MANNKIND CORP 10-K

Item 8. Financial Statements and Supplementary Data The information required by this Item is included in Items 15(a) (1) and (2) of Part IV of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 49 Item 9A. Control s and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we and our management recognize that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, our management was required to apply its reasonable judgment. As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2021. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective as of December 31, 2021. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may not operate effectively because of changes in conditions such as replacing consulting resources with permanent personnel or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the Internal Control-Integrated Framework (2013 Framework). Based on this assessment, our management concluded that, as of December 31, 2021, our internal control over financial reporting was effective based on those criteria. The effectiveness of our internal control over financial reporting has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report herein, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2021. Changes in Internal Control over Financial Reporting An evaluation was also performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of any changes in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting that occurred during our latest fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 50 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of MannKind Corporation Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of MannKind Corporation and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 24, 2022, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Los Angeles, California February 24, 2022 51 Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. None. 52 PART III Item 10. Directors, Executive Officers and Corporate Governance. (a) Executive Officers — For information regarding the identification and business experience of our executive officers, see “Information about our Executive Officers” in Part I, Item 1 of this Annual Report on Form 10-K. (b) Directors — The information required by this Item regarding the identification and business experience of our directors and corporate governance matters will be contained in the section entitled “Proposal 1 — Election of Directors” and “Corporate Governance Principles and Board and Committee Matters” in our definitive proxy statement for our 2022 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed with the SEC on or before May 2, 2022, and is incorporated herein by reference. We have adopted a Code of Business Conduct and Ethics Policy that applies to our directors and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, and have posted the text of the policy on our website ( www.mannkindcorp.com ) in connection with “Corporate Governance” materials. In addition, we intend to promptly disclose on our website (i) the nature of any amendment to the policy that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals, the name of such person who is granted the waiver and the date of the waiver, to the extent any such waiver is required to be disclosed pursuant to the rules and regulations of the SEC. Item 11. Executive Compensation The information required by this Item will be set forth under the caption “Executive Compensation,” “Compensation of Directors” and “Compensation Committee Report” in the Proxy Statement, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item will be set forth under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity Compensation Plans” in the Proxy Statement, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence The information under the caption “Corporate Governance Principles and Board and Committee Matters” in the Proxy Statement is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information required by this Item will be set forth under the caption “Principal Accounting Fees and Services” and “Pre-Approval Policies and Procedures” in the Proxy Statement and is incorporated herein by reference. With the exception of the information specifically incorporated by reference from the Proxy Statement in this Annual Report on Form 10-K, the Proxy Statement shall not be deemed to be filed as part of this report. Without limiting the foregoing, the information under the captions “Report of the Audit Committee of the Board of Directors” in the Proxy Statement is not incorporated by reference. 53 PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K: (1)(2) Financial Statements and Financial Statement Schedules. The following Financial Statements of MannKind Corporation, Financial Statement Schedules and Report of Independent Registered Public Accounting Firm are included in a separate section of this report beginning on page 60: Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 60 Consolidated Balance Sheets 62 Consolidated Statements of Operations 63 Consolidated Statements of Comprehensive Loss 64 Consolidated Statements of Stockholders’ Deficit 65 Consolidated Statements of Cash Flows 66 Notes to Consolidated Financial Statements 68 All financial statement schedules have been omitted because the required information is not applicable or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. (3) Exhibits. The exhibits listed under Item 15(b) hereof are filed or furnished with, or incorporated by reference into, this Annual Report on Form 10-K. Each management contract or compensatory plan or arrangement is identified separately in Item 15(b) hereof. (b) Exhibits. The following exhibits are filed or furnished as part of, or incorporated by reference into, this Annual Report on Form 10-K: Exhibit Number Description of Document 2.1 Purchase Agreement, dated December 7, 2020 by and among the Company, the Acquired Company, the Sellers and the Securityholders’ Representative (incorporated by reference to Exhibit 2.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on December 7, 2020). 3.1 Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on August 9, 2016). 3.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation of MannKind Corporation (incorporated by reference to Exhibit 3.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on March 2, 2017). 3.3 Certificate of Amendment of Amended and Restated Certificate of Incorporation of MannKind Corporation (incorporated by reference to Exhibit 3.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on December 13, 2017). 3.4 Certificate of Amendment of Amended and Restated Certificate of Incorporation of MannKind Corporation (incorporated by reference to Exhibit 3.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on May 27, 2020). 3.5 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on May 27, 2020). 4.1 Reference is made to Exhibits 3.1 , 3.2 , 3.3 , 3.4 and 3.5 . 4.2 Form of common stock certificate (incorporated by reference to Exhibit 4.2 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2017). 4.3 Description of Common Stock (incorporated by reference to Exhibit 4.3 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on February 25, 2021). 4.4 Milestone Rights Purchase Agreement, dated as of July 1, 2013, by and among MannKind, Deerfield Private Design Fund II, L.P. and Horizon Santé FLML SÁRL (incorporated by reference to Exhibit 99.3 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on July 1, 2013). 4.5 Form of Warrant to Purchase Stock issued to MidCap Financial Trust on August 6, 2019 (incorporated by reference to Exhibit 4.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on August 7, 2019). 4.6 Convertible Promissory Note made by MannKind Corporation in favor of The Mann Group LLC, dated August 6, 2019 (incorporated by reference to Exhibit 4.6 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on August 7, 2019). 54 Exhibit Number Description of Document 4.7 Amendment No. 1 to Convertible Promissory Note, dated April 22, 2021, by and between MannKind Corporation and The Mann Group LLC (incorporated by reference to Exhibit 99.2 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on April 26, 2021). 4.8 Promissory Note made by MannKind Corporation in favor of The Mann Group LLC, dated August 6, 2019 (incorporated by reference to Exhibit 4.7 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on August 7, 2019). 4.9 Indenture, dated as of March 4, 2021, by and between MannKind Corporation and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on March 5, 2021). 4.10 Form of Global Note, representing MannKind Corporation’s 2.50% Convertible Senior Notes due 2026 (included as Exhibit A to the Indenture filed as Exhibit 4.15) (incorporated by reference to Exhibit 4.2 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on March 5, 2021). 10.1* Offer Letter Agreement, dated July 12, 2017, by and between MannKind and Steven B. Binder (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on July 17, 2017). 10.2* Offer Letter, dated March 9, 2016, by and between MannKind and Michael E. Castagna (incorporated by reference to Exhibit 10.38 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 15, 2016). 10.3* Offer Letter, dated December 22, 2016, by and between MannKind and Stuart Tross (incorporated by reference to Exhibit 10.36 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2017). 10.4* Offer Letter, dated May 7, 2020 by and between MannKind and Alejandro Galindo (incorporated by reference to Exhibit 10.4 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on February 25, 2021). 10.5* Offer Letter, dated August 11, 2003, by and between MannKind and Joseph Kocinsky (incorporated by reference to Exhibit 10.5 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on February 25, 2021). 10.6* Executive Severance Agreement, dated October 10, 2007, between MannKind and David Thomson (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), as amended, filed with the SEC on October 17, 2007). 10.7* Form of Indemnity Agreement entered into between MannKind and each of its directors and officers (incorporated by reference to Exhibit 10.1 to MannKind’s Registration Statement on Form S-1 (File No. 333-115020), filed with the SEC on April 30, 2004, as amended). 10.8* Form of Change of Control Agreement (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on April 7, 2017). 10.9* Description of Officers’ Incentive Program (incorporated by reference to Exhibit 10.5 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2006). 10.10* 2004 Equity Incentive Plan, as amended (incorporated by reference to Appendix A to MannKind’s proxy statement on Schedule 14A (File No. 000-50865), filed with the SEC on April 6, 2012). 10.11* Form of Stock Option Agreement under the 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 MannKind’s Registration Statement on Form S-1 (File No. 333-115020), originally filed with the SEC on April 30, 2004, as amended). 10.12* Form of Phantom Stock Award Agreement under the 2004 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on December 14, 2005). 10.13* 2004 Non-Employee Directors’ Stock Option Plan and form of stock option agreement there under (incorporated by reference to Exhibit 10.20 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2006). 10.14* Non-Employee Director Compensation Program (incorporated by reference to Exhibit 10.15 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on February 26, 2019). 10.15* MannKind Corporation 2013 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on August 9, 2016). 10.16* Form of Stock Option Grant Notice, Stock Option Agreement and Notice of Exercise under the MannKind 2013 Equity Incentive Plan (incorporated by reference to Exhibit 99.2 to MannKind’s registration statement on Form S-8(File No. 000-188790), filed with the SEC on May 23, 2013). 10.17* Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the MannKind 2013 Equity Incentive Plan (incorporated by reference to Exhibit 99.3 to MannKind’s registration statement on Form S-8 (File No. 000-188790), filed with the SEC on May 23, 2013). 55 Exhibit Number Description of Document 10.18* MannKind Corporation 2018 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on August 5, 2020). 10.19* Form of Stock Option Grant Notice, Stock Option Agreement and Notice of Exercise under the MannKind 2018 Equity Incentive Plan (incorporated by reference to Exhibit 99.2 to MannKind’s registration statement on Form S-8 (File No. 333-226648), filed with the SEC on August 7, 2018). 10.20* Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the MannKind 2018 Equity Incentive Plan (incorporated by reference to Exhibit 99.3 to MannKind’s registration statement on Form S-8 (File No. 333-226648), filed with the SEC on August 7, 2018). 10.21* MannKind Corporation 2004 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 99.4 to MannKind’s registration statement Form S-8 (File No. 333-226648), filed with the SEC on August 7, 2018). 10.22* MannKind Corporation Market Price Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to MannKind’s registration statement Form S-8 (File No. 333-225428), filed with the SEC on June 5, 2018). 10.23*** Supply Agreement, dated as of July 31, 2014, by and between MannKind and Amphastar France Pharmaceuticals S.A.S. (incorporated by reference to Exhibit 10.23 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on February 25, 2021) 10.24 First Amendment to Supply Agreement, dated October 31, 2014, by and between MannKind and Amphastar France Pharmaceuticals, S.A.S. and Amphastar Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.32 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2017). 10.25** Second Amendment to Supply Agreement, dated November 9, 2016, by and between MannKind and Amphastar Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.33 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2017). 10.26** Third Amendment to Supply Agreement, dated April 11, 2018, by and between MannKind and Amphastar Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.8 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on May 9, 2018). 10.27** Fourth Amendment to Supply Agreement, dated December 24, 2018, by and between MannKind and Amphastar Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.50 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on February 26, 2019) . 10.28*** Fifth Amendment to Supply Agreement, dated August 2, 2019, by and between MannKind Corporation and Amphastar Pharmaceuticals, Inc. (incorporated by reference to Exhibit 99.5 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on August 7, 2019) . 