What changed in this filing

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Item 1. Financial Statements

2021-08-11 compared with 2021-05-12 · 267 added, 175 removed, 700 unchanged (39% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

March 31, 2021

June 30, 2021

December 31, 2020

26 unchanged sentences

Milestone rights liability

Deposits from customer

Total liabilities

2 unchanged sentences

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

no shares issued or outstanding as of June 30, 2021 and December 31, 2020

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

authorized, 249,617,550 and 242,117,089 shares issued and outstanding

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

at June 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

7 unchanged sentences

Three Months Ended

Six Months Ended

Net revenue — commercial product sales

6 unchanged sentences

Asset impairment

Gain on foreign currency translation

Loss (gain) on foreign currency translation

Loss on purchase commitments

Total expenses

4 unchanged sentences

Interest expense on Mann Group promissory notes

Other expense

Loss on extinguishment of debt

Other income (expense)

Total other expense

8 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive loss:

18 unchanged sentences

BALANCE, MARCH 31, 2020

Stock-based compensation expense

Issuance of common stock from the

exercise of warrants

Issuance of common stock pursuant to

conversion of the June 2020 note

Net issuance of common stock associated

with stock options and restricted stock

Issuance of common stock in at-the-market

Issuance cost associated with at-the-market

Issuance of common stock from market

price stock purchase

Adjustment of common stock in association

with restricted stock units

BALANCE, JUNE 30, 2020

Comprehensive

15 unchanged sentences

payoff of the 2024 convertible note

Issuance of at-the-market placement

Issuance costs associated with at-the-

market placement

Issuance of common stock in at-the-market

Issuance cost associated with at-the-market

BALANCE, MARCH 31, 2021

Net issuance of common stock associated

with stock options and restricted stock

Stock-based compensation expense

Premium on Mann Group convertible note

Issuance of common stock from market

price stock purchase

BALANCE, JUNE 30, 2021

See notes to condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

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

Interest expense on Mann Group promissory notes

Loss on extinguishment of debt

Stock-based compensation expense

Asset impairment

Interest on milestone payment

(Gain) loss on foreign currency translation

Depreciation, amortization and accretion

Interest expense on Mann Group promissory notes

Amortization of right-of-use assets

Asset impairment

Write-off of inventory

Gain on foreign currency translation

Changes in operating assets and liabilities:

6 unchanged sentences

Recognized loss on purchase commitments

Deposits from customer

Accrued interest on Mann Group promissory notes

Net cash used in operating activities

1 unchanged sentence

Purchase of debt securities

Purchase of available-for-sale securities

Purchase of property and equipment

4 unchanged sentences

Issuance costs associated with Senior convertible notes

Principal payments on Mann Group promissory notes

Payment of MidCap credit facility

Payment of MidCap credit facility prepayment penalty

Milestone payment

Proceeds from at-the-market offering

2 unchanged sentences

and exercise of stock options

Proceeds from market price stock purchase

Issuance of common stock from the exercise of warrants

Proceeds from PPP loan

Net cash provided by financing activities

5 unchanged sentences

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Premium on Mann Group convertible note

Payment on Mann Group convertible note through issuance of common stock

Payment of 2024 convertible notes through common stock issuance

Reclassification of the PPP Loan from current to long-term

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

Common stock issuance to settle employee stock purchase plan liability

Payment of interest on 2024 convertible notes through common stock issuance

Payment of 2024 convertible notes through issuance of common stock

Non-cash construction in progress and property and equipment

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

Issuance of common stock under Employee Stock Purchase Plan

Payment of interest on 2024 convertible notes through issuance of common stock

Payment of principal on Senior convertible notes through issuance of common stock

Receivable from at-the-market offering

See notes to condensed consolidated financial statements.

2 unchanged sentences

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”).

The 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.

1 unchanged sentence

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.

The results of operations for the three and six months ended June 30, 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.

3 unchanged sentences

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.

These effects could have a material impact on the estimates and assumptions used in the preparation of the 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.

4 unchanged sentences

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.

Basis of Presentation — The 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 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 of other product candidates in the Company’s pipeline.

As of June 30, 2021, the Company had capital resources of $ 62.5 million in cash and cash equivalents, $ 100.0 million in short-term investments, $ 39.0 million in long-term investments, an accumulated deficit of $ 3.1 billion and total principal amount of outstanding borrowings of $ 293.3 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.

