is considered probable at the inception of the collaboration, the related milestone payment is included with other collaboration consideration, such as upfront fees and research funding, in the Company’s revenue calculation. 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 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, 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. Accordingly, the Company concluded that its collaborative agreements must be accounted for pursuant to Topic 606, Revenue from Contracts with Customers. For collaboration agreements that allow collaboration partners to select additional optioned products or services, the Company evaluates whether such options contain material rights (i.e., have exercise prices that are discounted compared to what the Company would charge for a similar product or service to a new collaboration partner). The exercise price of these options includes a combination of licensing fees, event-based milestone payments and royalties. When these amounts in aggregate are not offered at a discount that exceeds discounts available to other customers, the Company concludes the option does not contain a material right, and therefore is not included in the transaction price at contract inception. Rather, the Company evaluates grants of additional licensing rights upon option exercises to determine whether such should be accounted for as separate contracts. The Company concluded there is no material right in these options. 10 The Company follows detailed accounting guidance in measuring revenue and certain judgments affect the application of its revenue policy. For example, in connection with its existing collaboration agreements, the Company has recorded on its condensed consolidated balance sheets short-term and long-term deferred revenue based on its best estimate of when such revenue will be recognized. Short-term deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months. Amounts that the Company expects will not be recognized within the next 12 months are classified as long-term deferred revenue. However, this estimate is based on the Company’s current project development plan and, if the development plan should change in the future, the Company may recognize a different amount of deferred revenue over the next 12-month period. Milestone Payments — At the inception of each arrangement that includes development milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the customer, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as, or when, the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company will re-evaluate the probability of achievement of such development milestones 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, which would affect license, collaboration, other revenue, and earnings in the period of adjustment. 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. See Note 6 – Borrowings for additional information. Cost of Goods Sold — Cost of goods sold includes material, labor costs and manufacturing overhead. 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 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 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. The Company presents amounts of restricted cash that will be available for use within 12 months of the reporting date as restricted cash in current assets. 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 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 Cash and cash equivalents $ 247,833 $ 67,005 Restricted cash 158 158 Total cash, cash equivalents, and restricted cash $ 247,991 $ 67,163 11 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. 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. Accounts receivable are presented net of an allowance for doubtful accounts if there are estimated losses resulting from the inability of its customers to make required payments. The Company makes ongoing assumptions relating to the collectability of its accounts receivable in its calculation of the allowance for doubtful accounts. 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, 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. In doing so, management must consider a number of factors in order to determine the amount of inventory to be capitalized, including the historical experience of achieving regulatory approvals for the Company’s manufacturing process, feedback from regulatory agencies on the changes being effected and the amount of inventory that is likely to be used in commercial production. The shelf life of the excipient will be determined as part of the regulatory approval process; in the interim, the Company must assess the available stability data to determine whether there is likely to be adequate shelf life to support anticipated future sales occurring beyond the expected approval date of the new raw material. If management is aware of any specific material risks or contingencies other than the normal regulatory review and approval process, or if the criteria for capitalizing inventory produced prior to regulatory approval are otherwise not met, the Company would not capitalize such inventory costs, choosing instead to recognize such costs as a research and development expense in the period incurred. Inventories — Inventories are stated at the lower of cost or net realizable value. The Company determines the cost of inventory using the first-in, first-out, or FIFO, method. The Company capitalizes inventory costs associated with the Company’s products based on management’s judgment that future economic benefits are expected to be realized; otherwise, such costs are expensed as incurred as cost of goods sold. The Company periodically analyzes its inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value and writes down such inventories, as appropriate. In addition, the Company’s products are subject to strict quality control and monitoring which the Company performs throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or may become obsolete or are forecasted to become obsolete due to expiration, the Company will record a charge to write down such unmarketable inventory to its estimated net realizable value. The Company analyzes its inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value. The Company performs an assessment of projected sales and evaluates the lower of cost or net realizable value and the potential excess inventory on hand at the end of each reporting period. Impairment of Long-Lived Assets — The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Assets are considered to be impaired if the carrying value is considered to be unrecoverable. If the Company believes an asset to be impaired, the impairment recognized is the amount by which the carrying value of the asset exceeds the fair value of the asset. Fair value is determined using the market, income or cost approaches as appropriate for the asset. 