10.29*** Sixth Amendment to Supply Agreement, dated May 24, 2021, by and between MannKind Corporation and Amphastar Pharmaceuticals, Inc. (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on May 25, 2021). 10.30 Sublease Agreement, dated May 1, 2015, by and between MannKind and the Alfred Mann Foundation for Scientific Research (incorporated by reference to Exhibit 10.37 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 15, 2016). 10.31 Office Lease, dated May 5 2017, by and between MannKind and Russell Ranch Road II LLC. (incorporated by reference to Exhibit 10.3 to MannKind’s Quarterly Report on Form 10-Q (file No. 000-50865), filed with the SEC on August 7, 2017). 10.32 Controlled Equity Offering SM Sales Agreement, by and between MannKind and Cantor Fitzgerald & Co., dated February 27, 2018 (incorporated by reference to Exhibit 10.47 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on February 27, 2018). 10.33** License and Collaboration Agreement, dated September 3, 2018 by and between MannKind and United Therapeutics Corporation (incorporated by reference to Exhibit 10.8 to MannKind’s Quarterly Report on Form 10-Q (file No. 000-50865), filed with the SEC on November 1, 2018). 10.34** Research Agreement, dated September 3, 2018 by and between MannKind and United Therapeutics Corporation (incorporated by reference to Exhibit 10.9 to MannKind’s Quarterly Report on Form 10-Q (file No. 000-50865), filed with the SEC on November 1, 2018). 10.35*** Credit and Security Agreement, dated August 6, 2019, by and among MannKind Corporation, MannKind LLC, the lenders party thereto from time to time and MidCap Financial Trust, as agent (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on August 7, 2019). 56 Exhibit Number Description of Document 10.36 Amendment No. 1 to Credit and Security Agreement, dated December 18, 2019, by and among MannKind Corporation, MannKind LLC, the lenders party thereto from time to time and MidCap Financial Trust, as agent (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on December 18, 2019). 10.37 Amendment No. 2 to Credit and Security Agreement, dated August 21, 2020, by and among MannKind Corporation, MannKind LLC and MidCap Financial Trust (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on August 25, 2020). 10.38 Amendment No. 3 to Credit and Security Agreement, dated November 30, 2020, by and among MannKind Corporation, MannKind LLC and MidCap Financial Trust (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on December 1, 2020). 10.39 Amendment No. 4 to Credit and Security Agreement, dated December 7, 2020 by and among the Company, MannKind LLC and MidCap Financial Trust (incorporated by reference to Exhibit 4.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on December 7, 2020). 10.40 Omnibus Joinder and Amendment No. 5 to Credit and Security Agreement and Amendment No. 1 to Pledge Agreement, dated December 29, 2020 by and among MannKind Corporation, MannKind LLC, QrumPharma, Inc., and MidCap Financial Trust (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on December 30, 2020). 10.41 Amendment No. 6 to Credit and Security Agreement, dated March 1, 2021, by and among MannKind Corporation, MannKind LLC, QrumPharma, Inc., and MidCap Financial Trust (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on March 5, 2021). 10.42 Amendment No. 7 to Credit and Security Agreement, dated April 22, 2021, by and among MannKind Corporation, MannKind LLC, QrumPharma, Inc., and MidCap Financial Trust (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on April 26, 2021). 10.43*** Commercial Supply Agreement, dated August 12, 2021, by and between MannKind Corporation and United Therapeutics Corporation (incorporated by reference to Exhibit 10.1 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on November 9, 2021) . 10.44*** First Amendment to Commercial Supply Agreement, dated October 16, 2021, by and between MannKind Corporation and United Therapeutics Corporation (incorporated by reference to Exhibit 10.2 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on November 9, 2021) . 10.45*** Purchase and Sale Agreement, dated September 23, 2021, by and between MannKind Corporation and 1 Casper, LLC (incorporated by reference to Exhibit 10.3 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on November 9, 2021) . 23.1 Consent of Independent Registered Public Accounting Firm. 31.1 Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. 31.2 Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. 32.1 Certification of the Chief Executive Officer pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350). 32.2 Certification of the Chief Financial Officer pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350). 101 Inline Interactive Data Files pursuant to Rule 405 of Regulation S-T. 104 The cover page has been formatted in Inline XBRL. * Indicates management contract or compensatory plan. ** Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC. *** Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. Item 16. Form 10-K Summary None. 57 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MANNKIND CORPORATION By: /s/ Michael E. Castagna Michael E. Castagna Chief Executive Officer Dated: February 24, 2022 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael E. Castagna and David Thomson, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this report, and any other documents in connection therewith, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his substitute or substituted, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Michael E. Castagna Michael E. Castagna Chief Executive Officer and Director (Principal Executive Officer) February 24, 2022 /s/ Steven B. Binder Steven B. Binder Chief Financial Officer (Principal Financial and Accounting Officer) February 24, 2022 /s/ James S. Shannon James S. Shannon, M.D., MRCP (UK) Chairman of the Board of Directors February 24, 2022 /s/ Ronald J. Consiglio Ronald J. Consiglio Director February 24, 2022 /s/ Michael Friedman Michael Friedman, M.D. Director February 24, 2022 /s/ Jennifer Grancio Jennifer Grancio Director February 24, 2022 /s/ Anthony C. Hooper Anthony C. Hooper Director February 24, 2022 /s/ Sabrina Kay Director February 24, 2022 Sabrina Kay /s/ Kent Kresa Kent Kresa Director February 24, 2022 /s/ Christine Mundkur Director February 24, 2022 Christine Mundkur 58 MANNKIND CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 60 Consolidated Balance Sheets 62 Consolidated Statements of Operations 63 Consolidated Statements of Comprehensive Loss 64 Consolidated Statements of Stockholders’ Deficit 65 Consolidated Statements of Cash Flows 66 Notes to Consolidated Financial Statements 68 59 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of MannKind Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of MannKind Corporation and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2021 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with the accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Net Revenue – Commercial Product Sales – Government Rebates – Refer to Note 2 and 8 to the financial statements Critical Audit Matter Description As more fully disclosed in Note 2 and 8 to the financial statements, the Company recognizes revenue for commercial product sales 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. Government rebates are provided to Medicare and state Medicaid programs. Government rebates involve the use of significant assumptions and judgments to estimate 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. These significant assumptions and judgments include consideration of historical claims experience, payer channel mix, current contract prices, unbilled claims, claim submission time lags and inventory in the distribution channel. Given the complexity involved in determining the significant assumptions and judgments used in estimating the government rebates, auditing such estimates required a high degree of auditor judgment and increased extent of audit effort. 60 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to management’s estimates of government rebates included the following, among others: • We tested the effectiveness of controls over management’s processes to account for the variable consideration associated with Government Rebates. • We evaluated key inputs used in management’s analysis of the government rebate estimates. • We inspected contractual documents associated with the government rebates and evaluated the consistency of the methodology with the Company’s obligations under such contractual documents. • We tested the mathematical accuracy of the Company’s calculation of the estimates for government rebates. • We performed the following procedures to evaluate the significant assumptions and judgments used by management to estimate government rebates: • Evaluated the reasonableness of government rebates by comparing the underlying data to historical adjustments. • Evaluated management’s ability to accurately forecast government rebates by comparing management’s assumptions of expected government rebates to actuals incurred subsequent to year end. Revenue — Collaborations and Services – UT Commercial Supply Agreement – Refer to Note 2 and 8 to the financial statements Critical Audit Matter Description As discussed in Note 8 to the financial statements, the Company generates collaboration and services revenue from the United Therapeutics (“UT”) commercial supply agreement (the “CSA”). The Company is responsible for manufacturing and supplying to United Therapeutics, and United Therapeutics is responsible for purchasing from the Company on a cost-plus basis, Tyvaso DPI and BluHale inhalation profiling devices, as required for commercial distribution and sale by United Therapeutics. Three distinct performance obligations are identified as a result of the CSA: (1) the license, supply of product to be used in clinical development, and continued development and approval support for Tyvaso DPI; (2) development activities for the next generation of Tyvaso DPI Next-Gen R&D Services; and (3) a material right associated with future commercial manufacturing and supply of product (“Manufacturing Services”). The accounting treatment involves several significant subjective management assumptions and estimates including the identification of performance obligations within the contract. Specifically, the significant subjective management judgement is required to determine if the pre-production activities are a separate and discrete performance obligation under the CSA based on the nature of responsibilities of the Company agreed within the contract and ASC 606 requirement in contrast with being bundled with “Manufacturing Services” as assessed under the accounting policy. Given the complexity of the accounting analysis of the UT CSA, including the significant assumptions and judgments involved in identifying performance obligations under the CSA, auditing the related revenue required a high degree of auditor judgment and increased extent of audit effort. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to management’s identification of performance obligations under the CSA included the following, among others: • We tested the effectiveness of controls over management’s determination of the separate and discrete performance obligations under the agreement. • We inspected contractual documents associated with the CSA to obtain sufficient understanding of the nature of the contract. We evaluated the Company’s analysis of the accounting treatment for the CSA for reasonableness and appropriateness in accordance with applicable guidance. • We used our firm specialist resources to assist in auditing management’s conclusions through an accounting consultation, wherein we independently evaluated the reasonableness of the accounting treatment for leasehold buildout reimbursements to assess if it represents a separate performance obligation. /s/ Deloitte & Touche LLP Los Angeles, California February 24, 2022 We have served as the Company’s auditor since 2001. 61 MANNKIND CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2021 2020 (In thousands except share and per share data) ASSETS Current assets: Cash and cash equivalents $ 124,184 $ 67,005 Restricted cash — 158 Short-term investments 79,932 — Accounts receivable, net 4,994 4,218 Inventory 7,152 4,973 Prepaid expenses and other current assets 3,482 3,122 Total current assets 219,744 79,476 Property and equipment, net 36,612 25,867 Long-term investments 56,619 — Other assets 8,186 3,265 Total assets $ 321,161 $ 108,608 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 6,956 $ 5,582 Accrued expenses and other current liabilities 27,419 19,707 Financing liability — current 6,977 — Paycheck Protection Program loan — current — 4,061 Deferred revenue — current 827 33,275 Recognized loss on purchase commitments — current 6,170 11,080 Total current liabilities 48,349 73,705 Promissory notes 18,425 63,027 Accrued interest — promissory notes 404 4,150 Financing liability — long term 93,525 — Long-term Midcap credit facility 38,833 49,335 Senior convertible notes 223,944 — Recognized loss on purchase commitments — long term 76,659 84,208 Operating lease liability 1,040 1,202 Deferred revenue — long term 19,543 1,662 Milestone rights liability 4,838 5,926 2024 convertible notes — 5,000 Paycheck Protection Program loan — long term — 812 Deposits from customer 4,950 — Total liabilities 530,510 289,027 Commitments and contingencies (Note 13) Stockholders' deficit: Undesignated preferred stock, $ 0.01 par value — 10,000,000 shares authorized; no shares issued or outstanding at December 31, 2021 and 2020 — — Common stock, $ 0.01 par value — 400,000,000 shares authorized, 251,477,562 and 242,117,089 shares issued and outstanding at December 31, 2021 and 2020, respectively 2,515 2,421 Additional paid-in capital 2,918,205 2,866,303 Accumulated other comprehensive loss — — Accumulated deficit ( 3,130,069 ) ( 3,049,143 ) Total stockholders' deficit ( 209,349 ) ( 180,419 ) Total liabilities and stockholders' deficit $ 321,161 $ 108,608 See notes to consolidated financial statements. 