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

In April 2021, $ 10.0 million of the outstanding principal amount was repaid leaving a balance of $ 40.0 million at June 30, 2021.

See Note 6 – Borrowings .

4 unchanged sentences

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.

An adjustment has been made to the condensed consolidated statements of cash flows for the six months ended June 30, 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.

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

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

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 June 30, 2021 and, therefore, the transaction price was not reduced further during the six months ended June 30, 2021.

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

48 unchanged sentences

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.

If the milestone is achieved after the performance period has been 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.

1 unchanged sentence

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.

Accordingly, the Company concluded that its collaborative agreements must generally 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).

17 unchanged sentences

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.

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

On July 28, 2021, the Company received notification from the U.S.

Small Business Administration (“SBA”) that the full principal amount of the PPP loan was forgiven.

See Note 6 – Borrowings for additional information.

1 unchanged sentence

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.

These costs, in addition to the impact of the revaluation of inventory for standard costing, 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.

2 unchanged sentences

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.

As of June 30, 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

June 30, 2021

December 31, 2020

June 30, 2020

Cash and cash equivalents

1 unchanged sentence

Total cash, cash equivalents, and restricted cash

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

Held-to-Maturity 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.

For the three and six months ended June 30, 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.

The amortization of the Company’s investments is recognized as interest expense in the condensed consolidated statements of operations and was approximately $ 0.1 million for the three and six months ended June 30, 2021.

There was no such amortization for the three or six months ended June 30, 2020.

No allowance for credit losses on held-to-maturity securities was required as of June 30, 2021.

Available-for-Sale Investment — In June 2021, the Company invested $ 3.0 million in Thirona Bio, Inc.

(“Thirona”) and received a $ 3.0 million convertible promissory note (the “Thirona convertible note”).

Unless earlier converted into conversion shares pursuant to the note purchase agreement, the principal and accrued interest shall be due and payable by Thirona on demand by the Company at any time after the maturity date of December 2022 .

Interest shall accrue at a rate of 6 % per annum.

The Thirona convertible note is a general unsecured obligation of Thirona.

The Thirona convertible note is classified as an available-for-sale security and is included in other assets in the condensed consolidated balance sheet.

Available-for-sale investments are subsequently measured at fair value.

Unrealized holding gains and losses are excluded from earnings and reported in other comprehensive income until realized.

The Company determines fair value of its available-for-sale investments using level 3 inputs.

As of June 30, 2021, the Company evaluated the fair value of its investment in Thirona and determined that the fair value approximates the carrying value of $ 3.0 million.

In June 2021, the Company and Thirona also entered into a collaboration agreement to develop a compound for the treatment of fibrotic lung diseases.

See Note 7 – Collaboration, Licensing and Other Arrangements for additional information.

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

28 unchanged sentences

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

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

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

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 we re unlikely to be achieved.

As a result, a n asset impairment of $ 1.9 million was recognized during the six months ended June 30 , 2020 and is reflected in the Company’s condensed consolidated statement s of operations .

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

3 unchanged sentences

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.

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

The liability balance of the recognized loss on insulin purchase commitments was $ 88.7 million and $ 95.3 million as of June 30, 2021 and December 31, 2020, respectively.

No new contracts were identified in 2020 or in the first six months 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.

1 unchanged sentence

, 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”).

and Horizon Santé FLML SÁRL (the “Milestone Purchasers”) certain rights to receive payments of up to $ 90.0 million, of which $ 65.0 million remains payable as of June 30, 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.

22 unchanged sentences

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.

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.

10 unchanged sentences

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.

Clinical Trial Expenses — Clinical trial expenses, which are primarily reflected in research and development expenses in the 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.

5 unchanged sentences

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

March 31, 2021

June 30, 2021

December 31, 2020

Accounts receivable – commercial

Accounts receivable, gross

1 unchanged sentence

Reserve for returns

Accounts receivable, net

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.

Total accounts receivable – commercial, net

Accounts receivable – collaborations and services

Total accounts receivable, net

As of June 30, 2021 and December 31, 2020, the allowance for doubtful accounts was de minimis .

The Company had three wholesale distributors representing approximately 88 % of commercial accounts receivable as of June 30, 2021 and approximately 82 % and 82 % of gross sales for the three and six months ended June 30, 2021, respectively.