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 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 $ 1.5 12 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. Losses that are expected to arise from firm, non-cancellable, commitments for the future purchases are recognized unless recoverable. When making the assessment, the Company also considers whether it is able to renegotiate with its vendors. The recognized loss on purchase commitments is reduced as inventory items are received. 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 $ 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. and Deerfield Private Design International I L.P. , 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 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. Since the Company has not elected to apply the fair value option to the Milestone Rights, the Company recorded them at their estimated initial fair value and accounted for the Milestone Rights as a liability. The initial fair value estimate of the Milestone Rights was calculated using the income approach in which the cash flows associated with the specified contractual payments were adjusted for both the expected timing and the probability of achieving the milestones and discounted to present value using a selected market discount rate. The expected timing and probability of achieving the milestones was developed with consideration given to both internal data, such as progress made to date and assessment of criteria required for achievement, and external data, such as market research studies. The discount rate was selected based on an estimation of required rate of returns for similar investment opportunities using available market data. The Milestone Rights liability will be remeasured as the specified milestone events are achieved. Specifically, as each milestone event is achieved, the portion of the initially recorded Milestone Rights liability that pertains to the milestone event being achieved, will be remeasured to the amount of the specified related milestone payment. The resulting change in the balance of the Milestone Rights liability due to remeasurement will be recorded in the Company’s consolidated statements of operations as interest expense. Furthermore, the Milestone Rights liability will be reduced upon the settlement of each milestone payment. 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 ). 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. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows: Level 1 — Quoted prices for identical instruments in active markets. Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 — Significant inputs to the valuation model are unobservable. Income Taxes — The provisions for federal, foreign, state and local income taxes are calculated on pre-tax income based on current tax law and include the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. A valuation allowance is recorded to reduce net deferred income tax assets to amounts that are more likely than not to be realized. 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. 13 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. These accruals represent management’s best estimate of probable loss. Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. On a quarterly basis, the Company reviews the status of each significant matter and assesses its potential financial exposure. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. 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 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. 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. 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 addition to internal costs associated with conducting clinical trials. 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. 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. 2. Accounts Receivable Accounts receivable, net consists of the following (in thousands): March 31, 2021 December 31, 2020 Accounts receivable, gross $ 7,449 $ 8,090 Wholesaler distribution fees and prompt pay discounts ( 1,471 ) ( 1,205 ) Reserve for returns ( 2,405 ) ( 2,667 ) Accounts receivable, net $ 3,573 $ 4,218 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. 3. Inventories Inventories consist of the following (in thousands): March 31, 2021 December 31, 2020 Raw materials $ 1,770 $ 1,393 Work-in-process 331 2,484 Finished goods 2,949 1,096 Total inventory $ 5,050 $ 4,973 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 14 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. The Company also performed an assessment of projected sales and evaluated the lower of cost or net realizable value and the potential excess inventory on hand. 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 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. 