62 MANNKIND CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2021 2020 (In thousands except per share data) Revenues: Net revenue — commercial product sales $ 39,168 $ 32,324 Revenue — collaborations and services 36,274 32,820 Total revenues 75,442 65,144 Expenses: Cost of goods sold 16,833 15,084 Cost of revenue — collaborations and services 22,024 9,557 In-process research and development — 13,233 Research and development 12,312 6,248 Selling, general and administrative 77,417 59,040 Impairment of assets 106 1,889 (Gain) loss on foreign currency translation ( 6,567 ) 8,006 Loss on purchase commitments 339 — Total expenses 122,464 113,057 Loss from operations ( 47,022 ) ( 47,913 ) Other (expense) income: Interest income 112 167 Interest expense on financing liability ( 1,373 ) — Interest expense on notes ( 15,204 ) ( 9,471 ) Loss on extinguishment of debt ( 17,200 ) ( 264 ) Other (expense) income ( 239 ) 23 Total other expense ( 33,904 ) ( 9,545 ) Loss before income tax expense ( 80,926 ) ( 57,458 ) Benefit from income taxes — 218 Net loss $ ( 80,926 ) $ ( 57,240 ) Net loss per share — basic and diluted $ ( 0.32 ) $ ( 0.26 ) Shares used to compute net loss per share — basic and diluted 249,244 222,585 See notes to consolidated financial statements. 63 MANNKIND CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended December 31, 2021 2020 (In thousands) Net loss $ ( 80,926 ) $ ( 57,240 ) Other comprehensive loss: Cumulative translation loss — ( 19 ) Comprehensive loss $ ( 80,926 ) $ ( 57,259 ) See notes to consolidated financial statements. 64 MANNKIND CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Shares Amount Capital Loss Deficit Total (In thousands) BALANCE, JANUARY 1, 2020 211,788 $ 2,118 $ 2,799,278 $ ( 19 ) $ ( 2,991,903 ) $ ( 190,526 ) Net issuance of common stock in association with stock options and restricted stock units 653 6 227 — — 233 Payment of principal on senior convertible notes through common stock issuance 2,612 26 5,235 — — 5,261 Payment of interest on senior convertible notes through common stock issuance 188 2 286 — — 288 Issuance of common stock pursuant to conversion of Mann Group convertible note principal 2,800 28 6,972 — — 7,000 Issuance of common stock pursuant to conversion of the Mann Group convertible note interest 1,200 12 2,988 — — 3,000 Issuance of common stock in at-the-market offering 11,853 118 23,412 — — 23,530 Issuance cost associated with at-the-market offering — — ( 519 ) — — ( 519 ) Issuance of common stock under Employee Stock Purchase Plan 627 6 678 — — 684 Issuance of common stock from acquisition 3,067 31 9,219 — — 9,250 Stock-based compensation expense — — 6,511 — — 6,511 Issuance of common stock from the exercise of warrants 7,250 73 11,527 — — 11,600 Issuance of common stock from market price stock purchase 80 1 214 — — 215 Issuance of warrants pursuant to Midcap Credit Facility — — 275 — — 275 Cumulative translation loss — — — 19 — 19 Net loss — — — — ( 57,240 ) ( 57,240 ) BALANCE, DECEMBER 31, 2020 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 1,572 16 ( 514 ) — — ( 498 ) Issuance of common stock under Employee Stock Purchase Plan 527 5 1,085 — — 1,090 Stock-based compensation expense — — 12,200 — — 12,200 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 ) Premium on Mann Group convertible note — — 22,107 — — 22,107 Issuance of common stock from market price stock purchase 25 — 106 — — 106 Issuance of common stock pursuant to a warrant conversion 964 10 ( 10 ) — — — Net loss — — — — ( 80,926 ) ( 80,926 ) BALANCE, DECEMBER 31, 2021 251,478 $ 2,515 $ 2,918,205 $ - $ ( 3,130,069 ) $ ( 209,349 ) See notes to consolidated financial statements. 65 MANNKIND CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2021 2020 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 80,926 ) $ ( 57,240 ) Adjustments to reconcile net loss to net cash used in operating activities: Loss on extinguishment of debt, net 17,200 264 Stock-based compensation expense 12,200 6,511 Depreciation, amortization and accretion 4,215 2,149 Interest on milestone right 3,663 — Write-off of inventory 1,902 496 Interest expense on promissory notes 1,598 5,148 Amortization of financing liability 1,372 — Amortization of right-of-use assets 1,258 1,177 Asset impairment 106 1,889 (Gain) loss on foreign currency translation ( 6,567 ) 8,006 In-process research and development — 13,233 Other, net — 19 Changes in operating assets and liabilities: Accounts receivable, net ( 776 ) ( 705 ) Inventory ( 4,081 ) ( 1,314 ) Prepaid expenses and other current assets ( 360 ) ( 154 ) Other assets ( 138 ) 227 Accounts payable 1,374 793 Accrued expenses and other current liabilities 8,814 3,346 Deferred revenue ( 14,567 ) ( 5,910 ) Recognized loss on purchase commitments ( 5,892 ) ( 4,751 ) Operating lease liabilities ( 2,135 ) ( 1,312 ) Accrued interest on Mann Group promissory notes ( 4,919 ) — Deposits from customer 4,950 — Net cash used in operating activities ( 61,709 ) ( 28,128 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of held-to-maturity debt securities ( 196,131 ) — Proceeds from maturity of debt securities 59,060 — Purchase of property and equipment ( 11,466 ) ( 801 ) Purchase of available-for-sale securities ( 3,000 ) — Proceeds from sale of treasury bills — 20,000 Acquisition of in-process research and development, net of cash acquired — ( 3,983 ) Net cash (used in) provided by investing activities ( 151,537 ) 15,216 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the Senior convertible notes 230,000 — Issuance costs associated with Senior convertible notes ( 7,268 ) — Proceeds from the sale-leaseback transaction 102,250 — Issuance costs associated with the sale-leaseback transaction ( 3,120 ) — Deposit for the sale-leaseback transaction ( 2,000 ) — Principal payments on Mann Group promissory notes ( 35,051 ) — Payment of MidCap credit facility ( 10,000 ) — Payment of MidCap credit facility prepayment penalty ( 1,000 ) — Milestone payment ( 5,000 ) — Proceeds from at-the-market-offering 1,886 23,450 Issuance costs associated with at the market offering ( 38 ) ( 518 ) Payment of employment taxes related to vested restricted stock units and exercise of stock options ( 498 ) 233 Proceeds from market price stock purchase plan 106 215 Issuance of common stock from the exercise of warrants — 11,600 Proceeds from MidCap credit facility — 10,000 Proceeds from PPP loan — 4,873 Net cash provided by financing activities 270,267 49,853 NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH 57,021 36,941 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD 67,163 30,222 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD $ 124,184 $ 67,163 66 MANNKIND CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Year Ended 2021 2020 (In thousands) SUPPLEMENTAL CASH FLOWS DISCLOSURES: Interest paid in cash, net of amounts capitalized 11,268 3,558 NON-CASH INVESTING AND FINANCING ACTIVITIES: Reclassification of investments from long-term to current 32,654 — Premium on Mann Group convertible note 22,107 — Payment on Mann Group convertible note through issuance of common stock 9,575 7,000 Payment of 2024 convertible notes through issuance of common stock 5,000 5,261 Forgiveness of PPP loan (4,873 ) — Addition of right-of-use-asset 1,425 — Right-of-use asset modification 278 — Non-cash construction in progress and property and equipment 1,264 92 Issuance of common stock under Employee Stock Purchase Plan 1,090 684 Payment of Mann Group convertible note interest through issuance of common stock 425 3,000 Payment of interest on 2024 convertible notes through issuance of common stock 143 288 Issuance of common stock for acquisition of in-process research and development — 9,250 Issuance of warrants associated with the MidCap Credit Facility — 275 Receivable from at-the-market offering — 226 See notes to consolidated financial statements. 67 MANNKIND CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business Business — MannKind Corporation and its subsidiaries (the “Company”) 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. The Company collaborates with a number of third parties to formulate their drugs on the Company’s Technosphere drug delivery platform. Since September 2018, the Company has been collaborating with United Therapeutics Corporation (“United Therapeutics” or “UT”) 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 for the treatment of PAH and PH-ILD. The NDA was resubmitted in December 2021 following a complete response letter in October 2021. The FDA is expected to complete its review of the NDA for Tyvaso DPI by May 2022. Basis of Presentation — The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“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 of other product candidates in the Company’s pipeline. As of December 31, 2021, the Company had capital resources of $ 124.2 million in cash and cash equivalents, $ 79.9 million in short-term investments, $ 56.6 million in long-term investments, an accumulated deficit of $ 3.1 billion and $ 288.4 million of total principal amount of outstanding borrowings. In August 2019, the Company and its wholly owned subsidiaries, 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 $ 100.0 million, of which $ 40.0 million was outstanding as of December 31, 2021. See Note 7 – 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 Company believes its resources will be sufficient to fund its operations for the next twelve months from the date of issuance of these consolidated financial statements. Principles of Consolidation — The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated. Certain prior year amounts have been reclassified for consistency with the current year presentation. Changes were made to the consolidated statement of operations to disclose a single caption for interest expense on all outstanding notes. Changes were also made to Note 6 – Accrued Expenses and Other Current Liability to combine accruals for certain services into the Other line. In addition, changes were made to Note 2 – Summary of Significant Accounting Policies and Note 9 – Fair Value of Financial Instruments to conform the presentation of certain short-term investments to the current year presentation. 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. 2. Summary of Significant Accounting Policies 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 consolidated financial statements. The more significant estimates include revenue recognition, including gross-to-net adjustments, stand-alone selling price considerations for recognition of collaboration revenue 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. 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. The Company recognizes revenue on product sales to a retail pharmacy as the product is dispensed to patients. 68 To determine revenue recognition for arrangements that are within the scope of Accounting Standards Codification (“ ASC ”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) , 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 ASC 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 ASC 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, specialty and retail 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 and retail 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 and retail 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. The Company recognizes revenue on product sales to a retail pharmacy as the product is dispensed to patients. 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. The 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 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 ASC 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 December 31, 2021 and, therefore, the transaction price was not reduced further during the year ended December 31, 2021. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net revenue — commercial product sales and earnings in the period such variances become known. Significant judgment is required in estimating gross-to-net adjustments considering legal interpretations of applicable laws and regulations, historical experience, payer channel mix, current contract prices under applicable programs, unbilled claims, processing time lags and inventory levels in the distribution channel. Trade Discounts and Allowances — The Company generally provides Customers with discounts which include incentives, such as prompt pay discounts, that are explicitly stated in the Company’s contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized. 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. 69 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. 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, or 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. With respect to our significant collaboration and service agreement with UT that includes a long-term customer supply agreement (“CSA”), we have identified three distinct performance obligations: (1) R&D Services and License; (2) Next-Gen R&D Services; and (3) a material right for manufacturing services (“Manufacturing Services”). Pre-production activities under the CSA, such as facility expansion services and other administrative services, were considered bundled services under the Manufacturing Services performance obligation as required by ASC 606. See Note 8 – Collaboration, Licensing and Other Arrangements of the Notes to Consolidated Financial Statements included in Part II, Item 8 — Financial Statements and Supplementary Data. 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 8 – 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 70 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. If the license is considered to be a distinct performance obligation, then the estimated revenue is included in the transaction price for the contract, which is then allocated to each performance obligation based on the respective standalone selling prices. If the revenue for a sales-based or usage-based royalty is promised in exchange for an intellectual property license, the Company recognizes revenue as the latter of the subsequent sale or usage occurs or the performance obligation to which the royalty has been allocated has been satisfied or partially 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 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. The Company grants licenses to its intellectual property, supplies raw materials, semi-finished goods 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. Accordingly, the Company concluded that its collaborative agreements must generally be accounted for pursuant to ASC 606. 