Inventories consist of the following (in thousands):

March 31, 2021

June 30, 2021

December 31, 2020

3 unchanged sentences

Total inventory

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

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

insulin was accrued as of the end of 2015.

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

Work-in-process and finished goods as of June 30, 2021 and December 31, 2020 include conversion costs and exclude the cost of insulin.

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

Raw materials inventory included $ 0.8 million of pre-launch inventory as of June 30, 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 2023, 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.

1 unchanged sentence

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.

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

For the six months ended June 30, 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 and six months ended June 30, 2021.

Property and Equipment

1 unchanged sentence

Estimated Useful

March 31, 2021

June 30, 2021

December 31, 2020

6 unchanged sentences

Total property and equipment, net

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

Depreciation expense related to property and equipment for the three and six months ended June 30, 2021 and 2020 was as follows (in thousands):

Three Months Ended

Six Months Ended

Depreciation Expense

1 unchanged sentence

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

March 31, 2021

June 30, 2021

December 31, 2020

1 unchanged sentence

Discounts and allowances for commercial product sales

Accrued interest

Deferred lease liability

Milestone rights liability — current

Danbury facility buildout

Professional fees

Sales and marketing services

Accrued interest

Milestone rights liability — current

Total accrued expenses and other current liabilities

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

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 .

Included in salary and related expenses is approximately $ 1.0 million of deferred social security taxes as permitted under the CARES Act.

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

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

The Company received notification of forgiveness by the SBA for the full principal balance of the PPP loan as discussed in Note 6 – Borrowings .

Therefore, the deferred social security taxes will be repaid in August 2021.

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

March 31, 2021

June 30, 2021

December 31, 2020

4 unchanged sentences

Total debt — net carrying amount

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

March 31, 2021

___________________

The amendment to the Mann Group convertible note resulted in a substantial premium of $ 22.1 million based on the fair value post modification, which contributed to the loss on extinguishment in the condensed consolidated statement of operations for the three and six months ended June 30, 2021 and was recognized as additional paid-in capital in the condensed consolidated balance sheet as of June 30, 2021.

The accounting for the $ 22.1 million loss on extinguishment did not result in a change in the financial position of the Company.

The following table provides a summary of the Company’s debt and key terms as of June 30, 2021:

June 30, 2021

December 31, 2020

11 unchanged sentences

$ 28.0 million (plus $ 0.6 million accrued interest paid-in-kind)

November 2024

December 2025

Mann Group non-convertible note (3)

$ 35.1 million (plus $ 3.6 million accrued interest paid-in-kind)

November 2024

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____________________

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

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

In April 2021, the Company prepaid $ 10.0 million principal balance and amended the MidCap credit facility.

The interest rate prior to the amendment was one-month LIBOR ( 2 % floor) plus 6.75 % and the maturity date was in August 2024 .

In April 2021, the Mann Group convertible note was amended.

The interest rate prior to the amendment was 7.00 % and the maturity date was in November 2024 .

In April 2021, the Company prepaid $ 35.1 million principal balance as well as accrued unpaid interest.

In July 2021, the Company received full forgiveness from the SBA for the $ 4.9 million principal balance of the PPP loan.

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):

The maturities of our borrowings as of June 30, 2021 are as follows (in thousands):

Total principal payments

Unamortized discount

Unamortized debt issuance costs

Debt issuance cost

Total debt — net carrying amount

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

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

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

Pursuant to an option to purchase additional senior convertible notes in the purchase agreement between the Company and the initial purchasers of the Senior convertible notes, the Company issued an additional $ 30.0 million aggregate principal amount of Senior convertible notes on March 15, 2021.

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

3 unchanged sentences

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;

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;

12 unchanged sentences

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.

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.

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.

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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 .

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

The Indenture provides that the Company shall not consolidate with or merge with or into, or sell, convey, transfer or lease all or substantially all of the consolidated properties and assets of the Company and its subsidiaries, taken as a whole, to, another person (other than any such sale, conveyance, transfer or lease to one or more of the Company’s direct or indirect wholly owned subsidiaries), unless:

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

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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.

As of June 30, 2021, the unamortized debt issuance cost was $ 6.8 million.

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.

In April 2021, $ 10.0 million was prepaid.

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 ).

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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.

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 statements 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.

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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.

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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 prepayment penalty of $ 1.0 million related to the payment of $ 10.0 million was capitalized and will be amortized over the remaining life of the debt.