4. Property and Equipment Property and equipment consists of the following (in thousands): Estimated Useful Life (Years) March 31, 2021 December 31, 2020 Land — $ 875 $ 875 Buildings 39-40 17,389 17,389 Building improvements 5-40 37,710 37,543 Machinery and equipment 3-15 54,774 55,054 Furniture, fixtures and office equipment 5-10 3,004 3,004 Computer equipment and software 3 8,319 8,319 Construction in progress — 1,273 503 123,344 122,687 Less accumulated depreciation ( 96,837 ) ( 96,820 ) Total property and equipment, net $ 26,507 $ 25,867 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 March 31, 2021 2020 Depreciation Expense $ 460 $ 443 5. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities were comprised of the following (in thousands): March 31, 2021 December 31, 2020 Salary and related expenses $ 13,756 $ 11,250 Discounts and allowances for commercial product sales 3,906 3,688 Deferred lease liability 1,426 1,422 Professional fees 1,196 533 Sales and marketing services 278 99 Accrued interest 4,489 519 Other 1,198 859 Milestone rights liability — current 1,337 1,337 Total accrued expenses and other current liabilities $ 27,586 $ 19,707 Included in salary and related expenses is $ 1.1 million of deferred social security taxes as permitted under the CARES Act. 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 15 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 d iscussed in Note 6 – Borrowings . 6 . Borrowings Carrying amount of principal borrowings consist of the following (in thousands): March 31, 2021 December 31, 2020 Senior convertible notes $ 222,855 $ — MidCap credit facility 49,406 49,335 Mann Group promissory notes 53,453 63,027 PPP loan 4,873 4,873 2024 convertible notes — 5,000 Total debt — net carrying amount $ 330,587 $ 122,235 The following table provides a summary of the Company’s debt and key terms as of March 31, 2021: Amount Due Terms March 31, 2021 December 31, 2020 Annual Interest Rate Maturity Date Conversion Price Senior convertible notes $ 230.0 million $ — 2.50 % March 2026 $ 5.21 per share MidCap credit facility (1) $ 50.0 million $ 50.0 million one-month LIBOR ( 2 % floor) plus 6.75 % August 2024 N/A Mann Group convertible note $ 18.4 million (plus $ 0.5 million accrued interest paid-in-kind) $ 28.0 million (plus $ 0.6 million accrued interest paid-in-kind) 7.00 % November 2024 $ 2.50 per share Mann Group non-convertible note (2) $ 35.1 million (plus $ 4.3 million accrued interest paid-in-kind) $ 35.1 million (plus $ 3.6 million accrued interest paid-in-kind) 7.00 % November 2024 N/A PPP loan $ 4.9 million $ 4.9 million 0.98 % April 2022 N/A 2024 convertible notes (3) $ — $ 5.0 million 5.75 % November 2024 $ 3.00 per share ____________________ (1) Subsequent to March 31 , 2021, $ 10.0 million of the outstanding principal amount was repaid. (2) Subsequent to March 31, 2021, $ 35.1 million of the outstanding principal amount was repaid, together with all accrued and unpaid interest. (3) 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): Amounts 2021 $ 4,061 2022 9,145 2023 25,000 2024 70,142 Thereafter 230,000 Total principal payments 338,348 Unamortized discount ( 594 ) Unamortized debt issuance costs ( 7,167 ) Total debt — net carrying amount $ 330,587 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 16 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 17 (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. 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. 18 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 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, 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. Upon an event of default, the agent and the lenders may declare all or a portion of the Company’s outstanding obligations to be immediately due and payable and exercise other rights and remedies provided for under the MidCap credit facility. 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 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. 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 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. 19 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. The PPP loan matures on April 9, 2022 and bears interest at a rate of 0.98 % per annum. The PPP loan is evidenced by a promissory note dated April 9, 2020, which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. The PPP loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties. All or a portion of the PPP loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application to the lender by the Company beginning 60 days after loan approval, but not later than ten months after the end of the Company’s covered period, and upon documentation of expenditures in accordance with the SBA requirements. Principal and interest payments can be deferred up to ten months after the end of the Company’s covered period unless the Company is notified earlier of its loan forgiveness status. 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. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $ 100,000 , prorated annually. Not more than 40 % of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $ 100,000 or less annually are reduced by more than 25 %. In the event the PPP loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. Any unforgiven portion of the PPP loan will be payable in accordance with the terms of the promissory note as described above. The Company used all proceeds from the PPP loan to retain employees, maintain payroll and make lease, interest and utility payments. 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 March 31, 2021 2020 Accretion of debt discount $ 60 $ 89 Amortization of debt issuance cost ( 124 ) ( 27 ) 20 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 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 March 31, 2021. 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. 7. 