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. The Company assessed the CSA agreement with UT and determined that a material right existed for the manufacturing services performance obligation. The transaction price is allocated to the material right as well as the remaining performance obligations in accordance with ASC 606. The Company also evaluates grants of additional licensing rights upon option exercises to determine whether such should be accounted for as separate contracts. 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 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 . 71 Paycheck Protection Program Loan — On April 10, 2020, the Company received the proceeds from a loan in the amount of approximately $ 4.9 million (the “PPP Loan”) from JPMorgan Chase Bank, N.A., as lender, pursuant to the Paycheck Protection Program (“PPP”) of the 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 Paycheck Protection Program loan — current and Paycheck Protection Program loan — long term. 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 7 – 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 annual 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. Cost of goods sold excludes the cost of insulin purchased under our supply agreement with Amphastar (“Insulin Supply Agreement”). 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. Cost of Revenues – Collaborations and Services — Cost of revenues – collaborations and services includes material, labor costs, manufacturing overhead, and excess capacity costs. These costs, in addition to the write-offs of inventory are recorded as expenses in the period in which they are incurred, rather than as a portion of inventory costs. Cost of revenues – collaborations and services also includes the cost of product development and the allocation of selling expenses related to a co-promotion collaboration agreement. 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 December 31, 2021 and 2020, cash equivalents were comprised of money market, corporate bonds and commercial paper accounts with original 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. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the consolidated balance sheets that sum to amounts reported on the consolidated statement of cash flows (in thousands): December 31, 2021 2020 Cash and cash equivalents $ 124,184 $ 67,005 Restricted cash — 158 Total cash, cash equivalents, and restricted cash $ 124,184 $ 67,163 Held-to-Maturity Investments — The Company’s investments generally consist of commercial paper, corporate notes or bonds and U.S. Treasury securities. For the year ended December 31, 2021, the Company held short-term and long-term investments of debt securities, including commercial paper and bonds. The Company assesses whether it has any intention to sell the investment before maturity, whether any declines in fair value are the result of credit losses, as well as whether there were other-than-temporary impairments associated with the available for sale investment. The Company intends to hold its investments until maturity; therefore, these investments are stated at amortized cost. The 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 the consolidated balance sheets. The amortization or accretion of the Company’s investments is recognized as interest income in the consolidated statements of operations and was approximately $ 0.5 million for the year ended December 31, 2021. There was no such amortization or accretion for the year ended December 31, 2020. No allowance for credit losses on held-to-maturity securities was required as of December 31, 2021. The contractual maturities of our held to maturity investments as of December 31, 2021 and 2020 are summarized below (in thousands): December 31, 2021 December 31, 2020 Amortized Cost Basis Aggregate Fair Value Amortized Cost Basis Aggregate Fair Value Due in one year or less (1) $ 103,733 $ 103,669 $ 59,495 $ 59,495 Due after one year through five years 56,619 56,433 — — Total $ 160,352 $ 160,102 $ 59,495 $ 59,495 ____________________________ (1) The investments due in one year or less include cash equivalents of $ 23.8 million as of December 31, 2021 and $ 59.5 million as of December 31, 2020. 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 (as amended, 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 31, 2023 . 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 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 assesses whether it has any intention to sell the investment, determines fair value of its available-for-sale investments using level 3 inputs as well as assesses whether there were other-than-temporary impairments associated with the available for sale investment. As of December 31, 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 and determined that there were no other-than-temporary impairments. 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 8 – Collaboration, Licensing and Other Arrangements for additional information. Subsequent to December 31, 2021, the Company invested an additional $ 5.0 million in Thirona and received a $ 5.0 million convertible promissory note. 72 Concentration of Credit Risk — Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and investments . Cash and cash equivalents are held in high credit quality institutions. Cash equivalents consist of interest-bearing money market accounts and U.S. Treasury securities with maturities less than 90 days. 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 Credit Losses — Accounts receivable are recorded at the invoiced amount and are not interest bearing. Accounts receivable are presented net of an allowance for credit losses 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 credit losses. The allowance for expected credit losses is based primarily on past collections experience relative to the length of time receivables are past due. However, when available evidence reasonably supports an assumption that future economic conditions will differ from current and historical payment collections, an adjustment is reflected in the allowance for expected credit losses. 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. Accounts receivable, net consists of the following (in thousands): December 31, 2021 2020 Accounts receivable – commercial Accounts receivable, gross $ 7,939 $ 8,090 Wholesaler distribution fees and prompt pay discounts ( 1,696 ) ( 1,205 ) Reserve for returns ( 2,797 ) ( 2,667 ) Total accounts receivable – commercial, net 3,446 4,218 Accounts receivable – collaborations and services Accounts receivable, gross 2,060 — Allowance for credit losses ( 767 ) — Total accounts receivable – collaborations and services, net 1,293 4,218 Accounts receivable – other 255 — Total accounts receivable, net $ 4,994 $ 4,218 As of December 31, 2021 and December 31, 2020, the allowance for credit losses was de minimis . As of December 31, 2021 and December 31, 2020, the Company had three wholesale distributors representing approximately 80 % and 86 % of gross sales and 79 % and 90 % of accounts receivable, respectively . As of December 31, 2021, the allowance for accounts receivable – collaborations and services of $ 0.8 million was related to $ 0.8 million of accounts receivable for Vertice Pharma, a collaboration partner for the co-promotion of Thyquidity. The Company had one collaboration partner, United Therapeutics, that comprised 100 % of the collaboration and services net accounts receivable as of December 31, 2021 and approximately 95 % of gross revenue from collaborations and services for the year ended December 31, 2021. 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 73 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 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 during the second quarter of 2020 to determine if the Company was on target to achieve certain required milestone conditions in order for the Company to access further borrowings under the MidCap Credit Facility. The Company determined that such milestone conditions related to Afrezza trailing net revenue were unlikely to be achieved. As a result, an asset impairment of $ 1.9 million was recognized during the second quarter of 2020 and is reflected in the Company’s consolidated statement of operations. See Note 7 – Borrowings for further information on the MidCap Credit Facility. The Company recorded $ 0.1 million of asset impairments for the year ended December 31, 2021. 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 consolidated statements of operations. The liability balance of the recognized loss on insulin purchase commitments as of December 31, 2021 and 2020 was $ 82.8 million and $ 95.3 million, respectively. No new contracts were identified in 2021 that required a new loss on purchase commitment accrual. Milestone Rights Liability — In July 2013, in conjunction with the execution of a (now repaid) loan agreement with Deerfield Private Design Fund II, L.P. and Deerfield Private Design International II, L.P. (collectively, “Deerfield”), we issued the Milestone Rights to Deerfield Private Design Fund II, L.P. and Horizon Santé FLML SÀRL, (the “Milestone Purchasers”). In December 2021, the Milestone Rights were purchased by Barings Global Special Situations Credit Fund 4 (Delaware), L.P. and Barings Global Special Situations Credit 4 (LUX) S.ar.l. (together “Barings”). As a result, Barings has assumed the obligations of the Original Milestone Purchasers and is now entitled to all rights under the Milestone Agreement. As of December 31, 2021, $ 65.0 million remained payable pursuant to the Milestone Agreement upon achievement of sales milestones. 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 7 — Borrowings). 74 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. 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 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 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. Net Income (Loss) Per Share of Common Stock — Basic net income or loss per share excludes dilution for potentially dilutive securities and is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted net income or loss per share reflects the potential dilution under the treasury method that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For periods where the Company has presented a net loss, potentially dilutive securities are excluded from the computation of diluted net loss per share as they would be anti-dilutive. 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 adopted this standard as of January 1, 2021 . The adoption of this standard did not have a material impact on the Company's 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 consolidated financial position or results of operations upon adoption. 75 3. Acquisition On December 7, 2020, the Company acquired QrumPharma, Inc., a privately held pharmaceutical company developing inhalation treatments for severe chronic and recurrent pulmonary infections. The Company purchased all of the outstanding capital stock of QrumPharma for consideration consisting of cash and shares of the Company’s common stock, subject to adjustment for cash on hand, unpaid indebtedness, unpaid transaction expenses, and net working capital as follows (in thousands): Consideration Cash consideration $ 3,574 Stock consideration (3,067,179 shares at $3.01 per share) 9,250 Transaction costs 531 Repayment of debt 11 Liabilities assumed 22 Cash acquired (155 ) Total consideration paid for IPR&D $ 13,233 The stock purchase of QrumPharma was accounted for under ASC 805, Business Combinations, as an asset acquisition since the transaction did not include the acquisition of inputs or processes and the fair value of the assets acquired were concentrated in a single identifiable asset, MNKD-101 (a nebulized version of clofazimine), which consisted of an in-process research and development asset (“IPR&D”). Under ASC 805, an entity that acquires IPR&D in an asset acquisition should follow the guidance in ASC 730, Research and Development, which requires that both tangible and intangible identifiable research and development assets with no alternative future use be allocated a portion of the consideration transferred and charged to expense at the acquisition date. Due to the stage of development of MNKD-101 at the date of acquisition, significant risk remained that the product would not obtain regulatory approval and it was not yet probable that there would be future economic benefit for the Company. Absent successful clinical results and regulatory approval, it was determined that there was no alternative future use associated with MNKD-101. Accordingly, the value of this asset was expensed at the time of acquisition and the total accumulated cost of $13.2 million, was allocated to the IPR&D asset using a relative fair value basis and the total consideration was recognized as in-process research and development expense in the consolidated statement of operations. The acquisition of QrumPharma also included a potential future royalty payment of 1.5% of net sales in each of the calendar years in which the total annual and global adjusted net sales of specified products exceeds $50 million and a royalty payment of 1.0% of net sales in each of the calendar years in which the total annual and global adjusted net sales of nebulized clofazimine are greater than or equal to $200 million. The contingent consideration in the form of royalty payments will be expensed as incurred since the probability of MNKD-101 obtaining FDA approval and generating net sales that exceed the specified thresholds could not be reasonably estimated on the date of acquisition. 4. Inventories Inventories consist of the following (in thousands): December 31, 2021 2020 Raw materials $ 2,703 $ 1,393 Work-in-process 2,522 2,484 Finished goods 1,927 1,096 Total inventory $ 7,152 $ 4,973 Work-in-process and finished goods as of December 31, 2021 and 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 December 31, 2021 and 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. 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 at December 31, 2021 and 2020. Inventory that was forecasted to become obsolete due to expiration as well as inventory that does not meet acceptable standards is recorded in costs of goods sold in the accompanying consolidated statements of operations. For the year ended December 31, 2021, there was an inventory write-off of $ 1.9 million as a result of this assessment, including $ 0.7 million related to the start of an agreement with a retail pharmacy. There was an inventory write-off of $ 0.5 million for the year ended December 31, 2020. 