As of June 30, 2021, the unamortized debt discount was $ 0.4 million and the unamo rtized prepayment penalty was $ 0.9 million .

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.

As of June 30, 2021, the Company was in compliance with the financial and minimum cash covenants.

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

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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 amendment to the Mann Group convertible note resulted in a debt extinguishment with a substantial premium based on the fair value post extinguishment.

The fair value in excess of the face amount of $ 18.4 million contributed to a loss on extinguishment of $ 22.1 million in our condensed consolidated statement of operations for the three and six months ended June 30, 2021 and resulted in a corresponding debt premium of $ 22.1 million which was recognized as additional paid-in capital in our condensed consolidated balance sheet as of June 30, 2021.

The accounting for the $22.1 million loss on extinguishment did not result in a change in the financial position of the Company.

The Company wrote off a de minimis amount of debt issuance cost.

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.

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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.

stock at a price per shall equal to the last reported sale price on the trading day immediately prior to the payment date.

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

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

During the six months ended June 30, 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.

On July 28, 2021, the Company received notification from the SBA that the full principal amount of the PPP loan was forgiven.

Prior to being forgiven, the PPP loan was evidenced by a promissory note dated April 9, 2020 that matured on April 9, 2022 and bore interest at a rate of 0.98 % per annum (which was being deferred).

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

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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):

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

Amortization of debt discount and debt issuance cost related to all borrowings for the three and six months ended June 30, 2021 and 2020 were as follows (in thousands):

Three Months Ended

Accretion of debt discount

Six Months Ended

Amortization of debt discount

Amortization of debt issuance cost

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.

Milestone Rights — As of June 30, 2021 and December 31, 2020, the remaining Milestone Rights liability balance was $ 5.9 million and $ 7.3 million, respectively, which was based on initial fair value estimates calculated using the income approach and reduced by milestone achievement payments made.

During the first quarter of 2021, the Company achieved the second Afrezza net sales milestone specified by the Milestone Rights.

The milestone carrying value of the Milestone Rights liability related to the $ 5.0 million payment, which was made in the second quarter of 2021, was approximately $ 1.3 million, which represented the fair value as determined in 2013 (the most recent measurement date).

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.

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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):

Revenue from collaborations and services for the three and six months ended June 30, 2021 and 2020 are as follows (in thousands):

Three Months Ended

Six Months Ended

UT License Agreement

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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.

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

The Company expects to complete the activities specified in the development plan and to achieve the remaining milestone 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.

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 .

The Company expected to complete the activities specified in the initial development plan and to achieve the milestone events (including a $ 2.7 million increase in total consideration pursuant to the agreement executed in December 2020) by December 31, 2021 for total consideration of approximately $ 105.8 million, which included an upfront payment, four milestone payments, various pass-through costs and payments for clinical supplies.

Through March 2021, the Company recognized revenue ratably over a 13-quarter period ending December 2021, which represented the estimated period to satisfy the performance obligation.

In May 2021, UT and the Company updated the development plan under the UT License Agreement to provide for additional process-development and stability-testing activities as well as the expansion of the Company’s commercial manufacturing capacity.

The activities and deliverables under the current development plan resulted in four distinct performance obligations which include:

(1) the continued development and approval process for a new drug application (“NDA”) (“R&D Services”);

(2) certain pre-commercial services in preparation for commercial launch of Tyvaso DPI “(Pre-Commercial Services”);

(3) development activities for the next generation of Tyvaso DPI (“Next-gen R&D Services”);

and (4) certain design and construction activities in anticipation of expansion of the Company’s commercial manufacturing facility (“Facility Expansion Services”).

The total consideration for the updated development plan of $ 50.2 million was allocated to the four distinct performance obligations based on management’s assessment of the stand-alone selling price of each performance obligation.

Consideration of $ 0.7 million for additional clinical supplies was added in June 2021 for a total of $ 50.9 million.

The R&D Services performance obligation was allocated a total of $ 18.3 million, which will be recognized on a ratable basis from May 2021 through October 2021;

the estimated date when the performance obligation for the initial development services will be substantially completed.

The Company allocated $ 4.6 million, $ 7.2 million, and $ 20.7 million to the Pre-Commercial Services, Next-gen R&D Services, and Facility Expansion Services performance obligations, respectively.