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 March 31, 2021 2020 UT License Agreement $ 8,999 $ 7,978 Vertice Pharma Co-promotion Agreement 292 — Receptor CLA 10 62 Cipla License and Distribution Agreement 36 37 UT Research Agreement — 158 Total revenue from collaborations and services $ 9,337 $ 8,235 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. The Company recognizes revenue on a ratable basis from October 2018 through December 2021; the estimated date when its performance obligations for development activities under UT License Agreement will be substantially completed. At the inception of the agreement, the Company identified one distinct, performance obligation. The Company determined that the key deliverables include the license, supply of product to be used in clinical development, and certain research services upon achievement of specified development targets. Due to the specialized and unique nature of these services and their direct relationship with the license, the Company has determined that these deliverables represent one distinct bundle and thus, one performance obligation. The Company also determined that UT’s option to expand the scope of the products to include products with other active ingredients 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 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. The Company believes that this method best reflects the measure of progress toward complete satisfaction of the performance obligation. 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. 21 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. Under this agreement, Biomm was responsible for pursuing regulatory approvals of Afrezza in Brazil, including from the Agência Nacional de Vigilância Sanitária (“ANVISA”) and, with respect to pricing matters, from the Camara de Regulação de Mercado de Medicamentos (“CMED”), both of which have now been received. Biomm commenced product sales in January 2020. In September 2019, the Company delivered its first shipment of Afrezza to Biomm and recorded it as net revenue — commercial product sales for $ 0.7 million, in advance of the planned launch of the product in Brazil by Biomm. During the second quarter of 2020, the Company sold $ 0.2 million of product to Biomm. 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. (“Cipla”) entered into an exclusive agreement for the marketing and distribution of Afrezza in India and the Company received a $ 2.2 million nonrefundable license fee. Under the terms of the agreement, Cipla will be responsible for obtaining regulatory approvals to distribute Afrezza in India and for all marketing and sales activities of Afrezza in India. 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 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 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. (“AMSL Diabetes”) for the commercialization of Afrezza in Australia. Under the terms of this agreement, AMSL Diabetes is responsible for obtaining regulatory and reimbursement approvals to distribute Afrezza in Australia. Upon regulatory approval, AMSL Diabetes will conduct sales, marketing, and customer support and distribution activities whereas the Company will be responsible for the supply and manufacturing of Afrezza. 8. Fair Value of Financial Instruments The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement. 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 22 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 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). 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 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 Significant Unobservable Inputs (Level 3) Fair Value Financial liabilities: Senior convertible notes (1) $ 222.9 $ 209.7 $ 209.7 MidCap credit facility (2) 49.4 52.7 52.7 Mann Group convertible notes (3) 18.4 42.2 42.2 Mann Group non-convertible notes (4) 35.1 31.5 31.5 PPP loan (5) 4.9 4.8 4.8 Milestone rights (6) 7.3 12.6 12.6 ____________________ (1) 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. (2) 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. (3) 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. (4) 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. (5) 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. (6) Fair value determined by applying a Monte Carlo simulation. December 31, 2020 Carrying Value Significant Unobservable Inputs (Level 3) Fair Value Financial liabilities: (1) MidCap credit facility $ 49.3 $ 55.4 $ 55.4 Mann Group promissory notes (2) 63.0 78.9 78.9 2024 convertible notes 5.0 7.0 7.0 PPP loan 4.9 4.7 4.7 Milestone rights 7.3 19.8 19.8 ____________________ (1) Fair value measurements were based on a discounted cash flow model, except for the Milestone rights for which a Monte Carlo simulation was applied. (2) 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. 23 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. The Company utilized Monte-Carlo Simulation Method to simulate the Net Sales under a neutral framework to estimate the payment. The Company then discounted the future expected payments at cost of debt with a term equal to the simulated time to payout based on cumulative sales. 9. Common and Preferred Stock 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. (“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 Sales Agreement. 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. 10. 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, 2021 2020 EPS — basic and diluted: Net loss (numerator) $ ( 12,916 ) $ ( 9,322 ) Weighted average common shares (denominator) 246,631 212,467 Net loss per share $ ( 0.05 ) $ ( 0.04 ) 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. 24 Potentially dilutive securities outstanding that are considered antidilutive are summarized as follows (in shares): Three Months Ended March 31, 2021 2020 Common stock options and PNQs 11,321,734 14,014,315 RSUs and Market RSUs (1) 6,282,279 522,021 Employee stock purchase plan 94,157 144,088 Senior convertible notes 44,120,463 — Mann Group convertible notes 7,370,000 14,000,000 2024 convertible notes — 1,666,667 Warrants associated with MidCap credit facility 1,283,467 1,171,614 Warrants associated with public offering — 7,250,000 Common stock warrants — 31,851 Total shares 70,472,100 38,800,556 ____________________ (1) Market RSUs are included at the maximum share delivery percentage. 