76 5. Property and Equipment Property and equipment consist of the following (in thousands): Estimated Useful December 31, Life (Years) 2021 2020 Land — $ 875 $ 875 Buildings 39-40 17,389 17,389 Building improvements 5-40 38,651 37,543 Machinery and equipment 3-15 55,334 55,054 Furniture, fixtures and office equipment 5-10 2,969 3,004 Computer equipment and software 3 8,163 8,319 Construction in progress — 10,892 (1) 503 134,273 122,687 Less accumulated depreciation ( 97,661 ) ( 96,820 ) Total property and equipment, net $ 36,612 $ 25,867 _________________________ (1) Construction in progress includes $ 4.7 million of equipment under construction for the manufacturing expansion for UT (the “UT Equipment”). The Company acts as agent on behalf of UT for the procurement of the UT Equipment. The Company has received $ 5.0 million in deposit for this service, which was recognized as deposit from customer in the consolidated balance sheet as of December 31, 2021. See Note 8 – Collaboration, Licensing and Other Arrangements . Depreciation expense related to property and equipment for the years ended December 31, 2021 and 2020 was $ 2.0 million and $ 1.8 million, respectively. During the year ended December 31, 2021 and 2020, the Company retired $ 1.1 million and $ 0.3 million, respectively of manufacturing equipment, computer hardware and software, lab equipment, and furniture and fixtures, as it was no longer in service. The net book value for the disposed assets was de minimis . On November 8, 2021 , the Company sold certain land, building and improvements located in Danbury, CT (the “Property”) to an affiliate of Creative Manufacturing Properties (the “Purchaser”) for a sales price of $ 102.3 million, subject to terms and the conditions contained in a purchase and sale agreement. Effective with the closing of this transaction, the Company entered into a 20 -year lease agreement with the Purchaser (the “Sale-Leaseback Transaction”). The sale of the Property and subsequent lease did not result in the transfer of control of the Property to the Purchaser; therefore, the Sale-Leaseback Transaction qualified as a failed sale leaseback transaction whereby the lease is accounted for as finance lease and the Property remains as a long-lived asset of the Company and is depreciated at its remaining useful life of 20 years or less. See Note 13 – Commitments and Contingencies . 6. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities are comprised of the following (in thousands): December 31, 2021 2020 Salary and related expenses $ 14,022 $ 11,250 Discounts and allowances for commercial product sales 4,227 3,688 Accrued interest 2,166 519 Deferred lease liability 1,380 1,422 Current portion of milestone rights liability 1,088 1,337 Professional fees 895 533 Retail inventory purchase 875 — Danbury facility buildout 786 — Other 1,980 958 Accrued expenses and other current liabilities $ 27,419 $ 19,707 77 7. Borrowings Carrying amount of borrowings consist of the following (in thousands): December 31, 2021 2020 Senior convertible notes $ 223,944 $ — Mann Group promissory notes (1) 18,425 63,027 MidCap credit facility 38,833 49,335 2024 convertible notes — 5,000 PPP Loan — 4,873 Total debt — net carrying amount $ 281,202 $ 122,235 (1) The amendment to the Mann Group convertible note in the second quarter of 2021 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 consolidated statement of operations for the year ended December 31, 2021 and was recognized as additional paid-in capital in the consolidated balance sheet as of December 31, 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: Amount Due Terms December 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) $40.0 million $50.0 million one-month LIBOR (1% floor) plus 6.25% (1) August 2025 (1) N/A Mann Group convertible note $18.4 million (plus $0.4 million accrued interest paid-in-kind) $28.0 million (plus $0.6 million accrued interest paid-in-kind) 2.50% (2) December 2025 (2) $2.50 per share Mann Group non-convertible note (3) — $35.1 million (plus $3.6 million accrued interest paid-in-kind) 7.00% November 2024 N/A PPP loan (4) — $4.9 million 0.98% April 2022 N/A 2024 convertible notes (5) — $5.0 million 5.75 % November 2024 $3.00 per share (1) 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 . (2) 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 . (3) In April 2021, the Company prepaid $ 35.1 million principal balance as well as accrued unpaid interest. (4) In July 2021, the Company received full forgiveness from the SBA for the $ 4.9 million principal balance of the PPP loan and recognized a gain on extinguishment of debt for the full principal balance and a de minimis amount of accrued but unpaid interest. (5) In February 2021, the $ 5.0 million principal balance was converted into 1,666,667 shares of the Company’s common stock. 78 The maturities of our borrowings as of December 31, 2021 are as follows (in thousands): Amounts 2022 $ — 2023 6,667 2024 20,000 2025 31,758 Thereafter 230,000 Total principal payments 288,425 Unamortized discount ( 1,167 ) Debt issuance costs ( 6,056 ) Total debt $ 281,202 Senior convertible notes – On March 4, 2021, the Company issued $ 200.0 million aggregate principal amount of Senior convertible notes in a private offering. Pursuant to an option to purchase additional senior convertible notes in the purchase agreement between the Company and the initial purchasers of the Senior convertible notes, the Company issued an additional $ 30.0 million aggregate principal amount of Senior convertible notes on March 15, 2021. The Senior convertible notes were issued pursuant to an indenture, dated March 4, 2021 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee. The Senior convertible notes are general unsecured obligations of the Company and will mature on March 1, 2026 , unless earlier converted, redeemed or repurchased. The Senior convertible notes will bear cash interest from March 4, 2021 at an annual rate of 2.50 % payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2021. The Senior convertible notes are convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding December 1, 2025, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock, par value $ 0.01 per share, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price for the Senior convertible notes on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period in which the trading price (as defined in the Indenture) per $ 1,000 principal amount of the Senior convertible notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Common Stock and the conversion rate on each such trading day; (3) if the Company calls such Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Senior convertible notes called (or deemed called) for redemption; or (4) upon the occurrence of specified corporate events as set forth in the Indenture. On or after December 1, 2025 until the close of business on the business day immediately preceding the maturity date, holders may convert all or any portion of their Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Common Stock or a combination of cash and shares of Common Stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the Indenture. The initial conversion rate is 191.8281 shares of Common Stock per $ 1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $ 5.21 per share of Common Stock). The initial conversion price of the Senior convertible notes represents a premium of approximately 30 % to the last reported sale price of the Common Stock on the Nasdaq Global Market on March 1, 2021. The conversion rate for the Senior convertible notes is subject to adjustment under certain circumstances in accordance with the terms of the Indenture, but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date of the Senior convertible notes or if the Company delivers a notice of redemption in respect of the Senior convertible notes, the Company will, in certain circumstances, increase the conversion rate of the Senior convertible notes for a holder who elects to convert its Senior convertible 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 Senior convertible notes, at least $ 75.0 million aggregate principal amount of Senior convertible 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. 79 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. 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 Senior convertible notes by notice to the Company and the trustee, may, and the trustee at the request of such holders shall, declare 100 % of the principal of and accrued and unpaid interest, if any, on all the Senior convertible notes to be due and payable. Notwithstanding the foregoing, the Indenture provides that, to the extent the Company so elects, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture will, for the first 365 days after the occurrence of such an event of default consist exclusively of the right to receive additional interest on the Senior convertible notes as set forth in the Indenture . The Indenture provides that the Company shall not consolidate with or merge with or into, or sell, convey, transfer or lease all or substantially all of the consolidated properties and assets of the Company and its subsidiaries, taken as a whole, to, another person (other than any such sale, conveyance, transfer or lease to one or more of the Company’s direct or indirect wholly owned subsidiaries), unless: (i) the resulting, surviving or transferee person (if not the Company) is a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia, and such corporation (if not the Company) expressly assumes by supplemental indenture all of the Company’s obligations under the Senior convertible notes and the Indenture; and (ii) immediately after giving effect to such transaction, no default or event of default has occurred and is continuing under the Indenture. The Company’s net proceeds from the Offering were approximately $ 222.7 million, after deducting the initial purchasers’ discounts and commissions and the estimated Offering expenses payable by the Company. As of December 31, 2021, the unamortized debt issuance cost was $ 6.1 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 8 – 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 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. 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. 80 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 and short-term investments following such investment. Concurrent with entering into this amendment, the Company made a $ 10.0 million principal prepayment against outstanding term loans under the MidCap credit facility and paid a related $ 1.0 million exit fee in lieu of the unaccrued portion of the original exit fee and prepayment penalties that would otherwise have been due with respect to the partial prepayment. Tranche 1, Tranche 2 and, if borrowed, Tranche 3, each accrue interest at an annual rate equal to the lesser of (i) 8.25 % and (ii) the one-month LIBOR (subject to a one-month LIBOR floor of 1.00 %) plus 6.25 %. Interest on each term loan advance is due and payable monthly in arrears. Principal on 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 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 December 31, 2021, the unamortized debt discount was $ 0.4 million and the unamortized prepayment penalty was $ 0.8 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 and short-term investments. 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 December 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 Company determined that these warrants met the criteria for equity classification and accounted for such warrants in additional paid-in capital. During the year ended December 31, 2021, the Tranche 1 and Tranche 2 MidCap warrants were exercised in full. 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 . 81 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 the consolidated statement of operations for year ended December 31, 2021 and resulted in a corresponding debt premium of $ 22.1 million which was recognized as additional paid-in capital in the consolidated balance sheet as of December 31, 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. 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. 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 year ended December 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. On July 28, 2021, the Company received notification from the SBA that the full principal amount of the PPP loan was forgiven. The Company recognized a $ 4.9 million gain on extinguishment of debt for the forgiveness of the principal amount and accrued but unpaid interest for the year ended December 31, 2021. 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. 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, 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 the premium and accretion of debt issuance costs related to all borrowings for the years ended December 31, 2021 and 2020 are as follows (in thousands): Year Ended December 31, 2021 2020 Amortization of debt discount 377 268 Amortization of debt issuance cost 1,215 101 82 Milestone Rights — As of December 31, 2021 and 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 approxim ately $ 1.3 million, which represented the fair value as determined in 2013 (the most recent measurement date). The Milestone Rights Agreement includes customary representations and warranties and covenants by the Company, including restrictions on transfers of intellectual property related to Afrezza. The Milestone Rights are subject to acceleration in the event the Company transfers its intellectual property related to Afrezza in violation of the terms of such agreement. 8. Collaboration, Licensing and Other Arrangements Revenue from collaborations and services for the years ended December 31, 2021 and 2020 are as follows (in thousands): Year Ended December 31, 2021 2020 UT License Agreement $ 34,145 $ 32,213 UT CSA Agreement 267 — Vertice Pharma Co-Promotion Agreement 1,147 — Receptor CLA 245 250 Cipla License and Distribution Agreement 147 147 Other 323 — UT Research Agreement — 210 Total revenue from collaborations and services $ 36,274 $ 32,820 The activity related to deferred revenue and the related revenue recognized for collaborations and services is as follows (in thousands): December 31, 2021 2020 Deferred revenue: Beginning balance $ 34,937 $ 40,847 Additions 21,707 1,910 Upfront and milestone payments — 25,000 Revenue — collaborations and services ( 36,274 ) ( 32,820 ) Ending balance $ 20,370 $ 34,937 United Therapeutics License Agreement — In September 2018, the Company and UT entered into an exclusive global license and collaboration agreement (the “UT License Agreement”), pursuant to which 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. 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 (“R&D Services”). 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. 83 The Company expected to complete the activities specified in the initial development plan and to achieve the milestone event s 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. Revenue was allocated as follows: Distinct Performance Obligation Transaction Price Allocation of Price Recognition Method Progress Measure Recognition Period (in millions) R&D Services and License $ 105.8 100 % Over time Ratably Sep 2018 - Dec 2021 (1) (1) Recognition period represents 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 an 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 $ 50.9 million was allocated to the four distinct performance obligations based on management’s assessment of the stand-alone selling price of each performance obligation. Revenue was allocated as follows: Description Transaction Price Allocation of Price (1) Recognition Method Progress Measure Revenue Recognition (in millions) Total transaction price $ 50.9 Distinct Performance Obligation R&D Services and License $ 18.4 Over time Ratably May 2021 - Oct 2021 (2) Pre-Commercial Services $ 4.6 Over time Input % of completion of costs (3) Next-Gen R&D Services $ 7.2 Over time Input % of completion of costs (3) Facility Expansion Services (4) $ 20.7 Point in time Transfer of control (5) (1) Allocation is based on management’s assessment of the stand-alone selling price of each performance obligation. (2) Represents the estimated period when the R&D Services performance obligation will be substantially complete. (3) 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. (4) The Company also acts as agent for the procurement of equipment for the manufacturing expansion for the UT Equipment. The Company received $ 5.0 million from UT for the UT Equipment, which was recognized as deposits from customer on the consolidated balance sheet and will be released as the title is transferred to UT. (5) The Facility Expansion Services performance obligation would be recognized as control of manufactured products is transferred to the customer. On August 12, 2021, the Company and UT entered into a commercial supply agreement (the “CSA”), pursuant to which the Company is responsible for manufacturing and supplying to UT, and UT is responsible for purchasing from the Company on a cost-plus basis, Tyvaso DPI and BluHale inhalation profiling devices, as required for commercial distribution and sale by UT. In addition, UT is responsible for supplying treprostinil at its expense in quantities necessary to enable the Company to manufacture Tyvaso DPI as required by the CSA. Also pursuant to the CSA, UT will remit a reimbursement of certain pre-production costs incurred by the Company to support the manufacturing and supply of Tyvaso DPI. The activities and deliverables under the CSA and the current development plan resulted in three distinct performance obligations which include: (1) the license, supply of product to be used in clinical development, and continued development and approval support for Tyvaso DPI (“R&D Services and License”); (2) development activities for the next generation of Tyvaso DPI Next-Gen R&D Services; and (3) a material right associated with future commercial manufacturing and supply of product (“Manufacturing Services”). 84 The total revised anticipated cash flows of $ 221.5 million from the transaction was allocated to the three distinct performance obligations as follows . Anticipated Description Cash Flow Revenue Allocation (1) Recognition Method Progress Measure Revenue Recognition (in millions) Total anticipated cash flow $ 221.5 Distinct Performance Obligation R&D Services and License (2) $ 6.0 Over time Ratably Aug 2021 - Oct 2021 (3) Next-Gen R&D Services $ 8.8 Over time Input % of completion of costs (4) Manufacturing Services $ 206.7 Point in time Transfer of control (5) (1) Allocation is based on management’s assessment of the stand-alone selling price of each performance obligation. (2) The license for the Company’s IP was considered to be interdependent with the development activities to support approval of Tyvaso DPI. A sales-based royalty is promised in exchange for the IP license; therefore, the royalties associated with the license are excluded from the determination of the transaction price and the Company will recognize revenue as the sale of Tyvaso DPI to a patient occurs. (3) Represents the estimated period when the R&D Services performance obligation will be substantially complete. (4) The Next-Gen R&D Services performance obligation 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. (5) The Manufacturing Services performance obligation will be recognized as control of manufactured products is transferred to the customer; therefore, no revenue associated with this obligation was recognized during the year ended December 31, 2021. The allocation of transaction price includes a material right related to manufacturing services. The total anticipated cash flow is based on the Company’s estimated production and the ultimate cash flows may vary as manufacturing purchase orders are received. As amended by an amendment dated October 16, 2021, the term of the CSA continues until December 31, 2031 (unless earlier terminated) and is thereafter renewed automatically for additional, successive two-year terms unless (i) United Therapeutics provides notice to the Company at least 24 months in advance of such renewal that United Therapeutics does not wish to renew the CSA or (ii) the Company provides notice to United Therapeutics at least 48 months in advance of such renewal that the Company does not wish to renew the CSA. The Company and United Therapeutics each have normal and customary termination rights, including termination for material breach that is not cured within a specific timeframe or in the event of liquidation, bankruptcy or insolvency of the other party. The Company accounted for the contract modification as if it were part of the existing contract since the amendment modified the scope and price of the CSA by extending the term and increasing the occupancy rate. The effect of the modification on the transaction price and on the measure of progress is recognized as an adjustment to revenue as of the date of the modification. The modification did not result in a change the activities and deliverables under the CSA. Anticipated Description Cash Flow Revenue Allocation (1) Recognition Method Progress Measure Revenue Recognition (in millions) Total anticipated cash flow (2) $ 463.5 Distinct Performance Obligation R&D Services and License (3) $ — Over time Ratably Aug 2021 - Oct 2021 (4) Next-Gen R&D Services (5) $ 4.8 Over time Input % of completion of costs (6) Manufacturing Services (7) $ 458.7 Point in time Transfer of control (8) (1) Allocation is based on management’s assessment of the stand-alone selling price of each performance obligation. (2) The total anticipated cash flow includes a transaction price of $ 64.3 million for the contractual obligations under the CSA for the Manufacturing Services and the Next-Gen R&D Services performance obligations and $ 399.2 million for future supply of Tyvaso DPI over the remaining term of the CSA. (3) The license for the Company’s IP was considered to be interdependent with the development activities to support approval of Tyvaso DPI. A sales-based royalty is promised in exchange for the IP license; therefore, the royalties associated with the license are excluded from the determination of the transaction price and the Company will recognize revenue as the sale of Tyvaso DPI to a patient occurs. (4) Represents the period when the revenue for the R&D Services performance obligation was recognized. (5) The standalone selling price (“SSP”) for the Next-Gen R&D Services performance obligation was based on industry ratios as well as the Company’s historical R&D projects. The transaction price for the Next-Gen R&D Services was based on fixed consideration which was allocated between performance obligations as discussed in note (2) above. (6) The Next-Gen R&D Services performance obligation 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. 85 (7) Pre-production activities under the CSA, such as facility expansion services and certain other administrative services, were considered bundled services that are part of the Company’s Manufacturing Services performance obligation, given the nature of the Company’s contractual responsibilities and ASC 606 requirements. (8) The Manufacturing Services performance obligation will be recognized as control of manufactured products is transferred to the customer. The modification did not result in a cumulative catch-up adjustment as a result of the revenue being deferred for the performance obligations that were affected by the modification. The allocation of transaction price includes a material right related to manufacturing services in the amount of $ 144.5 million. The total anticipated cash flow is based on the Company’s estimated production and the ultimate cash flows may vary as manufacturing purchase orders are received. As of December 31, 2021, deferred revenue consisted of $ 18.6 million, of which $ 0.6 million was classified as current and $ 18.0 million was classified as long-term on the 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 Pharma 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. In July 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. In September 2021, the Company and Vertice Pharma mutually agreed that the Company would cease promotional activities under the co-promotion agreement effective September 30, 2021, other than certain transitional activities that continued until October 15, 2021. The Company and Vertice Pharma are currently negotiating a final settlement of all obligations related to the termination of the co-promotion agreement. As of December 31, 2021, the Company fully reserved $ 0.8 million of revenue from the co-promotion of Thyquidity, which was recognized as allowance for credit losses – collaborations and services, which is included in accounts receivable, net in the consolidated balance sheet. In addition, the Company recognized an impairment on contract assets of $ 0.1 million related to variable consideration from gross profits which was recognized during the year ended December 31, 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 research and development in the consolidated statements of operations. Biomm Supply and Distribution Agreement — In May 2017, the Company and Biomm S.A. (“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 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. During the year ended December 31, 2020, the Company sold $ 0.2 million of product to Biomm. No shipments of product were made to Biomm during the year ended December 31, 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 is 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. 86 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 December 31, 2021, the deferred revenue balance was $ 1.7 million, of which $ 0.1 million is classified as current and $ 1.6 million is classified as long term in the consolidated balance sheets. AMSL Distribution Agreement — In May 2019, the Company entered into an exclusive marketing and distribution agreement with Australasian Medical & Scientific Ltd. (“AMSL”) for the commercialization of Afrezza in Australia. Under the terms of this agreement, AMSL is responsible for obtaining regulatory and reimbursement approvals to distribute Afrezza in Australia. On August 1, 2021, Dexcom, Inc. acquired all of the outstanding shares of AMSL. As a result, on November 4, 2021, the Company exercised its right under the marketing and distribution agreement to terminate such agreement. 9. 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. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, 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. The carrying amounts reported in the accompanying 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, long- and short-term investments, MidCap credit facility, Mann Group promissory notes, 2024 convertible notes, Senior convertible notes, Milestone Rights liabilities and Financing liability are disclosed below (amounts in millions). December 31, 2021 Investment Level Amortized Cost (Carrying Value) Gross Unrealized Holding Losses Estimated Fair Value Commercial bonds and paper Level 2 $ 115.2 $ 0.2 $ 115.0 Money market funds Level 1 21.3 — 21.3 U.S. Treasuries Level 2 23.9 0.1 23.8 Total cash equivalents and investments $ 160.4 $ 0.3 $ 160.1 Less cash equivalents ( 23.8 ) — ( 23.8 ) Total Investments $ 136.6 $ 0.3 $ 136.3 December 31, 2020 Investment Level Amortized Cost (Carrying Value) Gross Unrealized Holding Losses Estimated Fair Value Cash equivalents - U.S. Treasuries Level 2 $ 59.5 $ — $ 59.5 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 December 31, 2021 and 2020, the Company held $ 124.2 million and $ 67.0 million, respectively, of cash and cash equivalents. The Company held $ 0.2 million in restricted cash as of December 31, 2020, which was comprised of money market funds, corporate bonds and commercial paper for the collateralization of a letter of credit and treasury bills. There was no restricted cash as of December 31, 2021. Held-to-Maturity Investments — Investments consist of highly liquid investments that are intended to facilitate liquidity and capital preservation. As of December 31, 2021, the Company held $ 79.9 million of short-term investments and $ 56.6 million of long-term investments. As of December 31, 2020, the Company did no t hold any investments. Available-for-Sale Investment — The Thirona convertible note is classified as an available-for-sale security and is included in other assets in the 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 87 available-for-sale investments using level 3 inputs. As of December 31, 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. 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): December 31, 2021 Fair Value Carrying Amount Significant Unobservable Inputs (Level 3) Total Fair Value Financial liabilities: Senior convertible notes (1) $ 223.9 $ 237.5 $ 237.5 MidCap credit facility (2) 38.8 40.8 40.8 Mann Group convertible notes (3) 18.4 37.8 37.8 Milestone rights (4) 5.9 18.1 18.1 (1) Fair value determined by applying a discounted cash flow analysis to the straight note with a hypothetical yield of 12 %, volatility of 90 % 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 $ 226.6 million and $ 249.4 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 $ 39.1 million and $ 42.7 million, respectively. (3) 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 consolidated balance sheet as of December 31, 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 December 31, 2021 was determined by applying a discounted cash flow analysis with a hypothetical yield of 12 % and volatility of 85 % 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 $ 36.9 million and $ 38.8 million, respectively. (4) Fair value determined by applying a Monte Carlo simulation. December 31, 2020 Fair Value Carrying Value Significant Unobservable Inputs (Level 3) Total 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. 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. Financing Liability — The failed Sale Leaseback Transaction in November 2021 resulted in a financing liability which is included in our consolidated balance sheets as a current financing liability of $ 7.0 million and a long-term financing liability of $ 93.5 million. The Company determined the fair value of the financing liability using level 3 inputs. As of December 31, 2021, the Company evaluated the fair value of its financing liability and determined that the fair value approximates the carrying value. 10. 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 December 31, 2021 and 2020, 251,477,562 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 88 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 year ended December 31, 20 2 1 , the Company sold an aggregate of 578,063 shares of the Company’s common stock at an 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 year ended December 31, 20 20 , the Company sold an aggregate of 11,851,566 shares of the Company’s common stock at an average purchase price of $ 1.99 per share for an aggregate gross proceeds of approximately $ 23.5 million p ursuant to the CF Sales Agreement. In June 2020, the Company prepaid the June 2020 note with the issuance of 1,235,094 shares of the Company’s common stock, in accordance with the terms of the June 2020 note. In October 2020, the Company prepaid the December 2020 note with the issuance of 1,377,356 shares of the Company’s common stock, in accordance with the terms of the December 2020 note. The number of shares issued for the prepayments in June and October 2020 were determined based on the Company’s closing stock price on the day preceding the settlement date. See Note 7 – Borrowings . In June 2020, 7,250,000 warrants were exercised at a price of $ 1.60 per share. The warrants were issued pursuant to an underwriting agreement with Leerink Partners LLC for a public offering of 26,666,667 shares of the Company’s common stock and warrants to purchase up to an aggregate of 26,666,667 shares of the Company’s common stock. There are no remaining warrants outstanding under this agreement. In the fourth quarter of 2020, the Mann Group converted $ 3.0 million of accrued interest and $ 7.0 million of principal under the Mann Group convertible note into 1.2 million shares and 2.8 million shares, respectively, of the Company’s common stock, in accordance with the terms of the convertible note. Subsequent to December 31, 2020, the Mann Group converted $ 0.4 million of interest and $ 9.6 million of principal into 4.0 million shares of common stock. See Note 7 – Borrowings . In December 2020, the Company issued 111,853 warrants to purchase shares of the Company’s common stock in connection with the third amendment to the Midcap Credit Facility. The warrants are set to expire on the earlier of December 1, 2027 or upon acquisition of the Company. See Note 7 – Borrowings . In December 2020, the Company issued 3,067,179 shares of the Company’s common stock as consideration for the acquisition of QrumPharma. See Note 3 – Acquisition . 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 October 2021, MidCap exercised 1,171,614 and 111,853 warrants issued in association with Tranches 1 and 2, respectively, under the MidCap credit facility, as amended, to purchase an aggregate of 1,283,467 shares of the Company’s common stock through a cashless exercise that resulted in the net issuance of 964,113 shares. See Note 7 – Borrowings . During the year ended December 31, 2021, the Company received $ 0.1 million from the market price stock purchase plan (“MPSPP”) for 25,000 shares and a de minimis amount during the year ended December 31, 2020. 11. 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): Year Ended December 31, 2021 2020 EPS — basic and diluted: Net loss (numerator) $ ( 80,926 ) $ ( 57,240 ) Weighted average common shares (denominator) 249,244 222,585 Net loss per share $ ( 0.32 ) $ ( 0.26 ) 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. 89 Potentially dilutive securities outstanding that are considered antidilutive are summarized as follows (in shares): Year Ended December 31, 2021 2020 Senior convertible notes 44,120,463 — Common stock options and PNQs 10,655,146 12,264,616 Mann Group convertible notes 7,370,000 11,200,000 Warrants associated with MidCap credit facility — 1,283,467 2024 convertible notes — 1,666,667 RSUs and Market RSUs (1) 7,609,025 6,037,542 Employee stock purchase plan 243,375 292,981 Total shares 69,998,009 32,745,273 _________________________ (1) Market RSUs are included at the maximum share delivery percentage. 12. Stock Award Plans On May 16, 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) as the successor to and continuation of the 2013 Equity Incentive Plan (the “2013 Plan”). The 2018 Plan initially consisted of 12,000,000 new shares plus the number of unallocated shares remaining available for grant for new awards under the 2013 Plan. In May 2020, the 2018 Plan was amended to increase the number of shares of common stock that may be issued under the 2018 Plan by 12,500,000 shares. Effective upon the approval of the 2018 Plan by the Company’s stockholders in May 2018, no additional awards have been or may be granted under the 2013 Plan. Any Prior Plans’ returning shares will increase the number of shares issuable under the 2018 Plan. The Prior Plans’ returning shares are shares subject to outstanding stock awards granted under the 2013 Plan or the 2004 Equity Incentive Plan (collectively, “Prior Plans”) that, from and after the effective date of the 2018 Plan, (i) expire or terminate for any reason prior to exercise or settlement, (ii) are forfeited, cancelled or otherwise returned to the Company because of the failure to meet a contingency or condition required for the vesting of such shares, or (iii) other than with respect to outstanding stock options and stock appreciation rights granted under the Prior Plans with an exercise or strike price of at least 100 % of the fair market value of the underlying common stock on the date of grant, are reacquired or withheld (or not issued) by the Company to satisfy a tax withholding obligation in connection with a stock award. The 2018 Plan provides for the granting of stock awards including stock options and restricted stock units to employees, directors and consultants. The Company’s board of directors or its compensation committee determines eligibility, vesting schedules and criteria, and exercise prices for stock awards granted under the 2018 Plan. Options and restricted stock unit awards under the 2018 Plan, or the Prior Plans expire not more than ten years from the date of the grant and are exercisable upon vesting. Stock options that vest over time generally vest over four years . Current time-based vesting stock option grants vest and become exercisable at the rate of 25 % after one year and ratably on a monthly basis over a period of 36 months thereafter. The Company also issues PNQ awards with performance conditions. For PNQs, the Company evaluates the probability that the performance conditions will be met and estimates the service period for recognition of the associated expense. RSUs with time-based vesting generally vest at a rate of 25 % per year over four years with consideration satisfied by service to the Company. Certain RSUs issued to nonemployee directors vest 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. The Company also issued Market RSUs. The grant date fair value and the effect of the market conditions was estimated using a Monte Carlo valuation. Market RSUs issued during the year ended December 31, 2021 had a grant date fair value of $ 9.30 per share and will vest on May 17, 2024 provided that 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 fair value of the Market RSUs was determined using a share price of $ 4.26 , risk-free interest rate of 0.34 %, volatility of 88 %, and a dividend yield of 0 %. 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 related to the TSR of the Russell 3000 Pharmaceutical & Biotechnology Index over the same 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 % percent of target, 90 th percentile or higher= 300 % maximum. Payout values will be interpolated between the percentile rankings above. The resulting stock-based compensation expense will be recognized over the service period regardless of whether the market conditions are achieved, as long as the service condition is rendered. 90 The following table summarizes information about the Company’s stock-based award plans as of December 31, 2021: Outstanding Options Outstanding Restricted Stock Units Shares Available for Future Issuance 2004 Equity Incentive Plan 206,358 — — 2013 Equity Incentive Plan 3,639,936 2,600 — 2018 Equity Incentive Plan 6,800,852 7,606,425 5,344,810 2004 Non-Employee Directors’ Stock Option Plan 8,000 — — Total 10,655,146 7,609,025 5,344,810 Share-based payment transactions are recognized as compensation cost based on the fair value of the instrument on the date of grant. The Company uses the Black-Scholes option valuation model to estimate the grant date fair value of employee stock options. The expected term of an option granted is based on combining historical exercise data with expected weighted time outstanding. Expected weighted time outstanding is calculated by assuming the settlement of outstanding awards is at the midpoint between the remaining weighted average vesting date and the expiration date. The Company recognizes forfeitures as they occur. During the years ended December 31, 2021 and 2020, the Company recorded RSU and option based stock compensation expense of $ 11.5 million, $ 6.2 million and employee stock purchase plan compensation of $ 0.7 million and $ 0.3 million, respectively. Total stock-based compensation expense recognized in the accompanying consolidated statements of operations is included in the following categories (in thousands): Year Ended December 31, 2021 2020 Cost of goods sold $ 407 $ 446 Cost of revenue — collaborations and services 1,708 626 Research and development 614 338 Selling, general and administrative 9,471 5,101 Total $ 12,200 $ 6,511 The expected volatility assumption used in the Company’s Black-Sholes option valuation model is based on an assessment of the historical volatility derived from an analysis of historical trade activity. The Company has selected risk-free interest rates based on U.S. Treasury securities with an equivalent expected term in effect on the date the options were granted. Additionally, the Company uses historical data and management judgment to estimate stock option exercise behavior and employee turnover rates to estimate the number of stock option awards that will eventually vest. There were no options issued in the year ended December 31, 2021. The Company calculated the fair value of employee stock options granted during the year ended December 31, 2020 using the following assumptions: Year Ended December 31, 2020 Risk-free interest rate 0.39% — 1.52% Expected lives 5.67 — 7.0 years Volatility 93.83% — 94.25% Dividends — The following table summarizes information relating to stock options: Number of Shares Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value ($000) Outstanding at January 1, 2021 12,264,616 $ 3.41 6.45 $ 15,414 Granted — — Exercised ( 586,572 ) 1.72 Forfeited ( 258,410 ) 1.59 Expired ( 764,488 ) 11.57 Outstanding at December 31, 2021 10,655,146 $ 2.96 5.82 $ 25,458 Exercisable at December 31, 2021 8,009,961 $ 3.40 5.58 $ 18,436 There were no stock options granted in the year ended December 31, 2021. The weighted average grant date fair value of the stock options granted during the year ended December 31, 2020 was $ 0.97 . Total fair value of stock options vested during the years ended December 31, 2021 and 2020 was $ 2.3 million and $ 4.5 million, respectively. The total intrinsic value of options exercised during the years ended 91 December 31, 2021 and 20 20 was $ 1.7 million and $ 0.5 million , respectively . Intrinsic value is measured using the fair market value at the date of exercise for options exercised or at December 31 for outstanding options, less the applicable exercise price. Cash received from the exercise of options during the years ended December 31, 2021 and December 31, 2020 was approximately $ 1.0 million and $ 0.6 million, respectively. As of December 31, 2021 and 2020, the Company recognized a $ 0.1 million and $ 0.2 million, respectively, of compensation costs related to the performance-based stock options. As of December 31, 2021 and 2020, there was $ 0.3 million and $ 0.4 million, respectively of unrecognized compensation costs related to performance-based stock options subject to performance conditions. The following table summarizes information relating to restricted stock units: Number of Shares Weighted Average Grant Date Fair Value per Share Outstanding at January 1, 2021 6,037,542 $ 2.20 Granted 3,326,798 5.82 Vested ( 1,516,065 ) 2.22 Forfeited ( 239,250 ) 2.58 Outstanding at December 31, 2021 7,609,025 3.77 Total fair value of restricted stock units vested during the years ended December 31, 2021 and 2020 was $ 6.7 million and $ 2.5 million, respectively. Intrinsic value of restricted stock units vested is measured using the closing share price on the day prior to the vest date. The total grant date fair value of restricted stock units outstanding as of December 31, 2021 and 2020 was $ 19.3 million and $ 13.3 million, respectively. As of December 31, 2021, there was $ 2.1 million of unrecognized compensation expense related to options and PNQs and $ 21.1 million of unrecognized compensation expense related to restricted stock units and market based stock units, which are expected to be recognized over the weighted average period of 1.32 to 2.59 years . The Company evaluates stock awards with performance conditions as to the probability that the performance conditions will be met and uses that information to estimate the date at which those performance conditions will be met in order to properly recognize stock-based compensation expense over the requisite service period. 