The Company determined that the Pre-Commercial Services and Next-gen R&D Services performance obligations will be satisfied over time 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.

The Facility Expansion Services performance obligation would be recognized as control of manufactured products is transferred to the customer.

The Company will also be acting as agent for the procurement of equipment for the manufacturing expansion for UT (the “UT Equipment”).

The $ 5.3 million received from UT for the UT Equipment was recognized as deposits from customer on our condensed consolidated balance sheet and will be released as the title is transferred to UT.

As of June 30, 2021, deferred revenue consisted of $ 20.0 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.

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

As of June 30, 2021, a contract asset of approximately $ 0.1 million was recognized as other assets in the condensed consolidated balance sheet.

Subsequent to June 30, 2021, the Company and Vertice Pharma entered into an amendment to the Vertice Pharma Co-Promotion Agreement that modifies the terms of payment where 50 % of the previously fixed consideration will be subject to certain promotional conditions, resulting in variable consideration, for the third quarter of 2021.

Thirona Collaboration Agreement — In June 2021, the Company and Thirona entered into a collaboration agreement to evaluate the therapeutic potential of Thirona’s compound for the treatment of pulmonary fibrosis.

If initial studies are promising, the Company can exercise certain rights to seek a full license to the compound for clinical development and commercialization.

The parties will perform their respective obligations and provide reasonable support for research, clinical development and regulatory strategy.

The collaboration agreement will be accounted for under ASC 808, Collaborative Agreements;

however, no consideration will be exchanged between the parties.

The Company will expense the costs incurred as cost of revenue — collaborations and services in the condensed consolidated statements of operations.

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

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

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

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

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

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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.

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 June 3 0 , 202 1 , the d eferred revenue balance was $ 1.7 million , of which $ 0.1 million i s classified as current and $ 1.6 million is classified as long term in the condensed consolidated balance sheets .

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

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

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

value due to their relatively short maturities.

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

The fair value of the cash equivalents, MidCap credit facility, Mann Group promissory notes, 2024 convertible notes, 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.

As of June 30, 2021 and December 31, 2020, the Company held $ 62.5 million and $ 67.0 million, respectively, of cash and cash equivalents.

The Company held zero and $ 0.2 million in restricted cash as of June 30, 2021 and December 31, 2020, which are comprised of money market funds.

Restricted cash was 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).

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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.

As of June 30, 2021, the Company held $ 100.0 million of short-term investments and $ 39.0 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

June 30, 2021

Carrying Value

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Mann Group convertible notes (3)

Mann Group non-convertible notes (4)

Milestone rights (5)

____________________

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.

Fair value determined by applying a discounted cash flow analysis to the straight note with a hypothetical yield of 12 %, volatility of 96 % 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 $ 245.4 million and $ 269.8 million, respectively.

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A change in yield of + or – 2 % would result in a fair value of $ 38.5 million and $ 42.7 million, respectively.

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

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

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

The April 2021 amendment to the Mann Group convertible note resulted in a substantial premium of $ 22.1 million based on the fair value post modification which was recognized as additional paid-in capital in the condensed consolidated balance sheet as of June 30, 2021.

The accounting for the $ 22.1 million loss on extinguishment did not result in a change in the financial position of the Company.

The fair value assessed as of June 30, 2021 was determined by applying a discounted cash flow analysis with a hypothetical yield of 12 % and volatility of 96 % 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 $ 43.9 million and $ 45.9 million, respectively.

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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.

As of June 30, 2021 and December 31, 2020, 249,617,550 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 “CF Sales Agreement”) with Cantor Fitzgerald & Co.

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

For the six months ended June 30, 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 six months ended June 30, 2020, the Company sold an aggregate of 7,871,461 shares of the Company’s common stock at a weighted average purchase price of $ 1.64 per share for an aggregate gross proceeds of approximately $ 12.9 million pursuant to the CF 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.

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See Note 6 – Borrowings .

For the three and six months ended June 30, 2021, the Company received $ 0.1 million from the market price stock purchase plan for 25,000 shares.

There was a de minimis amount of market price stock purchase plan transactions for the three and six months ended June 30, 2020.