11. Stock-Based Compensation Expense 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 March 31, 2021 2020 RSUs and options $ 1,826 $ 1,066 Employee stock purchase plan 109 62 Total stock compensation expense $ 1,935 $ 1,128 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. 12. Commitments and Contingencies Guarantees and Indemnifications — In the ordinary course of its business, the Company makes certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. The Company, as permitted under Delaware law and in accordance with its Bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum amount of potential future indemnification is 25 unlimited; however, the Company has a director and officer insurance policy that may enable it to recover a portion of any future amounts paid. The Company believes the fair value of these indemnification agreements is minimal. The Company has not recorded any liability for these indemnities in the accompanying condensed consolidated balance sheets. However, the Company accrues for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable and the amount can be reasonably estimated. No such losses have been recorded to date. Litigation — The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. 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. The Company records a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company’s policy is to accrue for legal expenses in connection with legal proceedings and claims as they are incurred. Following the public announcement in January 2016 of the election by sanofi-aventis U.S. LLC (“Sanofi”) to terminate a license and collaboration agreement (the “Sanofi License Agreement”) between the Company and Sanofi and the subsequent decline in the Company’s stock price, two motions were submitted to the district court at Tel Aviv, Economic Department for the certification of a class action against the Company and certain of its officers and directors. In general, the complaints allege that the Company and certain of its officers and directors violated Israeli and U.S. securities laws by making materially false and misleading statements regarding the prospects for Afrezza, thereby artificially inflating the price of its common stock. The plaintiffs are seeking monetary damages. In November 2016, the district court dismissed one of the actions without prejudice. In the remaining action, the district court ruled in October 2017 that U.S. law will apply to this case. The plaintiff appealed this ruling, and following an oral hearing before the Supreme Court of Israel, decided to withdraw his appeal. Subsequently, in November 2018, the Company filed a motion to dismiss the certification motion. In September 2019, the plaintiff brought a motion to amend his claim, which the court denied in January 2020. The plaintiff has appealed this denial to the Supreme Court of Israel. The Company will continue to vigorously defend against the claims advanced. Contingencies — In July 2013, the Company entered into an agreement with the Milestone Purchasers, pursuant to which the Company granted the Milestone Rights to receive payments up to $ 90.0 million upon the occurrence of specified strategic and sales milestones, $ 70.0 million of which remains payable upon achievement of such milestones (see Note 6 – Borrowings ). 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 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 March 31, 2021, the remaining purchase requirements are as follows: Minimum Commitment 2021 € 7.0 million 2022 € 8.5 million 2023 € 10.9 million 2024 € 14.6 million 2025 € 15.5 million 2026 € 19.4 million 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. 26 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. 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. 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. 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. The Company agreed to pay initial monthly lease payments of $ 40,951 , subject to 3 % annual increases, plus the estimated cost of maintaining the property and common areas by the landlord, with a five-month concession from October 2017 through February 2018. The lease also provides for allowances for tenant alterations and maintenance. The lease expires in January 2023 and provides the Company with a five-year renewal option. The lease expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations. In November 2017, the Company executed an office lease with Russell Ranch Road II LLC to expand the office space for the Company’s corporate headquarters in Westlake Village, California. The office lease commenced in October 2018. The Company agreed to pay initial monthly lease payments of $ 35,969 , subject to a 3 % annual increase, plus the estimated operating cost of maintaining the property by the landlord, which are allocable based an annual assessment made by the landlord. In addition, the Company received reimbursement from the landlord of $ 56,325 for tenant improvements and was not required to pay a first-year common area maintenance fee. The lease expires in January 2023 and provides the Company with a five-year renewal option. Lease information is as follows (in thousands): Three Months Ended March 31, 2021 2020 Operating lease costs $ 350.1 $ 351.5 Variable lease costs 111.2 100.5 Cash paid 461.3 452.0 March 31, 2021 December 31, 2020 Weighted average remaining lease term (in years) 1.7 1.9 Weighted average discount rate 8.8 % 7.5 % 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 2021 $ 1,123 $ 1,494 2022 1,239 1,239 2023 88 88 Total $ 2,450 $ 2,821 13. Income Taxes Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and concluded, in accordance with the applicable accounting standards, that net deferred tax assets should be fully reserved. The Company has assessed its position with regards to uncertainty in tax positions and believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to this guidance. The Company’s tax years since 2016 remain subject to examination by federal, state and foreign tax authorities. 27