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 (“IRC”) 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 0.5 million and 0.6 million shares of common stock pursuant to the ESPP for the years ended December 31, 2021 and 2020, respectively. There were approximately 1.1 million shares of common stock available for issuance under the ESPP as of December 31, 2021. 13. 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 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 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 December 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 92 reasonably estimated. The Company’s policy is to accrue for legal expenses in connection with legal proceedings and claims as they are incurred. Contingencies — In July 2013, the Company entered into an agreement with the Original 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, $ 65.0 million of which remains payable to Barings upon achievement of such milestones (see Note 7 — Borrowings ). The fair value of the Milestone Rights is recorded in the consolidated balance sheet, including $ 1.1 million in accrued expenses and other current liabilities and $ 4.8 million in milestone rights liability. Sale lease-back — On November 8, 2021, the Company sold the Property to the Purchaser for a sales price of $ 102.3 million, subject to terms and the conditions contained in a purchase and sale agreement. Effective with the closing of the Sale-Leaseback Transaction, the Company and the Purchaser entered into a lease agreement (the “Lease”), pursuant to which the Company leased the Property from the Purchaser for an initial term of 20 years, with four renewal options of five years each. The total annual rent under the Lease starts at approximately $ 9.5 million per year, subject to a 50% rent abatement during the first year of the Lease, and will increase annually by (i) 2.5% in the second through fifth year of the Lease and (ii) 3% in the sixth and each subsequent year of the Lease, including any renewal term. The Company is responsible for payment of operating expenses, property taxes and insurance for the Property. The Purchaser will hold a security deposit of $ 2.0 million during the Lease term. Pursuant to the terms of the Lease, the Company has four options to repurchase the Property, in 2026, 2031, 2036 and 2041, for the greater of (i) $ 102.3 million and (ii) the fair market value of the Property. Effective with the closing of the Sale-Leaseback Transaction, the Company and the Purchaser also entered into a right of first refusal agreement (the “ROFR”), pursuant to which the Company has a right to re-purchase the Property from the Purchaser in accordance with terms and conditions set forth in the ROFR. Specifically, if the Purchaser receives, and is willing to accept, a bona fide purchase offer for the Property from a third-party purchaser, the Company has certain rights of first refusal to purchase the Property on the same material terms as proposed in such bona fide purchase offer. As of December 31, 2021, the related financing liability was $ 100.5 million, which was recognized in our consolidated balance sheet as $ 93.5 million of financing liability — long-term and $ 7.0 million of financing liability — short-term. Financing liability information is as follows (in thousands): December 31, 2021 Weighted average remaining lease term (in years) 19.8 Weighted average discount rate 9.0 % December 31, 2021 Interest expense on financing liability $ 1,373 Financing liability payments as of December 31, 2021 was as follows (in thousands): December 31, 2021 2022 (1) $ 6,373 2023 9,778 2024 10,023 2025 10,274 2026 10,539 Thereafter 199,091 Total 246,078 Interest payments ( 142,485 ) Debt issuance costs ( 3,091 ) Total financing liability $ 100,502 (1) 2022 includes the amortization of the rent abatement. 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. 93 In May 2021, the Company and Amphastar France Pharmaceuticals S.A.S. (“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 year ended December 31, 2021. The remaining purchase commitments as of December 31, 2021 and March 31, 2021 (pre-amendment) were as follows: December 31, 2021 March 31, 2021 2022 € 5.4 million € 7.0 million 2023 € 8.8 million € 8.5 million 2024 € 14.6 million € 10.9 million 2025 € 15.5 million € 14.6 million 2026 € 19.4 million € 15.5 million 2027 € 9.2 million € 19.4 million 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. 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. Vehicle Leases – During the second quarter of 2018, the Company entered into a lease agreement with Enterprise Fleet Management Inc. During 2021, 85 vehicles were retired and all of those vehicles were replaced, resulting in a fleet size of 89 vehicles. The Company received proceeds for the gain on the retired vehicles residual value in the amount of $ 0.5 , which is included as a reduction to our lease expense. The revised monthly payment inclusive of maintenance fees, insurance and taxes is approximately $ 0.1 million and the additional right of use asset and lease obligation is approximately $ 1.4 million in the consolidated balance sheets. The lease expense is included in selling, general and administrative expenses in the 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 offices 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 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 offices 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): December 31, 2021 December 31, 2020 Weighted average remaining lease term (in years) 2.6 1.9 Weighted average discount rate 7.3 % 7.5 % December 31, 2021 2020 Operating lease costs $ 863 $ 1,403 Variable lease costs 515 394 Cash paid 1,867 1,797 94 Future minimum office and vehicle lease payments as of December 31, 2021 and 2020 were as follows (in thousands): December 31, 2021 2020 2021 $ — $ 1,494 2022 1,444 1,239 2023 497 88 2024 409 — 2025 311 — Total $ 2,661 $ 2,821 14. Employee Benefit Plans The Company administers a defined contribution 401(k) savings retirement plan for its employees. The Company may make discretionary matching contributions. For the year ended December 31, 2021, the Company matched each participant’s deferral at the rate of 50 % of each participant’s deferral up to the first 10 % of compensation. Participants hired after March 31, 2021 became vested in Company contributions at 100 % after two years of service. For the year ended December 31, 2020, the Company matched each participant’s deferral at the rate of 50 % of each participant’s deferral up to the first 6 % of compensation. Participants are vested in Company contributions at 50 % after one year of service and are 100 % vested after two years of service. The Company’s total discretionary matching contributions were $ 1.5 million and $ 0.9 million for the years ended December 31, 2021 and 2020, respectively. 15. Income Taxes Loss from continuing operations before provision for income taxes for the Company’s domestic and international operations was as follows (in thousands): Year Ended December 31, 2021 2020 United States $ ( 80,926 ) $ ( 57,458 ) Foreign — — Loss before provision for income taxes $ ( 80,926 ) $ ( 57,458 ) At December 31, 2021, the Company has concluded that it is more likely than not that the Company may not realize the benefit of its deferred tax assets due to its history of losses. The Company has incurred operating losses since inception. Accordingly, the net deferred tax assets have been fully reserved. The provision for income taxes consists of the following (in thousands): Year Ended December 31, 2021 2020 Current U.S. federal $ — $ — U.S. state — — Non-U.S. — ( 218 ) Total current — ( 218 ) Deferred U.S. federal ( 5,170 ) ( 4,377 ) U.S. state ( 14,461 ) ( 469 ) Non-U.S. — — Total deferred ( 19,631 ) ( 4,846 ) Valuation allowance 19,631 4,846 Total $ — $ ( 218 ) 95 Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when uncertainty exists as to whether all or a portion of the net deferred tax assets will be realized. Components of the net deferred tax assets as of December 31, 2021 and 2020, are approximately as follows (in thousands): December 31, 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 542,800 $ 533,448 Research and development credits 78,804 79,455 Milestone Rights 1,440 1,547 Accrued expenses 2,591 1,436 Loss on purchase commitment 24,845 23,864 Non-qualified stock option expense 5,684 3,766 Capitalized patent costs 7,518 5,273 Other 2,568 2,093 Lease liability 588 559 Interest expense limitation 5,696 2,460 Depreciation 22,983 20,735 Deferred Product Revenue & Costs 404 1,569 Total net deferred tax assets 695,921 676,205 Valuation allowance ( 695,094 ) ( 675,463 ) Net deferred tax assets $ 827 $ 742 Deferred tax liabilities: Right of use asset $ ( 555 ) $ ( 510 ) Other prepaids ( 272 ) ( 232 ) Total deferred tax liabilities ( 827 ) ( 742 ) Net deferred tax assets $ — $ — The Company’s effective tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2021 and 2020: Year Ended December 31, 2021 2020 Federal tax benefit rate 21.0 % 21.0 % Permanent items - 4.4 % - 6.1 % Stock based compensation 0.3 % - 0.5 % Tax attribute expirations - 5.9 % - 6.6 % Foreign withholding tax 0.0 % 0.4 % Valuation allowance - 11.2 % - 7.8 % Other 0.2 % 0.0 % Effective income tax rate 0.0 % 0.4 % As of December 31, 2021 and 2020, management assessed the realizability of deferred tax assets. Management evaluated the need for an amount of any valuation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, Income Taxes, wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of our deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more likely than not (a probability level of more than 50 percent) that they will not be realized. In assessing the realization of the Company's deferred tax assets, the Company considers all available evidence, both positive and negative. In concluding on the evaluation, management placed significant emphasis on guidance in ASC 740, which states that “a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome.” Based upon available evidence, it was concluded on a more-likely-than-not basis that all deferred tax assets were not realizable as of December 31, 2021. Accordingly, a valuation allowance of $ 695.1 million has been recorded to offset this deferred tax asset. During the years ended December 31, 2021 and 2020, the change in valuation allowance was $ 19.6 million and $ 4.8 million, respectively. As of December 31, 2021, the Company had federal and state net operating loss carryforwards of approximately $ 2.2 billion and $ 1.3 billion available, respectively, to reduce future taxable income. $ 452.7 million of the federal losses do not expire and the remaining federal losses have started expiring, beginning in the current year through various future dates. 96 Pursuant to IRC Sections 382 and 383, annual use of the Company’s federal and California net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. As a result of the Company's initial public offering, an ownership change within the meaning of IRC Section 382 occurred in August 2004. As a result, federal net operating loss and credit carryforwards of approximately $ 216.0 million are subject to an annual use limitation of approximately $ 13.0 million. The annual limitation is cumulative and therefore, if not fully utilized in a year can be utilized in future years in addition to the Section 382 limitation for those years. We have completed a Section 382 analysis beginning from the date of our initial public offering through December 31, 2021, to determine whether additional limitations may be placed on the net operating loss carryforwards and other tax attributes, and no additional changes in ownership that met Section 382 study ownership change threshold has been identified through December 31, 2021]. There is a risk that changes in ownership may occur in tax years after December 31, 2021. If a change in ownership were to occur, our net operating loss carryforwards and other tax attributes could be further limited or restricted. If limited, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, related to the Company’s operations in the U.S. will not impact the Company’s effective tax rate. At December 31, 2021, the Company had $ 54.2 million of U.S. federal research and development credits which expire beginning in 2024 , and $ 24.6 million of state research and development credits. The California credits do not expire and $ 2.0 million of the available $ 2.2 million New Jersey credits expired at the end of 2021 . The Company also had two types of credits in Connecticut of which $ 19.8 million do not expire and $ 0.1 million of $ 1.2 million expired at the end of 2021. The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations. In the normal course of business the Company is subject to examination by taxing authorities throughout the country. These audits could include examining the timing and amount of deductions, the allocation of income among various tax jurisdictions and compliance with federal, state, and local tax laws. The Company's tax years since 2016 remain subject to examination by federal, state and foreign tax authorities. A reconciliation of beginning and ending amounts of unrecognized tax benefits in 2021 and 2020, respectively, was as follows (in thousands): Year Ended December 31, 2021 2020 Unrecognized Tax Benefit Beginning of Year $ 268,902 $ — Gross increases for tax positions of prior years — 268,902 Gross decreases for tax positions of current year — — Settlements — — Lapse of statute of limitations — — End of Year $ 268,902 $ 268,902 At December 31, 2021 and 2020, the Company has not recognized a liability for unrecognized tax benefits. If any were recognized, it would affect the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2021 and 2020, the Company did no t recognize any interest and/or penalties. 97