Earnings per Common Share (“EPS”)

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

EPS — basic and diluted:

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

Three Months Ended March 31,

Six Months Ended June 30,

Senior convertible notes

Mann Group convertible notes

Warrants associated with MidCap credit facility

Common stock options and PNQs

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Employee stock purchase plan

Senior convertible notes

Mann Group convertible notes

2024 convertible notes

Warrants associated with MidCap credit facility

Warrants associated with public offering

Common stock warrants

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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):

During the six months ended June 30, 2021, the Company granted the following awards:

Employee awards:

Non-employee director RSUs

____________________

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

RSUs had a weighted average grant date fair value of $ 4.26 per share and a vesting period of 4 years.

Market RSUs had a grant date fair value of $ 9.30 per share and will vest on May 17, 2024 provided the closing price of the Company’s common stock on such vesting date is not less than the closing price on May 17, 2021.

The number of shares delivered on the vesting date is determined by the percentile ranking of MannKind total shareholder return (TSR) over the period from May 18, 2021 until May 17, 2024 relative to the TSR of the Russell 3000 Pharmaceutical & Biotechnology Index over the same three-year period, as follows:

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

Payout values will be interpolated between the percentile rankings above.

RSUs had a weighted average grant date fair value of $ 4.31 per share and vested immediately upon grant, but the underlying shares of common stock will not be delivered until there is a separation of service, such as resignation, retirement or death.

As of June 30, 2021, there was $ 3.4 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 1.6 years, and $ 12.6 million and $ 12.5 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 3.4 and 2.6 years, respectively.

Total stock-based compensation expense recognized in the condensed consolidated statements of operations for the three months ended June 30, 2021 and 2020 was as follows (in thousands):

Three Months Ended

Six Months Ended

RSUs and options

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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.

The Company issued 292,981 and 333,727 shares of common stock pursuant to the ESPP for the six months ended June 30, 2021 and 2020, respectively.

There were approximately 1.3 million shares of common stock available for issuance under the ESPP as of June 30, 2021.

Commitments and Contingencies

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

The maximum amount of potential future indemnification is

The maximum amount of potential future indemnification is unlimited;

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

The Company believes the fair value of these indemnification agreements is minimal.

The Company has not recorded any liability for these indemnities in the accompanying condensed consolidated balance sheets.

The Company has not recorded any liability for these indemnities in the 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.

1 unchanged sentence

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.

As of June 30, 2021, the Company believes that the final disposition of such matters will not have a material adverse effect on the financial position, results of operations or cash flows of the Company and no accrual has been recorded.

The Company maintains liability insurance coverage to protect the Company’s assets from losses arising out of or involving activities associated with ongoing and normal business operations.

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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.

The plaintiff appealed this denial to the Supreme Court of Israel, which issued a decision in July 2021 upholding the lower court decision.

Subsequently, the plaintiff withdrew his complaint and the district court dismissed the motion to certify, bringing the litigation to an end.

Contingencies — In July 2013, the Company entered into a n a greement with the Milestone Purchasers, pursuant to which the Company granted the Milestone R ights to receive payments up to $ 90.0 million upon the occurrence of specified strategic and sales milestones, $ 65.0 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 $ 1.1 million in accrued expenses and other current liabilities and $ 4.8 million in milestone rights liabilit y .

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:

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.

In May 2021, the Company and Amphastar amended the Insulin Supply Agreement to extend the term and restructure the annual purchase commitments.

In connection with the amendment, the Company agreed to pay $ 2.0 million of amendment fees, which were recognized in cost of goods sold for the three and six months ended June 30, 2021.

The remaining purchase commitments as of June 30, 2021 and March 31, 2021 (pre-amendment) were as follows:

June 30, 2021

March 31, 2021

Pursuant to the amendment, the term of the Insulin Supply Agreement expires on December 31, 2027 , unless terminated earlier, 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.

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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.

During the six months ended June 30, 2021, 10 vehicles were removed from the fleet, resulting in a fleet size of 78 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.

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

The lease expense is included in selling, general and administrative expenses in the condensed consolidated statements 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.

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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.

The lease expense is included in selling, general and administrative expenses in the condensed consolidated statements 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.

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Three Months Ended

Six Months Ended

Operating lease costs

Variable lease costs

March 31, 2021

June 30, 2021

December 31, 2020

1 unchanged sentence

Weighted average discount rate

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

March 31, 2021

Future minimum office and vehicle lease payments as of June 30, 2021 and December 31, 2020, are as follows (in thousands):

June 30, 2021

December 31, 2020

4 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements